Private Placement Fraud Lawyers in California
Private placements, which are also known as private offerings or private equity opportunities, are investments that are not sold through a traditional public offering. Instead, the securities are sold to a small group of private investors specifically chosen by a business. These non-public offerings occur all the time and are often without issue.
But private placements can be inordinately risky and there is little regulatory oversight, making them an attractive way for dishonest financial advisors to enrich themselves at the expense of investors. Girard Bengali, APC, has significant experience representing clients who have been defrauded as part of a private placement. Our lawyers know how to unearth misconduct on the part of a broker or investment firm, spot the signs of an improperly managed private placement, and fight to recover full and fair compensation for investors who have suffered losses.
What Makes Private Placements So Risky?
Investors asked to participate in a private placement can face more risks than investors in public offerings. Some of the reasons these risks exist are:
- Financial advisors generally need only provide a Private Placement Memorandum (PPM), which contains much less information than the full prospectus typically required in public offerings.
- Investors’ money can be tied up for a long time.
- The private stock can be hard to sell because it cannot be publicly traded, making the investment highly illiquid.
- Substantial losses can be hard to recoup if the company fails.
- Conflicts of interest are common as those sponsoring the offering are often doing business with affiliated entities.
In addition to all of these risks, the fact that private placements do not have to register with the Securities and Exchange Commission (SEC) means they are free to operate outside of the SEC’s regulatory structure. Because of this, firms and brokers may attempt to get away with things they normally wouldn’t attempt, such as omitting material facts about the investment, providing inaccurate information to investors, or failing to determine whether the investment is truly suitable for a client.
What Duties Do Advisors and Advisory Firms Owe to Private Placement Investors?
Fraud and other forms of financial misconduct perpetrated on private placement investors can be remedied in arbitration or litigation , but generally, it must first be shown that the advisor/firm breached a duty owed to the investor. Brokers, advisors, and firms can be held legally responsible for a variety of acts that may amount to fraud, including:
- Misrepresentation or omission: Advisors/brokers must accurately convey the facts and risks related to the private placement. Failure to do so can lead to liability.
- Lack of due diligence: Although private placements are not registered with the SEC, broker-dealers must still exercise due diligence in researching the offering before recommending it to a client.
- Failure to disclose: Investors in private placements are entitled to know all relevant information about the offering prior to investing any money. Brokers/advisors who fail to disclose this information may be legally liable for losses incurred by the investor.
- Failure to supervise: If a brokerage failed to properly educate its brokers, monitor their activities, or adequately prepare for a private offering, there may be a viable claim that the brokerage firm failed to supervise its employees.
- Failure to provide a PPM: Any investor involved in a private placement should request and review a Private Placement Memorandum, as this is often the only in-depth information available about the private offering; and the failure to provide a PPM before signing an investor up may be a sign that the investment is not legitimate.
Investors Should Be Diligent About Protecting Themselves
The best way to avoid being defrauded is to educate yourself. If you are approached to invest in a private offering, first find out as much as you can about the company and its industry. Then, talk to your securities professional and find out what he/she really knows about the issuing company. Ask how the private placement aligns with your current investment strategy and why going in this direction makes sense for you. And, of course, be extremely suspicious of any offering that comes from unknown people, cold calls, or emails, as these are common fraud tools.
Contact Us if You Believe You May Have Fallen Victim to Private Placement Fraud
The attorneys and legal staff at Girard Bengali, APC, have the skill and experience to investigate even the most sophisticated and complex private placement offerings to uncover fraud and misconduct. To speak with our securities lawyers, please call 866-778-6821 or contact us online.