SEC And FINRA Are Not On Same Page Regarding Private Placement Offerings
The Securities and Exchange Commission (SEC) is relaxing rules governing the marketing and sale of private placement offerings after public investors have lost literally billions of dollars in these Reg D offerings, namely Medical Capital Holdings, Inc. and provident Royalties LLC. These private placement offerings are exempt from SEC registration and are not required to disclose as much information as companies who are registering for an initial public offering (IPO). In addition to having to disclose much less information than an IPO, the Reg D offerings are illiquid, difficult to price, high risk and speculative investments. Unfortunately, brokers who peddle private placements are compensated generously by receiving much higher commissions than by selling other investments, providing them with an extra incentive to push the products.
This comes at a time when FINRA has stepped up its efforts to crack down on private placements. Just recently, FINRA charged and fined firms and executives with fraud for marketing and selling private placements without conducting due diligence. On the other hand, Mary Schapiro with The SEC has said “companies seeking access to capital should not be overburdened by unnecessary or superfluous regulations” notwithstanding her secondary acknowledgement that the SEC’s other function is “to protect investors.” It is almost beyond comprehension that Ms. Schapiro as Chairman of the Securities and Exchange Commission (SEC) can suggest that it is a good idea to relax rules governing private placement offerings, which have resulted in such massive losses for the public investors.