Silver Law Group recently filed FINRA arbitration claims against a broker-dealer for the recommendation and sale of an unsuitable Regulation D (“Reg. D”) private placement. The broker-dealer marketed the investment as having huge upside because the company’s initial public offering (“IPO”) was coming up. However, despite repeated promises to customers, the IPO never came and customers’ investments are now worthless.
The suit alleges that much of the company’s marketing materials was designed to mislead investors into believing the company was profitable and poised for a lucrative IPO. The broker-dealer failed to conduct adequate due diligence on the company and passed this false or misleading information along to its customers. The broker-dealer turned a blind eye to the risks its customers faced because it received a high commission for the capital raised.
Reg. D Private Placements Unsuitable For Most Investors
Reg. D private placements are unsuitable for most investors due to their highly complex and risky nature. Reg. D is a Securities and Exchange Commission (“SEC”) regulation which exempts companies from registering with the SEC, the offering company need only file an abbreviated disclosure called a Form D.
Prior to recommending a Reg. D private placement, broker-dealers are obligated to conduct due diligence to ensure that the investment is suitable for the customer. This includes an investigation into the company’s business prospects, executive team, financial statements, and any other red flags that may arise.
In the claim filed by Silver Law Group, we allege that the broker-dealer failed to investigate obvious red flags concerning the company’s viability prior to recommending the investment. Further, we allege that the broker-dealer promised a non-existent IPO in an effort to raise more capital and collect more commissions. At the end of the day, this investment never should have been recommended to the customer, let alone any investor.
If you or someone you know lost money investing in a Reg. D private placement, please contact the Silver Law Group toll free at (800)-975-4799 or e-mail firstname.lastname@example.org for a confidential consultation.