The COVID-19 pandemic has caused significant disruption and anxiety to individuals and the financial markets. Because fraudsters often try to capitalize on current issues and problems to promote their scams, Indiana Secretary of State Connie Lawson today issued an investor advisory on exempt securities offerings, also known as “private placements,” in light of the coronavirus pandemic.
A private placement is a securities offering that is not required by law to be registered with federal or state securities regulators. Private placements allow companies to sell stocks, bonds, or other securities to investors without completing the rigorous disclosures necessary in a registered offering.
Businesses raising capital through private placement offerings often have limited operating histories and frequently have modest revenues compared to larger public companies. They are not required to provide as much information to investors as public companies are required to provide under federal securities laws.
Private offerings made under Rule 506 are not reviewed by regulators and, as a result, there is an increased potential for fraud. The most recent enforcement statistics collected by the North American Securities Administrators Association, of which the Secretary of State is a member, identified private placements as one of the most frequent sources of enforcement actions by state securities regulators.
The advisory provides an overview of private placement offerings, the risks associated with these offerings, and the steps investors can take to minimize their risk of falling victim to fraudulent private placement offerings.
The full advisory is available on the agency’s website at https://www.in.gov/sos/indianamoneywise/4127.htm.
Before making any financial decisions, ask questions, do your homework and contact the Indiana Securities Division at 317-232-6681 for more information.