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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Jim, Stephany and the whole team were a God send.  We felt like we were put into a situation where we had no advocate. Jim’s team came in with a strong, well laid out strategy on how to get our story heard. Where our outside compliance company had no ability to help, our Broker Dealer was impenitent, and the regulators were aggressive pursuing vague rules, Jim came like a barricade against an assault we did not understand. Though you pay member dues to be affiliated with FINRA and a B/D, you have no voice. The only thing that is truly heard in this un-level playing field is a bulldog’s bark like Jim’s. I would encourage anyone to call Jim and his team to find a real ally in the tough and complicated world of securities regulation. They are truly the best.

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