Private Placement Programs Trade Programs

Understanding Private Placement Solicitation Laws

Understanding Private Placement Solicitation Laws

If you can think of one place you DON’T want to be, I think most of us would agree its jail. Waking up next to felons named Bubba and cold breakfast doesn’t sound appealing to me. How about you?

Solicitation Tips for Private Placement Brokers

1. ALWAYS get the Compliance Documents: Before you send details about private placement, or compliance documents, you must first have a formal request via email from the investor. This email will prove that the investor requested the information from you, which makes it no longer a solicitation once you respond. When sending out the compliance documents, make sure to include a Non-Solicitation Statement for the investor to complete. After you have this document signed, and the initial email from the investor, you can prove you did not solicit them if needed.

2. NEVER Guarantee Anything to Investors: Let’s face it, less than 1% of the deals you work on have a chance of closing. If you choose to think otherwise, and guarantee something that doesn’t perform, you can be in a lot of hot water. If there is one word I would NEVER use in the private placement business, it is “guarantee”. By doing so, you incur liability for something you have no control over. Even if you are the trader, or have seen it work before, private placement investments rarely go as planned.

3. Do NOT Sugar-coat Details to Investors: If you paint a picture of unrealistic yields and no risk to the investor, you are doomed for failure. Not only are you setting yourself up for a BIG waste of time, but you are also risking your freedom. As the transaction evolves, the finger will always be pointed at you when the details don’t match up. Even worse, if the transaction becomes a scam, it will look like you had a major part in it. Remember, most private placement investors have been through the ringer, and they know what sounds real and too good to be true. Be the one broker that sounds confident and consistent, and eventually, the real investors will all come running back to you in the end.

4. Use Disclaimers in ALL Communications: When emailing anyone in the private placement business, it is always good to have a disclaimer below your signature. It should state that you are NOT an investment advisor, and that NO information you provide should be considered a solicitation. If you have this disclaimer below every email communication, as long as you are doing everything else legally, you will be protected. Also, when speaking to an investor, it isn’t a bad idea to give “truthful disclaimers” here and there. This will protect you, while also helping you to establish more rapport with the investor.

5. NEVER Misrepresent Yourself to Investors: When you misrepresent yourself or your experiences to others, you are breaking the law. Even if you are three brokers away from the trader, you should NEVER lie to get an application. If your “trader” falls through, you will be stuck covering up your lies, and will have lost a good investor in the process. If you’re frustrated due to a lack of success, be more aggressive, and brokers will usually get out of the way. Remember, honesty is safe and far more productive than deception.
Though it may be easier to paint a rosy picture for investors, the truth is always uncovered as the transaction unfolds. No one appreciates the “bait and switch” technique, and as you know, ANYONE can file criminal complaints or sue you. Remember, having an investor submit an application is great, but NOT if they are expecting something you can’t provide. Having applications that don’t close does nothing but degrade your reputation, and in such a fraud polluted business, that is all you really have.

In summary, if you have honest conversations outlining realistic expectations and worst case scenarios, you will ALWAYS be more productive in the end. Keep it truthful, legal, short, and sweet, and you will surround yourself with people of similar ethics in return.

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