Posts Tagged ‘accredited investor’

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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Performance Fee Thresholds for Investors to be Raised by the SEC

June 9th, 2011
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High net-worth investors will enjoy lower fees—that is, if the Securities and Exchange Commission’s (SEC’s) proposed changes to performance based fees proceed as planned.

The SEC intends to increase the dollar thresholds investors must meet before financial professional can charge them performance based fees. Currently, the thresholds are determined under two provisos of Rule 205-3 of the Investment Advisers Act: (1) brokers must have a reasonable belief that the client has a net worth of more than $1.5M, or (2) they must manage a minimum of $750,000 worth of investments for the client.

According to investment recovery lawyer Daniel Carlson of Carlson Law Firm, APC the current Act contains inherent risks for the average investor because it could encourage brokers to take big risks in order to make bigger fees: “If a high-risk investment fails, brokers don’t experience the financial consequences personally, but investors, particularly retirees, can end up losing everything.”

The SEC says it will issue an order revising the test for allowing performance fees to (1) a reasonable belief that the investor has $2 million in net worth or (2) $1 million of assets under management. In addition, the SEC order will exclude an investors primary residence from consideration in the 2 million dollars net worth evaluation, add a method for factoring inflation into the dollar amount tests.

If you are a high net-worth investor and have been exposed to unsuitable risk, you may have a claim for recovery of your losses.  Contact Carlson Law at 619-544-9300 for a free consultation.

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Posted in Fiduciary Duty Breach, Securities Law, Uncategorized | Comments (1)