Regulation D offerings are private placements of securities in companies that are not listed on the public exchanges. The Securities and Exchange Commission (SEC) allows these transactions when specific criteria are met.
Not all private placements are fraudulent, but it can be difficult to discern a legitimate investment from a scam. If you believe you have been the victim of securities fraud during a Regulation D offering, contact Silver Law Group immediately. Our IPO fraud attorneys represent investors nationwide and we have an enviable track record of success in recovering lost investments.
Regulation D offerings are also called private placements. They are opportunities to purchase unregistered securities, usually bought through a broker who offers it to selected clients and associates. A private placement allows small companies to raise money quickly and less expensively than they could through a public offering.
Companies making a Regulation D offering do not need to go through the time consuming and expensive process of registering their securities. Instead, the Code of Federal Rules § 230.503 requires the company to file Form D, which provides little financial disclosure, after selling securities to the first investor in the private placement.
Companies selling securities under Regulation D generally may sell only to accredited investors, although some companies can sell to a small number of unaccredited investors. Companies that sell to non-accredited sophisticated investors must meet more stringent disclosure requirements. Even in that case, however, the information the company must provide is relatively sparse, making it difficult for any investor to make an independent, accurate determination of the risk and potential benefits of the investment.
Regulation D offerings are inherently risky because the companies are usually new and may not have the reserves to weather a downturn. In addition, these investments are typically illiquid and investors cannot expect a return for a considerable time – but that does not mean they should expect fraud or the financial consequences that come with it.
Brokers offering private placements have a responsibility for conducting a due diligence investigation into the offering. They must exercise an unusually high degree of care in verifying the offeror’s representations. Brokers also have a responsibility to ensure the opportunity to invest is suitable for the specific investors they approach.
Fraudsters and unethical brokers might take advantage of the lax regulatory requirements to defraud investors. Offerors typically pay high commissions to brokers for private placement sales, which could lead the broker to promote the offering, even if their investigation raises red flags. There have been cases where exclusive brokers of private placements had personal interests in the companies offering the unregistered securities. Anyone who believes a broker failed to handle a Regulation D private placement in an ethical and responsible way should contact a securities fraud attorney at Silver Law Group.
Investors often lose money in private placements because brokers withheld the negative results of their due diligence investigation from prospective investors, did not perform adequate due diligence, or offered the securities to an unsuitable investor. In most cases, the remedy is to file a complaint with the Financial Industry Regulatory Authority (FINRA) and pursue a claim through arbitration. However, sometimes the seller of the securities is an unregistered broker or finder. Both the SEC and FINRA have the authority to investigate and sanction unregistered brokers. A defrauded investor could bring a civil lawsuit seeking compensation for their losses.
Because private placements are high risk investments, proving that a loss was due to fraud requires considerable knowledge and skill. An experienced attorney at Silver Law Group can review the circumstances surrounding a specific Regulation D offering and determine the most effective strategy for recouping an investor’s losses.
Regulation D offerings require little disclosure. Investors have little ability to do an independent investigation and must rely on the due diligence of their broker and statements of the offeror. Silver Law Group represents victims of securities fraud during Regulation D offerings. We work on a contingency fee basis, so there is no risk in calling us to set up a consultation.
