Articles Tagged with Private Placements

If you want to find trouble on Wall Street, follow the money.  A “troubled broker” is a broker more concerned for his or her commissions than the quality of the investments he or she recommends.  Finding investors for private placements can be very lucrative for a broker, but very risky for a client.  As complaints about a broker mount on his CRD, so does the lifespan of a broker and as their career prospects dwindle, they become more desperate. While not all private placements are bad investments, they must be approached with extreme caution and are not appropriate for all investors.  If you get presented with a private placement, the very prospectus states: you should consult an attorney before signing.  It’s a mandatory disclosure that regulators believe you should get and you should not ignore it.  You should always consult a good New York securities lawyer before you give large amounts of your money to a non-public company in its infancy.  Understanding the investment, the company and doing due diligence is the only way to protect your interests.   If you don’t want to spend time or money to do that, don’t invest.  The “next big thing” your broker might be selling you on may be your “next big problem.”  There’s no free lunch.

These concerns about the multi-billion-dollar private capital markets are sound, based on a Wall Street Journal report finding that firms selling private placements have a much higher proportion of “troubled brokers”. The study compared the percentages of brokers with customer complaints, regulatory investigations and other disclosures at firms selling private placements with industry norms.  Among the worried securities industry members include former FINRA enforcement chief, Robert Bennet who allegedly proclaimed private placements as a “perennial concern for regulators.”. Private placement is the offer and sale of unregistered securities to a limited number of investors for a company’s capital generation. Our securities fraud attorneys always knew that a higher prominence of “troubled brokers” is at firms selling private placements, now our belief has been confirmed.

According to the WSJ study, of the firms selling private placements, half had at least one troubled broker out of every ten brokers.  Conversely, of the included firms that didn’t sell private placements, over 75% had less than that amount. Additionally, the analysis shows that half of the firms expelled by FINRA since 1993 sold private placements, despite comprising a lesser amount of the total industry. The private capital market has continued to rise with a reported $750 billion in sales. Given this, any insights about private placements should be known by investors, securities fraud attorneys, brokers and other affected financial industry members.

Brokers beware; FINRA is watching your firm, and you.  Becoming embroiled in a regulatory inquiry or investigation can become a major and costly headache and impediment to registered representatives’ business.

In January 2016, the Financial Industry Regulatory Authority (FINRA) released its annual list of priorities, showing what sorts of sweeps they may perform, and investigations they may bring, in the coming year.  brokers working in the securities industry should be aware of the priorities that are relevant to them, including those having to do with sales practice.

FINRA’s 2016 Priorities make clear that they intend a top-down review of the following areas, which may lead to firm-wide or broker specific investigations, including: