Scams - Private Placements - Reg D, etc.
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Investment frauds are rampant and it is difficult to keep away from their golden promises. Many investors fall into the trap of conmen and realize it much too late. Several million dollars are lost each year to such frauds and the problem is only growing with the years.
One such investment fraud is the fraud on Private Placements or placements done under Reg D. To understand what private placements are you need to know something about the Securities Act of 1933 and the Securities and Exchange Act of 1934.
Under these acts it illegal to use the instrumentalities of interstate commerce" to make offers and sales of unregistered securities. But keeping in mind some special circumstances, these laws provide for exceptions.
One such exception is made when the issuer doe not make any public offering. That is to say that the security is transacted privately. In such a case, the security can be transacted without nay registration. This exception is applicable only if the offeree does need protection of a registration and has all the information that he would otherwise be provided through a registration. This exception is valid only for securities up to a value of $5 million and is not applicable to on a resale.
With much being said about the exception or Reg D, you must consider the worth of an investment. The investments itself should ideally be advertised and listed in newspapers. Private Placements are mostly fraudulent and in cases that they are genuine, they are highly risky. Either way you must do your groundwork and consult a good attorney before investing in private securities. A reputable auditor must have audited the investment and it must sound plausible. Private securities are a big gamble and only suit people who can invest only a small sum of their fortune. If you are a small investor, it is best to steer clear of these.
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