FINRA Annual Letter Cites Rule 506(c) Concerns

Dealflow |

In its tenth annual letter outlining the upcoming year’s concerns for brokers, FINRA expressed a wide variety of concerns about private placements in general and Rule 506(c) offerings in specific. It’s worth noting that the annual letter discusses what it considers the biggest threats for investors: concerns ranging from the perennial issues, like poor communication and inadequate documentation, to a general increase in the availability of securities that once would have been available only to sophisticated investors: alternative mutual funds, ETFs tracking poorly understood indexes, structured retail products and Securities-Backed Lines of Credit (SBLOCs).

The letter recites a litany of problems that has long plagued traditionally marketed private placements and then turns to general solicitation.

“FINRA and the SEC have reminded investors to be prudent when evaluating the risks of these types of investments, especially as, under the new rules, it is expected that investors will be more exposed to private placement sales pitches and advertising,” the letter says.

The letter also refers investors to FINRA’s alert on private placements, which contains a discussion of accredited investor status and general solicitation. “While the target audience will be accredited investors,” the alert states, “the reality is that all investors – whether accredited or not – will likely be exposed to private placement sales pitches and advertising, for instance by Regulation D crowdfunding platforms, as never before.”

Editor's Note: Changing Accredited Investor Definitions is an excerpt from's whitepaper, ONLINE DEAL MARKETING OUTLOOK FOR Q1 2015 Investors and Issuers Chafe as Regulators Dally; States Offer New Alternatives; General Solicitation under Surveillance. For more information, visit

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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