Private Placement Due Diligence Under the Spotlight

Posted on May 27th, 2014 at 8:30 AM

From the Desk of Jim Eccleston at Eccleston Law Offices:

Based on the light oversight, exemption from the extensive financial reporting requirements, and high minimum investments, private placements are considered a high risk investment. As a result, broker-dealers need to conduct a reasonable investigation before selling them to clients. However, broker-dealers frequently rely on due diligence from outside third parties, whose independence is a concern.  According to sources, while private placement issuers pay up front their due diligence, they also have a chance to see the reports before they are published. In at least one case, a well-known third party provider changed the investment recommendation in a report so that it was a more favorable one. Later, that company collapsed in a case of fraud.

In addition, clients may not ever see the due diligence reports. Due diligence firms claim their reports aren’t designed to be read or understood by investors; rather, they are meant to help brokers decide whether to recommend a private placement. The reports usually are lengthy, with potentially alarming findings obscured in multiple pages of recondite language. 

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston


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Thank You from the bottom of our hearts for all you have done for us. When we realized this was a very bad investment - we did not know where to turn for help. Then we received your name. When we called you - you were so kind to us and then agreed to help us. For this we are so very grateful. The world would be a much nicer place if there were more people like the two of you in it. We will always remember all the help and kindness you have shown us. Thank you so very very much for everything.

Wayne and Judy S.


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