The Wall Street Journal, on June 25, 2018 (“Private Placements Draw Troubled Brokers”), exposed the fact that “securities firms with an unusually high number of troubled brokers are selling tens of billions of dollars a year of private stakes in companies, often targeting seniors.”
“Even though only around 4 out of 10 brokerages sell private placements, these brokerages account for more than half of the 94 firms that FINRA expelled since 2013,” the WSJ analysis found.
As noted in this article, “the emerging trend could mean that unsuspecting investors will be exposed to losses or fraud in a market that has grown sharply in recent years.”
In a review of more than a million regulatory records, the Journal “identified over a hundred firms where 10% to 60% of the in-house brokers had three or more investor complaints, regulatory actions, criminal charges or other red flags on their records – significant outliers in the investment community.”
“The clustering of higher-risk brokers underscores regulator worries about the largely unpoliced market” and “sales of private placements are so lucrative to the brokerage firms that they are a perennial concern for regulators,” said Brad Bennett, a former enforcement chief at brokerage watchdog the Financial Industry Regulatory Authority. Issues on the regulators’ radar, he said, include whether the private placement offers a stake in a legitimate business, what selling perks or markups the brokers get, and how it is sold to investors.”
According to the analysis undertaken by the WSJ, “sales of private placements are surging, as part of a broader rise in private capital markets, fueling concerns among investor representatives about how the products are sold.”
“More than 1,200 firms sold around $710 billion of private placements last year, and sales for the first five months of this year are on track to top that record-setting tally,” the WSJ found.
If you are an individual or institutional investor who has any concerns about your private placement investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).