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FINRA Issues New Investor Alert on Private Placements

The Financial Industry Regulatory Authority (FINRA) has issued a new investor alert that cautions investors about investing in private placements.  A private placement is an offering of a company’s securities that is not registered with the Securities and Exchange Commission (SEC) and is not offered to the public at large.

“Investors should understand that many private placement securities are issued by companies that are not required to file financial reports, and investors may have problems finding out how the company is doing. Given the risks and liquidity issues, investors should carefully assess how private placements fit in with other investments they hold before investing,” said Gerri Walsh, FINRA’s Senior Vice President for Investor Education, in the alert titled Private Placements—Evaluate the Risks before Placing Them in Your Portfolio.

Among other things, FINRA advises investors to do the following before investing their money in a private placement investment:

*Carefully review the private placement memorandum or other offering document.

*Find out as much as you can about the company’s business and understand how and when you might liquidate your private placement securities.

*Ask your broker what information he or she was able to review about the issuing company and this private placement.

*Be extremely wary if you receive paperwork to sign about a private placement without having a personalized discussion with your broker about why such an investment is right for you.

*Be extremely wary of private placements you hear about through spam emails or cold calling. They are very often fraudulent.

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