Private placements have been a significant source of capital in recent years, but with these offerings have also come more investigations and enforcements. For example, last month the Securities Lawyer Blog posted on the Financial Industry Regulatory Authority's (FINRA) expulsion of Dallas broker-dealer Provident Asset Management for marketing allegedly fraudulent private placements.
FINRA has taken steps to help broker-dealers understand their obligations with regard to these offerings and has recently provided some guidance on avoiding problems with them.
According to FINRA's Regulatory Notice 10-22 and related news release, there is a "significant lack of regulatory compliance" which is evidenced by investigations and enforcements. Regulatory Notice 10-22 is intended to help firms comply with requirements and ensure proper investigation before recommending and selling private placements.
The Regulation D offerings are significant. Recently, the Securities and Exchange Commission estimated that these offerings were about $609 billion in 2008. FINRA says that's a large source of capital for small businesses in particular.
Specifically, Notice 10-22 seeks to ensure that when offering and recommending private placements under Regulation D of the Securities Act of 1933, broker-dealers perform a reasonable investigation of issuers and securities offered. It also emphasizes supervisory requirements for these offerings as well as suitability and risk for the investor and accuracy in sales materials for investors to make investment decisions.
As noted by FINRA's Chairman and CEO Rick Ketchum, " '[a]n increase in investor complaints regarding private placements, as well as SEC actions halting sales of certain private placement offerings, led FINRA to launch a nationwide initiative that involves active examinations and investigations of broker-dealers engaged in retail sales of private placement interests. That initiative has uncovered misconduct, including fraud and sales practice abuses ... FINRA is taking this opportunity to remind firms of their substantial duties when engaging in the sale of private placement offerings.' "
Related Web Resources
The SEC has a website devoted to educating investors on how to avoid fraudulent investments and such things as Ponzi schemes which can be found at investor.gov.
If you would like more information on compliance with Regulation D Private Placement offerings, please contact the lawyers at New York's Gusrae Kaplan Nusbaum PLLC.
