Here is helpful information people who are considering investing in private offerings will want to hear. Investors can avoid a lot of pain, and gain a real benefit by knowing how to recognize, or find and invest with a company or indivdual which doesn’t pay himself commissions or charge up-front promotion in the form of commissions.

First, ask the person your are talking with certain questions before investing your money. Is the person working for a licensed broker/dealer? Is the person, and the broker/dealer he is working for and you are talking with licensed under Series 7, or SB-22 rules in each state where an offer is being made. If not, you are likely dealing with a promotional outfit and boiler room operation charging big commissions and could be one step away from being shut-down by the authorities. There are a few exceptions. Are you talking to a bonded licensed ‘operator’ who owns his own company, and leases? Is the person you are talking with an industry person, or ‘issuer or sponsor’ of his own company, and NOT PAYING HIMSELF OR OTHERS COMMISSIONS as the law requires to qualify for an exemption from registration & licensing?

The federal exemption from registration & licensing laws for limited liability companies enable a ‘sole member, or manager’ of a Limited Liability Company (LLC) the right to offer his investments to sophisticated, qualified and ‘accredited investors’ under certain circumstances without registering or having to license himself or company.

An operator, ‘sponsor or issuer’, or owner of a company offering private investments is considered exempt from the requirement to be licensed, or registered to sell securities in all 50 states; but has certain rules he must follow to qualify for the exemption under say for example 506 Reg-D; which is used to offer private offerings to accredited investors. The big rule is he can’t pay commissions to himself, or others.

Other requirements must be met, like questionnaires must be filled-out and signed by potential investors before an offer is made. A private placement memorandum must be sent to investors by the company or individual making an offer, and where there is an established or ‘prior association’…and so on. In other words, you can’t slam dunk the investor into a deal without a thorough ‘qualifying discussion’, and sending out the questionnaire first, along with a PPM with full disclousures about all potential risks, and the past history of the company making the offer, etc.

By the way even Broker/Dealers are going to charge you commissions for their brokers, and take money for themselves, so your best bet is to work with Operators, or Sponsor/Issuers, or other industry persons, and companies who can’t legally pay themselves commissions when using private placement memorandums qualifying under the federal exemption rules.

One thing to remember though…if you call big brother when you don’t make money, anyone offering legitimate, or bad or poorly performing investments, or those investments you make which don’t ultimately meet your expectations the company will be forced to defend itself, and spend your money to do so…keep this in mind when taking a risk or investing in private offerings where greater risk may mean greater rewards…

Call to discuss.