1.1.2.1.9. Private Placement Liabilities
The placement agent is expected to conduct reasonable due diligence on the issuer, checking for misstatements or inaccuracies in the PPM, and checking on the financial state of the company. FINRA warns its members that placement agents and selling group members need to watch for and investigate issuer “red flags.” FINRA defines a red flag as an issue that would cause a prudent person to question it. Red flags are often financial, but they don’t have to be. A selling group member may rely on the manager to investigate the issuer, but the member must have reason to believe that the manager has the required expertise and lack of conflicts of interest to be able to engage in a proper inquiry. In addition, the member must meet with the manager and ask questions about the manager’s investigation.
All anti-fraud regulations that apply to registered securities also apply to exempt securities such as private placement securities.
The Securities Act also stipulates th