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Private Placement Attorneys

Securities Lawyer Jonathan Kurta
By: Jonathan Kurta Author

Private placement attorneys could refer to two types of lawyers:

  • Private placement lawyers who prepare the offering memorandum for a private placement investment; or
  • Private placement investors’ attorneys, who represent investors who lost money in private placements following broker fraud or misconduct.

Why Would I Need a Private Placement Investors’ Lawyer?

Although private placements do not have to register with the SEC, anti-fraud provisions and state securities laws still apply to these offerings. Offerors may not deceive or manipulate investors during the sale of these securities. But because private placements often pay significant commissions to the brokers who sell them, brokers may be tempted to recommend them to investors who do not have sufficiently high risk tolerances, in violation of Regulation Best Interest.

Regulation Best Interest requires that brokers use reasonable care and skill when they make a recommendation. Care and skill should preclude recommending private placements to investors who cannot afford potential losses.

Private Placement: Finance for Small Companies

Private placements offer an opportunity for small companies to raise capital without needing to meet the requirements for an Initial Public Offering (IPO). They may be offered by public or private companies, start-ups, real estate companies, or hedge funds.

Private placements offer alternatives to initial public offerings. When a company registers an IPO with the SEC, it provides a prospectus that provides information regarding the company’s financial condition and management. This information gives the investor, or the broker who recommends the investment purchase, the opportunity to assess whether the investment makes sense for an investment portfolio.

The SEC reviews the disclosure statements to determine if it meets the disclosure requirements. The SEC only reviews the disclosure statements for accuracy and clarity and does not assess the pros and cons of the investment. Investors and brokers working on their behalf must do that for themselves.

Companies that offer private placements are often newer companies, such as start-ups, and there is no guarantee the company will be successful. The SEC recommends that investors who purchase shares of a private placement be prepared to lose their entire investments.

Private Placements and Accredited Investors

Private placements allow companies to raise capital from institutional investors – such as pension funds. They may also offer private placements to high-net-worth individuals, also known as accredited investors. Accredited investors usually have at least $1 million in net worth, a $200,000 per year income, or $300,000 per year in combination with a spouse. Individuals may also be accredited based on professional criteria, such as investment professionals who have passed FINRA licensing exams.

The Private Placement Process: Safe Harbors Under Regulation D

Private placements do not have to register with the SEC under Regulation D. Instead of a prospectus, private placements provide potential investors with offering memorandums.

Private placement offerors usually select one of these two types of Reg D filings:

  • Rule 504 of Regulation D: Under federal securities laws, certain companies do not have to register their securities when they sell up to $10,000,000-worth of securities in a 12-month period. Companies only must submit a Form D notice with the SEC that briefly describes the offering. These types of securities can be told to any type of investor.
  • Rule 506(b) of Regulation D: This rule allows companies to raise an unlimited amount from an unlimited number of accredited investors. Issuers of these types of securities are not allowed to solicit or advertise their securities. Rule 506 securities can be sold to no more than 35 non-accredited investors.

While most disclosure requirements do not apply under Regulation D, it does require certain disclosures. For instance, under the “Bad Actor” disclosure of Regulation D, issuers must disclose criminal convictions and violations of securities laws.

FINRA Rule 5123

If a broker-dealer intends to sell private placements, the firm must submit the private placement memorandum along with any advertising documents to the Financial Industry Regulatory Authority (FINRA) within 15 days of the date of the first sale. FINRA is the regulator that regulates brokerage firms and the sale of securities.

What Do Private Placement Memorandum Attorneys Do?

Private placement memoranda must meet requirements set forth by the SEC. PPMs include information about business operations, marketing plans, and information about the investment’s risk factors. PPM lawyers help prepare these memoranda to ensure they include all of the information required by the SEC.

Private Placement Risks and Fraud

The SEC has stated in an investor alert that investors should be wary of private placement fraud. Due to the limited disclosures issuers of these types of securities are required to provide, these offerors can conceal information that might otherwise serve as a red flag to a broker-dealer. Private placements are alternative investments, meaning they offer an alternative to ordinary stocks and bonds. These types of investments always come with higher risks. Because of their high risk, brokerage firms should scrutinize recommendations of private placements especially closely.

Private placement securities are also referred to as “restricted securities,” meaning they cannot be sold on the public exchange. This makes them highly illiquid investments, meaning they can be difficult to sell if the buyer decides they no longer want them. Their illiquid nature makes them unsuitable for most retail investors who may need to access their funds at short notice.

Brokers who recommend private placements, perhaps with the supposed advantage of diversifying a portfolio, may be in violation of securities rules and regulations. Under Regulation Best Interest, broker-dealers must have a reasonable basis for their recommendation of a private placement.

Alleged Failures to Perform Due Diligence Regarding Private Placements

FINRA attempts to curtail private placement fraud with censures and fines for brokerage firms and brokers who circumvent rules regarding recommendations of private placements. If you believe your brokerage firm or broker failed to inform you of the risks associated with risky, illiquid private placements, private placement attorneys may be able to help.

Brokerage Firms and Due Diligence

Investors cannot always trust their brokerage firms to conduct the required due diligence into private placements.

In November of 2023, Haywood Securities entered into an Acceptance, Waiver, and Consent agreement in which the brokerage firm consented to a $175,000 fine and a censure following FINRA allegations that the firm failed to conduct reasonable due diligence of 53 Canadian private placement offerings, which allegedly resulted in $11 million in sales. According to the AWC, the firm “did not conduct any independent investigation” into issues such as possible pending litigation. The firm also allegedly did not review the issuer’s key contracts, explore the issuer’s business plan, or conduct a site visit.

Investors and Allegedly Misleading, Unwarranted Statements

Brokers may face FINRA fines following allegations that they failed to warn potential investors of the risks associated with private placements.

FINRA may fine brokers who fail to inform their customers of the potential risks associated with private placements. In September of 2023, FINRA fined a broker $10,000 following allegations that he sent emails containing “promissory, unwarranted, and misleading statements or claims.” For instance, the broker allegedly told clients, “…this is a very solid deal with limited downside,” which FINRA alleges was misleading because the private placement he was advertising was a speculative investment. Private placements are considered “speculative” because the notion that they will generate a return for their investors is purely speculative.

Private Placement Investors’ Lawyer Recommendations

If you have suffered private placement losses and are not aware of the risks associated with your private placement, contact a private placement fraud lawyer to determine if you have a case against your broker. Brokerage firms are supposed to conduct “reasonable due diligence” of the companies that offer private placements, as well as the offerings themselves. Our private placement attorneys offer free consultations and do not collect a fee unless we win your case. Call (877) 600-0098 or email

Securities Lawyer Jonathan Kurta
Written by: Jonathan Kurta

Jonathan Kurta is an accomplished securities attorney and a founding partner at Kurta Law.