Blue Sky Chronicle Sheds Light on Dark Side of Private Placement Market

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Blue Sky Chronicle is a new publication covering private placements gone bad. “The freewheeling ‘private placement’ market is getting increasingly hazardous for ordinary investors." WSJ, March 27, 2010. Illegal private placements are known to be flourishing, especially online. The SEC and state regulators need authority to oversee the private placement industry. Enforcementreporter.com and RegDlaw.com cover recent examples of private placement fraud.

The Internet has facilitated new varieties of private placement fraud—Ponzi schemes, off shore tax havens, movie distribution scams, and other ‘accredited investor-only’ deals that typically harm Main Street more than Wall Street

San Francisco, CA-based Litigation Research Group LLC announced the launch of Blue Sky Chronicle, a quarterly publication that summarizes and comments on state securities enforcement hearings throughout the country.

“The Internet has facilitated new varieties of private placement fraud—Ponzi schemes, off shore tax havens, movie distribution scams, and other ‘accredited investor-only’ deals that typically harm Main Street more than Wall Street,” according to editor Douglas Slain.

Private placements are offerings of notes or shares, exempt from registration with the SEC, used to raise money for business opportunities.

The U.S. Senate Banking Committee’s financial overhaul bill has a provision that would give the SEC and state regulators authority to review private placement offerings. “Until that bill becomes law, private placement abuses will continue, especially online,” Mr. Slain says. “With guidelines set almost 30 years ago for who qualifies as an ‘accredited investor,’ some really sketchy deals are being pitched.”

A recent WSJ story described a schoolteacher who lost the $1 million she has just received from a recent divorce settlement. She said she felt “gutted like a fish," because, “[the broker] had pushed this private placement deal as a safe alternative to stocks." The broker’s defense is that the schoolteacher had signed paperwork making her an “accredited investor."

“It's a very high-priority area for us," Financial Industry Regulatory Agency (FINRA)’s enforcement head, Susan L. Merrill, said recently. According to Slain, “FINRA can never get staffed up to do what the SEC and dozens of state regulators need to be doing, nor should it have to. We need reform of the entire private placement industry.”

To read summaries and comments on regulatory actions brought by state regulators, go to http://www.enforcementreporter.com and http://www.RegDLaw.com.

For more information, contact Editor, Litigation Research Group, 225 Bush Street, 16th FL, SF, CA 94014. Telephone number: 415-465-2062.

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Doug Slain
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