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At the end of the day, this is a personal decision that must be made by an investor. Importantly, there are a number of important factors that should be considered before you make a final decision. This post is designed to generally point out a few of these items for your attention and consideration. Please keep in mind that this post is being provided for informational purposes only and is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice. If you have any questions, you should contact qualified professional assistance.What is a Private Placement?
A private placement is the non-public sale of illiquid securities to individuals or entities that meet certain predefined criteria. Generally, private placements offer for sale equity shares (common or preferred stocks) or debt instruments such as debentures or notes that are not publicly tradable. However, there are any number of combinations of securities that can be offered through a private placement.How Does a Private Placement Operate?
Securities offered through a private placement are not registered with the Securities and Exchange Commission. They are offered through an exemption from registration called Regulation D. Regulation D provides a “safe-harbor” exemption from registration. Sections 504, 505, and 506 of Regulation D contain the descriptions of these exemptions. These exemptions detail the rules for privately offering securities without registration via a Form D filing with the SEC.General Summary of Regulation D Exemptions:
The specific information contained in a private placement memorandum (PPM) is dependent upon the requirements of the specific of Regulation D used by the issuer. A PPM is designed to provide all necessary information that an investor needs to make an intelligent investment decision. Generally, a PPM has sections detailing:
When reviewing the sections of a PPM, all of the sections are equally important. However, particular attention should be paid to the sections describing risk factors, capitalization and stock ownership. For example, many PPMs alert the investor that he or she should not invest unless the investor is willing to loose all the money invested. If you are an average investor, the risk factors should be enough to dissuade you from investing.
If you feel that the information contained in the PPM through which you invested was false, misleading or omitted to provide relevant material information, you do have recourse. Don’t wait to take action.