Investors should be warned about private placement deals their broker may be trying to sell them. In recent years, according to a Wall Street Journal article yesterday, hundreds of billions of dollars in private placements have been sold each year by stockbrokers, and these brokers are more likely than others to have sketchy records. One in eight brokers marketing private placements had three or more red flags on their records, including complaints, regulatory actions, criminal charges, or employment separations. Brokers selling private placements are also six times as likely as the average broker to report at least on regulatory action against them. Private placements are used by businesses to raise money for projects typically in the real estate, or oil and gas development realms. In 2017 alone, private placement using brokers totaled at least $710 billion, almost three times as much as in 2009. Brokers like to market these to seniors, who may not know that they are unsuitable for them. A broker must take into account a customer’s age, net worth, and investment risk tolerance before recommending or selling a security. If he does not, his brokerage firm may be liable for losses. Private placements tend to be high-risk and illiquid investments, not suitable for the elderly.
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