State securities regulators are warning about the pitfalls of investing in private offerings as the SEC seeks to expand access to such investments to more investors.
“Unregistered private offerings generally are high-risk investments and don’t have the same investor protection requirements as investments sold through public markets,” Christopher Gerold, president of the North American Securities Administrators Association and chief of the New Jersey Bureau of Securities, says in a press release.
The SEC voted earlier this month to amend the definition of “accredited investor” to allow more qualified individuals and institutions to invest in private markets, as reported. While broadening the definition could expand the pool of investment options financial advisors can offer their clients, critics — including SEC Commissioner Robert Jackson, Jr., who voted against the proposal — say the move could expose retail investors to more risk.
NASAA’s warning comes as part of its announcement about what it sees as the top five areas of fraud targeting North American investors in 2020: promissory notes, Ponzi schemes, real estate, cryptocurrency-related and social media or Internet-based investment schemes.
The regulator’s findings are based on surveys of its members, investor complaints, ongoing investigation and current investment trends, according to a press release from NASAA.
NASAA suggests investors stay clear of anything sounding too good to be true, such as guarantees of high returns with no risk, and vet their investment professional about their licenses and registrations.
“Regardless of how long you have known a person or been conducting business with an individual, it’s worthwhile to do a quick check to confirm their license and compliance history is up to date,” Gerold says in the press release.