California Private Placement Investment Attorneys
Private placements are securities offerings exempt from SEC registration under Regulation D. Issuers rely on Rule 506(b) or 506(c) to raise capital without the disclosure and reporting requirements that apply to public offerings, and sales are generally restricted to accredited investors: individuals with a net worth of at least $1 million (excluding a primary residence) or income of at least $200,000 for the prior two years ($300,000 joint).
The accreditation rule exists because private placements carry risks that registered securities do not. Issuers provide limited financial disclosure. There is no secondary market if an investor needs to exit. Fraud is harder to detect without the reporting obligations that apply to public companies. Brokers earn commissions on private placements that can reach 7 to 10 percent of the investment, compared with 1 to 2 percent on publicly traded alternatives. That math drives recommendations that are not always in the investor’s interest.
How Private Placement Claims Arise
Most cases involve one of several patterns: sales to investors who did not meet the accreditation thresholds, overconcentration of a qualified investor’s portfolio in illiquid private placements, inadequate due diligence by the broker or the firm before recommending the offering, and misrepresentations or omissions about the issuer’s financial condition, the use of proceeds, or the risks of the offering. We pursue these claims in FINRA arbitration against the broker and the firm, and in court against the issuer where there is evidence of fraud.
FAQs
What makes private placements riskier than public securities?
Private placements are not registered with the SEC, which means issuers are not subject to the disclosure and reporting rules that apply to public companies. Investors receive less information and have limited options if they need to exit. Those two features together create materially more risk than a comparable public investment.
What if I am an accredited investor and still lost money on a private placement?
Accreditation does not insulate a broker from liability. Accredited investors are still entitled to suitable recommendations and honest disclosure of the risks of any investment. If the broker skipped due diligence, misrepresented material facts about the issuer, or concentrated your portfolio in private placements beyond what fit your objectives, you may have a claim regardless of your accredited status.
What recovery is available in a private placement claim?
The measure of damages is typically the difference between what your investment is worth today and what a suitable alternative would have returned. In FINRA arbitration, compensatory damages and, in appropriate cases, attorneys’ fees and interest are available. Where the firm failed to supervise the broker, we pursue the firm alongside the individual representative.
Talk to a California Private Placement Investment Lawyer
If your broker recommended a private placement that was unsuitable for your financial situation or failed to disclose its risks, contact Rosenberger + Kawabata. Call (310) 894-6921 or submit an inquiry through our contact form.