Private placements are alternative investments that are not available to the public and do not need to be registered with the SEC. These alternative investments are generally sold to accredited investors as a low-risk way to raise capital by brokers and financial advisors.
However, one of the biggest issues with private placements is that brokers and financial advisors often recommend risky private placements to investors that do not know how alternative investments work or the risks involved. While the broker or financial advisor may make money on fraudulent private placements, the truth of the matter is that it is investors who wind up suffering, exposed to financial loss and fraud due to a bad investment.
Risks Associated with Private Placement Investments
Private placements do not have to be registered with the SEC, which means that these investments are not subject to SEC regulations, making them susceptible to investment scams or shady brokers recommending these alternative investments to unsuitable investors, resulting in a high commission for the broker, but financial loss for the investor.
Some of the most common problems associated with private placements include:
- A high potential for fraud due to being unregistered
- They are incredibly illiquid and cannot be quickly and easily sold due to being “restricted securities”
- Due to their complex nature and lack of regulation, these high-risk investments are often sold to unsuitable, unknowledgeable investors as being “low risk”
Private Placement Fraud & Sales Abuse
Though private placements are unregulated and not under as much scrutiny as public, SEC secured investments, brokers and brokerage firms are required under federal securities laws to thoroughly investigate any securities they recommend to investors, including private placements. If a broker attempts to recommend a private placement investment to an investor but fails to inform the investor of the risk associated with it, or omits crucial information about the investment, this is considered not just a federal violation, but a violation of the FINRA’s rules.
How to Avoid Private Placement Fraud
Private placements are incredibly complex investment tools and should only be purchased by a trusted, reputable brokerage firm. Do your research about the company that you are interested in investing with before making an investment. Your broker should be able to discuss with you the risks associated with potential investments, as well as how the private placement can benefit your investment portfolio. Therefore, if a broker sends you an unsolicited email or calls, offering you a private placement that is “low-risk and ‘sure to make you money'” hang up immediately. Brokers committing fraud generally look for unknowledgeable investors looking to make money and omit the high-risks associated with private placements to make a quick commission, regardless of whether it leads to financial losses for the investor.
If You’ve Suffered Losses Due to an Unsuitable Private Placement Investment – Contact Oakes & Fosher
Oakes & Fosher dedicates its entire legal practice to helping investors across the nation. If you believe that you were the victim of private placement fraud, our dedicated securities fraud attorneys can help you determine if you have a valid case and fight to recover the money you lost due to an unsuitable private placement investment. Please contact Oakes & Fosher today for a free and private consultation. We work on a contingency basis, which means that we won’t charge you any fees unless we collect for you.