Thursday, April 7, 2011

FINRA Press Release: Private Placements

FINRA Sanctions Two Firms and Seven Individuals for Selling Private Placements Without Conducting a Reasonable Investigation

The Financial Industry Regulatory Authority (FINRA) issued a press release today announcing that 
it has sanctioned two firms and seven individuals for selling interests in private placements without conducting a reasonable investigation. The companies whose securities were sold in these private placements were unrelated to the firms and individuals FINRA sanctioned. The companies ultimately failed, resulting in significant investor losses.
A private placement is an offering of securities, such as common and preferred stock of a company, to private investors. It is exempt from registration with the Securities and Exchange Commission though it must follow the rules of Regulation D. FINRA has published a Regulatory Notice 10-22 on the obligations of broker-dealers conducting private placement offerings.

Investing in securities in private placements requires as much caution as investing in publicly offered securities. Because detailed financial information and the prospectus might not be available, investors must look and read the private placement memorandum, understand the risk section, and review all other supplemental documents.

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