Investing in Regulation D Securities
The Securities and Exchange Commission requires most securities offered for sale to be registered with the SEC. Under Regulation D, however, certain exemptions allow for the sale of unregistered securities. These securities are also known as “private placements.”
What is the Purpose of Regulation D Securities?
Regulation D offerings are intended to provide small companies with access to capital markets. Those small companies sometimes cannot afford the costs and expenses necessary to meet the requirements of securities that are registered with the SEC. Many hedge funds also are private placements. It can be much more difficult to obtain detailed information about the finances of companies that issue private placement securities, as the reporting requirements are much lower than the requirements for registered securities.
Who Can Be Sold Regulation D Securities?
Regulation D offerings generally are more risky than registered securities because they do not involve the same level of reporting requirements that exist with registered securities. As a result, Regulation D securities can only be sold to accredited investors. An accredited investor must have an income of $200,000 or more annually or have a net worth in excess of $1 million. Regulators have determined that investors who meet these financial thresholds generally are more financially sophisticated and better able to understand and appreciate the risks of private placement securities.
What is the Responsibility of Your Broker or Brokerage Firm?
As with all securities recommendations, your broker must disclose both the benefits and risks of a private placement investment. And they are not permitted to recommend these risky investments to investors with conservative investment objectives. Many brokerage firms have sold private placements that later turned out to be fraudulent or part of a Ponzi scheme.
Call a Los Angeles Stockbroker Attorney Today
If you invested in a Regulation D, private placement security and suffered an investment loss, you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles stockbroker attorney today for a consultation to discuss your rights and obligations.