Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Firms Selling Private Placements Face Increased Scrutiny

Posted by William Byrnes on March 25, 2011


Firms Selling Private Placements Face Increased Scrutiny

If you’re selling Reg D private placements or non-traded REITs, the proverbial Huns are on the hill. These illiquid, private investments are the top two items on FINRA’s (“Financial Regulatory Authority Inc.”) list of enforcement priorities.  FINRA is particularly interested in whether firms selling the investments are complying with “suitability, supervision and advertising rules,” and is also looking at cases of fraud and the unregistered sale of the securities.

Medical Capital Holdings Inc. and Provident Royalties, LLC.—both of which offerings brought in hundreds of millions of dollars through private placements sold by broker-dealers—were given as examples of private placements done wrong. Both were charged with fraud in 2009. At least 12 broker-dealers who sold Provident Royalties to their customers are now defunct as a result of the millions of dollars in arbitration claims and lawsuits related to the offering.  Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of FINRA regulatory action in Advisor’s Journal, see Broker Bonus Arbitration Bottleneck Forces FINRA to Reconsider Arbitrator Qualification Standards (CC 11-08)SEC Approves FINRA Suitability and Know-Your-Customer Rules (CC 11-17), and New FINRA Rule Restricts Brokers’ Outside Business Activities (CC 10-110).

For in-depth analysis of the taxation of REITs, see Advisor’s Main Library: D—REITs and Limited Partnerships.

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