Maine Office of Securities Issues Investor Advisory on Private Placement Offerings

GARDINER – In advance of a federal rule to allow advertising of high-risk and potentially fraudulent private placement offerings, Maine Securities Administrator Judy Shaw issued an advisory today informing investors about the risks associated with these offerings.  The advisory is available at www.maine.gov/pfr/securities/Private_Placements_Maine.pdf.

Private placement offerings allow companies to raise money by selling stocks, bonds, and other instruments; however, these offerings may be exempt from federal securities registration requirements.  As a result, this exemption permits the raising of capital without having to comply with disclosure and consumer protection requirements that apply to public securities offerings. 

Because exempt private placement offerings are not reviewed by regulators, they have become a haven for fraud.  According to the most recent statistics from the North American Securities Administrators Association, private placement offerings are the most frequent source of enforcement cases conducted by state securities officials.

“The registration exemption has been used by legitimate small businesses as an important source of capital, and state securities regulators want those businesses to thrive and create jobs without unnecessary regulatory impediments,” said Governor Paul R. LePage.  “However, a healthy private placement marketplace requires informed investors who feel adequately protected.”

Currently, the exemption available under the Securities Act of 1933 does not permit general solicitation or advertising of private placement offerings.  The JOBS Act of 2012 directed the Securities and Exchange Commission (SEC) to lift this ban, as long as sales are limited to “accredited” investors–people who have sufficient wealth or access to information that would presumably allow them to make fully informed investment decisions.  The SEC is finalizing its proposed rule.

“Unscrupulous promoters may take advantage of these new rules, as they will now be allowed to offer securities through direct mail, cold calls, free lunch seminars and television or radio commercials,” said Securities Administrator Shaw.  “The Office of Securities is taking steps to help Maine investors avoid being lured into high-risk or fraudulent investments when the ban on general solicitation of private placement offerings is lifted.” 

Shaw noted that the Office’s advisory includes information on the risks associated with private placement offerings and tips on how to protect yourself when considering such an offering.   More information about the risks associated with private placement offerings is available by contacting Office of Securities toll-free in Maine (877) 624-8551 or (207) 624-8551.

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