Private Placement Securities

Private Placement Securities

Private Placement Securities

Private placement securities are non-public offerings sold to a selected number of chosen investors. In most cases, these selected investors include institutional / accredited investors and friends and family. Private placement securities are an alternative to an initial public offering (IPO) as a way for a company to raise capital for expansion. We are seeing more private placement securities now more than ever because of startup culture as they allow a company to obtain money to grow without an IPO.

A private placement can be both risky and advantageous because there are few regulatory requirements. Issuers are not obligated to register private placement securities with the Securities and Exchange Commission. As a result, investors are not informed of any possible dangers associated with the corporation, broker, or intermediary records and could make an ill informed decision.

The regulatory structure in place does not cater to the ongoing complexity of private placement securities. The laws in place allow companies to bypass scrutiny of regulatory agencies if securities are sold to accredited investors who have a net worth over 1 million OR who earn $200,000 a year.

-Be aware of the risks: Brokers might try to play down the risks involved. Potential investors should be inquisitive about the deal.

-Too good to be true? If the deal looks too good to be true, make sure you take proper legal caution.

-The structure in place does not necessarily protect investors. In this case, investors should be their own protector. Do not rely on the law to provide sufficient regulatory scrutiny. The potential for abuse or fraud in this scenario is high.

-Make sure you contact your securities state regulator and be your own investigator. Find out information about the broker and company who are selling the security. You are entitled to know their history and credentials.


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