Corporate & Securities Law

A ?private placement? is an offering of securities that is not sold through an initial public offering, but rather one that is sold privately through pre-existing relationships.  Although these securities are subject to the Securities Act of 1933, they do not have to be registered with the SEC and therefore do not pass the same level of scrutiny as a public offering of securities.  Instead, companies rely on a set of rules known as Regulation D, which provide companies raising capital with an exemption from registration with the SEC.  Companies offering a private placement of securities may also be required to comply with state securities laws (known as ?blue sky? laws) as well, depending on the Regulation D exemption they are relying on. 

Although private placements serve a valuable role in the capital formation process, they are by their nature very risky investments in that there is virtually no oversight from a regulatory agency.  Moreover, advisers often have to rely on the representations of the issuer in that private placements and the due diligence conducted by their firm.

Private placements tend to offer very high commissions for advisers, ranging anywhere from 5%-15% of the entire investment.  However, these high commissions can create a conflict with the broker?s duty to recommend suitable investments for the customer.

Advisers therefore should take great care to fully understand the investment and the rules regarding selling private placements before recommending the purchase of a security offered through a private placement offering. 

If you are an adviser who believes that your firm has failed to follow the applicable guidelines and rules governing the sales of private placement securities, and wish to discuss options available to you or defense in a customer complaint, contact Jim Eccleston at the Eccleston Law Offices at 312-332-0000 to discuss your matter.