Securities Lawyers Blog
FINRA has barred broker Daniel P. Deighan (Deighan) for seven months and fined him $27,500 over allegations that he recommended private placements to customers that were not suitable given the customers’ net worth, annual income, and the concentration of the private placements in their accounts.
Private placements are securities that do not trade on stock exchanges and are exempt from the regular filing requirements. Private placements are issued under Regulation D under the Securities Act of 1933. Regulation D contains three rules (Rules 504, 505, and 506) that provide the rules required to be followed in order to qualify for the exemptions from the more rigorous Securities and Exchange Commission (SEC) registration requirements.
The three rules primarily govern the size of the offering and the number of participants that can invest in the private placement. However, under all three rules, with certain limited exceptions, investors must meet the “accredited investor” standard under Rule 501. Rule 501 defines “accredited investor” as any person who has a net worth in excess of $1,000,000, (excluding residence) or annual income in excess of $200,000 (or $300,000 jointly with a spouse) in the two most recent years. While the size of the private placement market is unknown, according to 2008 estimates, companies issued approximately $609 billion of securities through Regulation D offerings.