Are private placement investments suitable for you?
According to an article in the Wall Street Journal, the upswing in private placement investment sales is sparking concerns about how they are sold and what the perks are for the brokers who are selling them.
The Wall Street Journal says in a recent in-depth analysis that brokerage firms with high numbers of disclosure events are reportedly selling billions of dollars in private placement investments, often targeting seniors.
According to the report, sales of private placements are skyrocketing, as part of a broader rise in private capital markets, fueling concerns among investor representatives about how the products are sold.
The Wall Street journal reports that the trend could mean that many investors could be exposed to securities fraud losses.
The Journal reportedly found that “over a hundred firms where 10% to 60% of the in-house brokers had three or more investor complaints, regulatory actions, criminal charges or other red flags on their records-significant outliers in the investment community.”
These firms reportedly helped sell to investors more than $60 billion of stakes in private companies, known as private placements.
More than 1,200 firms sold around $710 billion of private placements last year, and sales for the first five months of this year are on track to exceed those numbers, according to the Wall Street Journal.
The Trouble with Private Placements under Regulation D
Private placements are usually restricted to sophisticated investors, such as hedge funds and insurers, seeking alternatives to stocks and bonds and mutual funds.
These investments are not subject to some of the laws and regulations that are designed to protect investors, such as the comprehensive disclosure requirements that apply to registered offerings. Private and public companies engage in private placements to raise funds from investors.
These investments can be very risky and they are typically illiquid. Meaning when the investor is ready to sell, there may not be a buyer. If they do find a buyer, the sale may be at a disappointing loss.
Additionally, brokers can earn high fees and commissions for selling private placement investments which can give them strong motivations to sell them, sometimes without consideration for their client’s best interest.
Investigating Potential Claims
The White Law Group is investigating the liability that FINRA registered brokerage firms may have for unsuitably recommending high-risk private placements to investors.
Despite the risks of investing in private placements, brokerage firms continue to push this type of investment because of the high commissions associated with their sale and creation.
If you have concerns regarding your private placement investment and would like to speak with a securities attorney about your options, please call The White Law Group at 888-637-5510.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.
For more information on The White Law Group and its representation of investors in FINRA arbitration claims, visithttps://www.whitesecuritieslaw.com.