Archive for May, 2014

Limiting Investment Losses in Unregistered Securities- Are You an Accredited Investor?

May 28th, 2014
Investment

Investment (Photo credit: LendingMemo)

How does an investor limit the risk of possible investment losses in unregistered securities? The Securities Act of 1933 requires that securities offered or sold to the public in the US must be registered by filing a registration statement with the SEC. The Securities Act was created to protect investors from the fraudulent buying and selling of securities, manipulation and misrepresentation. There are, however, numerous exemptions to the rule requiring registration of securities with the SEC prior to being offered for sale. Three such exemptions to SEC registration are contained in Regulation D. The exemptions are somewhat complex, but qualifying as an “accredited investor” is important to all three. Generally, to qualify as an accredited investor you must be “a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person.” Such investors are generally considered under the exemptions to have the ability and insight to determine the risk involved, evaluate the consequences and be able to endure greater financial risk than the average investor.

Private placements are one investment opportunity often sold to accredited investors. A private placement is a private non-public offering of a company’s securities. These placements are usually illiquid as they are not publicly traded, and can therefore be difficult to sell if necessary. To sell securities as a private placement there must be a formal document (private placement memorandum) that explains the investment opportunity and the risks of possible investment loss along with limited information concerning the issuer and management. It may be difficult to predict how the private placement will fare over time because many of these private placement securities are issued by companies that are not obligated to file financial reports.

Limited partnerships are another investment product often sold to accredited investors under Regulation D exemptions to SEC registration. In a limited partnership there are both general and limited partners. Limited partners are generally involved only as investors. Limited partners share in both the profits and losses; however they do not participate in the daily running of the business. The liability for the partnership’s debt is contingent on the amount of capital or property contributed to the partnership. If the company is sued or files bankruptcy, limited partners are not responsible for the debts or liabilities.
When considering investing as an accredited investor in a limited partnership or private placement you must take into consideration that your money may be tied up for a long period of time and that fraud and sales abuses involving inaccurate statements are not uncommon. Also you should discuss with your financial advisor, and confirm in writing, the exit options from these types of investments, the level of risk involved, exactly how they operate under the agreements, as they can differ greatly, and if the investment risk is suitable for you considering your total investments. Your financial advisor should be knowledgeable and have read the issued information on the investment. However, you must still consider that investing in unregistered securities is risky and you could lose some or even all of your money.

If you feel you’ve been a victim investment fraud or negligence, contact Carlson Law Firm at 619-544-9300 or find us on the web at www.securities-fraud-attorney-san-diego.com

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High Frequency Trading Securities Fraud Class Action Filed Against “Flash Boys” Exchanges and Major Brokerages

May 22nd, 2014
English: A view from the Member's Gallery insi...

English: A view from the Member’s Gallery inside the NYSE (Photo credit: Wikipedia)

Many large brokerages, high speed trading firms, and U.S. stock exchanges were named as defendants in a securities fraud class action lawsuit filed by Providence, Rhode Island on April 18, 2014.  The Defendants in the high frequency trading securities fraud class action are accused of various types of conduct, including insider trading and manipulating trading within the U.S. securities markets.  The manipulation is alleged to have been achieved via high frequency trading based upon access to market information not available to the general investing public and other illegal conduct.

A few of the defendants targeted in the lawsuit include NASDAQ Stock Market, LLC, New York Stock Exchange LLC, Chicago Board Options Exchange Inc., BATS Global Markets, Inc. stock exchanges, a number of large brokerage firms, including Citigroup, Inc., Goldman Sachs Group, Inc., Morgan Stanley & Co. LLC and a number of high speed trading firms or “Flash Trading” firms.

Investors who purchased stock in the United States are being represented in a securities fraud class action.  The transactions at issue in the class complaint occurred from April of 2009 forward.  The complaint alleges the Defendants’ actions resulted in billions of dollars in damages to the investor class.  The securities fraud misconduct alleged against the class defendants includes:  contemporaneous trading, front-running, spoofing, and rebate arbitrage.  The lawsuit further explains that using certain devices and manipulations, the defendants were able to pursue false schemes and fraudulent courses of business that were intended to defraud investors who were trading securities.

Securities regulators, including the S.E.C., Justice Department and Commodities Exchange Commission are reviewing the high frequency trading industry independently of the Providence Class action filing last month.

The Providence high frequency trading class action and the ongoing regulator investigations into the high frequency trading industries potential for fraud and market manipulation will hopefully further uncover and bring to light trading and market practices by large market players that at best involve questionable conduct.  Securities regulators should act quickly to investigate and protect the general investing public from any questionable or illegal conduct by the trading and investment industry.

With billions of dollars in losses alleged and allegations of billions of dollars in gains by the Defendants, can a Hollywood movie be far off?   Stay tuned.

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