National Securities Faces FINRA Penalty Of $663K For Private Placements
Boca Raton, FL-based National Securities Corporation has received a fine of $663,000 after FINRA found that it deceived investors from December 2017 through January 2018. At issue is the price of shares offered in a private placement. National Securities will pay $300,000 in fines and the rest in disgorgement, plus interest.
National Securities identified companies that were likely to become publicly traded in the future through its affiliated investment adviser, National Asset Management. By identifying companies that were the subject of discussion in the financial press and finding shareholders willing to sell their interests, they were able to make private placement offerings of these companies before their anticipated initial public offering (IPO). Once approved by National Securities, the firm’s representatives would begin marketing and selling these interests to their customers.
But in this case, National Securities claimed to have two sources for these shares, but only had one. The shares at the disclosed price were only available during the first offering. The firm continued to market and sell these shares for the second offering even though they had no shares at that price.
According to the complaint, the firm claimed that the interest would be in this private company and the shares would cost no more than $9.75 each. Unfortunately, the firm was unable to locate any shares for that price. Later, the firm purchased these shares at a price that was double what they listed in the offering, which “contravened Section 17(a)(3) of the Securities Act of 1933,” and violated FINRA rule 2010.
Are Private Placements A Safe Investment?
A private placement is just that—an investment that isn’t offered through the public stock market (i.e., NYSE.) They are also highly speculative and come with great risk. In other words, it’s possible to get a great return, but it’s equally possible to lose everything you’ve invested.
Investing in a private placement is simply the sale of company stock shares or bonds for the purpose of raising capital without an IPO or other publicly traded regulations. Shares may go for less than $1 each, sometimes just pennies. Smaller companies and startups are common in private placements.
But investing in private placements is playing the long game. Even if you buy 100 shares for $1, that money is tied up for a long time—sometimes for decades. If the company never goes public, goes under, or simply doesn’t go anywhere, the investment return won’t happen, either.
Private placements are best left to seasoned accredited investors who understand the market, have experience with riskier investments, and can afford to lose their entire private placement investment.
Pre-IPO funds have become very popular over the last few years as many companies trade at a premium to their earlier value. However, investors have sued some Pre-IPO funds for misconduct involving misrepresentations made regarding the price paid for the shares, the source of the shares and other factors that impacted the true value of the funds.
Did You Invest With National Securities?
Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.