NASAA sounds alarm on private placements

In the wake of relaxed marketing rules, the US’ association for state securities regulators named private placement offerings one of the biggest risks to investors.  

State securities regulators in the US are on the watch for private fund managers unlawfully soliciting investors. Private placement offerings, often referred to as “Reg D” offerings, made the North American Securities Administrators Association’s “top financial products and practices that threaten to trap unwary investors and small business owners.”

Most states have their own securities laws (called “blue sky laws”) that subject GPs managing less than $150 million in assets to some level of oversight. Investment advisors over that threshold are regulated by federal securities laws overseen by the US Securities and Exchange Commission (SEC).

State securities regulators “have little authority over these transactions unless fraud is discovered,” the NASAA warned investors. The association said new freedoms to publicly advertise private placement offerings, known as general solicitation, have made it “more difficult than ever for investors, and regulators, to ferret out abuses in advance of sales.”

The JOBS Act, signed into law by President Obama in 2012, directed the SEC to lift the ban on general solicitation, which it did last September. Only accredited investors are still allowed to take part in private placements. 

General solicitation has experienced limited pickup in the private funds space. Citing compliance concerns, GPs are reluctant to be among the first group of registered advisors to test their new found marketing freedoms. However, a small handful of advisers, including venture capital firm ff Venture Capital, have begun taking advantage of the reforms.