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Are the Sales of Private Placements an Indication of Brokers Gone Bad?

Meyer Wilson

The rise in sales of private stakes in companies is raising concerns among regulators and investors about investment fraud. The sale of private placements to investors, especially senior investors are popular among unethical brokers who are looking to increase personal profits.

Do Sales of Private Placements Indicate Fraud?

According to the Wall Street Journal, high-risk brokers are selling billions of dollars of private placements every year. In reviewing over one million regulatory records, the Journal found more than 100 firms where 10 to 60 percent of in-house brokers had three or more complaints from investors, regulatory actions, and/or criminal charges on their records. These brokerages sold more than $60 billion in private placements to investors.

According to market studies, sales of private placements are on the rise. In 2017, more than 1,200 securities firms sold approximately $710 billion of private placements. The first five months of 2018 are expected to top last year's record-setting numbers. Private placements can be stakes in oil companies, construction projects, real estate, high-tech companies, bio-tech research, and many other privately-held enterprises. They offer investors higher returns than publicly traded stocks and bonds, but limited company information creates a greater risk for financial losses.

With the rising numbers of lucrative sales of private placements, regulators are worried about high-risk brokers and brokerage firms looking to increase their profits. High commissions create strong motivations to sell, often without considering an investor's best interests. The Financial Industry Regulatory Authority (FINRA), a watchdog agency has expressed concerns about private placements. They are investigating broker markups and sales perks, how private placements are sold to investors, and whether the companies involved are legitimate businesses. Sophisticated and wealthy investors like insurers and hedge funds are often drawn to private placements as alternatives to publicly-traded stocks and bonds.

The Wall Street Journal states that high-risk brokers tend to flock to brokerages selling private placements. Reports show that unethical brokers with questionable tactics can make huge commissions on the sale of private placements at the expense of their clients who often suffer significant losses. Investors who suffer losses due to broker fraud and misconduct can often recover their investment principal, the expected gains (if money had been invested appropriately), arbitration costs, attorney's fees, and punitive damages for egregious misconduct. According to the SEC, private placements are considered unregistered offerings, and investors should be aware of fraudsters using unregistered offerings to conduct investment scams.

If you lost money because of an investment scam, broker misconduct, fraud, etc., contact Meyer Wilson today. Our securities fraud attorneys have secured more than $350 million in verdicts and settlements since we first opened our doors, and we will fight to secure the compensation you deserve. Call us at (888) 390-6491 today to speak with a member of our firm, or send us your information through our online form to schedule a free case consultation.

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