Private Offerings Continue to Leave a Path of Destruction
InvestmentNews reports that “the music has stopped for Boogie Investment Group Inc,” another small broker-dealer that collapsed under liabilities associated with sales of a fraudulent Reg D offering, Provident Royalties. See “Boogie down and out after selling private placements,” by Bruce Kelly, InvestmentNews.
More than eleven other broker-dealers that sold failed private placements have shut down so far this year, according to the article. Other failed firms that sold Medical Capital and/or Provident Royalties notes include MCL Financial Group Inc., QA3 Financial Corp., Jesup & Lamont Securities Corp., GunnAllen Financial Inc., Securities Network LLC, Omni Brokerage Inc., WFP Securities, Workman Securities Corp., Investlinc Securities LLC/Meadowbrook Securities LLC, CapWest Securities Inc., Harrison Douglas Inc., Matheson Securities LLC, United Equity Securities LLC, Okoboji Financial Services Inc., Private Asset Group, and Main Street Securities LLC. These firms folded under the weight of legal costs and liabilities that resulted from their failure to perform proper due diligence on the private placements they sold.
Private offerings are alternative investments also known as Reg D offerings, a reference to the exemption from registration that is commonly used. Many of these offerings are very high-risk, and involve high commission payments and high fees. Serious concerns have developed about whether such investments are sold to investors because they generate high commissions, regardless of their unsuitability for the investors.
FINRA has proposed to cap commissions at a hefty 15% and require that at least 85% of investors’ money be placed in the investment.
Perhaps because of these incentives, broker-dealers often fail to perform adequate due diligence on the investments they sell. This is extremely risky for the broker-dealers as well as their clients.
Investor attorney J. Boyd Page, the senior partner at Page Perry, LLC, based in Atlanta, observed: “These private placements were so risky, not only have they destroyed investors’ life savings, they continue to destroy the firms that sold them without doing the proper due diligence. Even FINRA’s proposal is inadequate to address the problem. If front end fees take 15% of the customer’s investment, that means that, on day one, the investment is only worth $.85 for every $1.00 invested.”
Page Perry, LLC is an Atlanta-based law firm with over 150 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving private placement or Reg D securities. For further information, please contact us.
