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SEC Warns Investors about Unregistered Securities

Meyer Wilson

By Chad M. Kohler, Esq.

Many people contact our law firm with questions about unregistered securities that they were sold. All too often, these "investments" are nothing more than a scam and the investor is left holding the bag. The SEC's Office of Investor Education and Advocacy recently issued an Investor Alert to help investors identify potentially fraudulent unregistered offerings.

Generally, before securities like stocks and bonds can be sold to the public, the issuer must register the securities with the SEC. Any security that does not have an effective registration statement on file with the SEC is considered "unregistered" and cannot be sold. There are, however, various exemptions to these registration requirements, and companies often rely on these exemptions as a legitimate way to raise funds from investors. Nevertheless, scammers also use purported unregistered offerings as a way to defraud unsuspecting investors.

Investors who are considering investing in an unregistered offering should be on the lookout for these common signs of fraud.

Claims of High Returns with No Risk

Every investment carries risk. If someone is trying to sell you an investment that is without risk, than they're not being truthful and there's a good chance it's a scam.

Unlicensed Salesperson

You cannot sell securities without a license, and many fraudsters do not have the appropriate license they need to sell securities under the law . You can check whether the person trying to sell you an investment is licensed by going to and searching the person's licensing history.

No Net Worth or Income Requirements

Under federal law, many unregistered offerings may be sold only to "accredited investors," defined as persons with annual incomes above $200,000 for the previous two years or an overall net worth over $1 million. Be highly suspicious of anyone who is trying to sell you an unregistered offering without asking about your net worth or income.

Sloppy Sales Documents

Legitimate unregistered offerings are usually drafted by experienced securities attorneys and describe the offering in detail in what's called a private placement memorandum, or PPM, which may contain hundreds of information about the investment and the risks involved. A PPM that has only a few pages and contains typographical, spelling, or other errors is a red flag that the investment is a scam.

Unsolicited Investment Offers

If an investment is presented to you by a cold call or random email or fax from someone who you don't know, then you should be very suspicious about what they're trying to sell you. Likewise, even if the investment is being pitched by a friend, co-worker, or even a family member, you should always consider the motivation of the person offering the investment to you and approach the investment with caution.