The Law Office of Kevin J. Deloatch, Esq. is currently investigating the recommended purchases of Pre-IPOs or private placement securities through Boustead Securities, LLC (CRD# 141391) and Sutter Securities, Inc. (CRD# 30770). Both firms have had various registered representatives associated with them who were the subjects of FINRA investigations and/or sanctions regarding violations of FINRA Rule 2111 regarding suitability and Reg BI, regarding acting in a customer’s best interest. Moreover, Boustead Securities was sanctioned on November 14, 2022 regarding its supervisory system and the sale of private placement securities (i.e., Pre-IPOs).
If you have lost money in Pre-IPOs recommended or purchased through either firm, the Law Office of Kevin J. Deloatch, Esq. is interested in speaking with you.
IPOs vs. Pre-IPOs
Pre-IPOs are NOT IPO’s.
An IPO is an initial public offering of securities. As the name implies, IPOs generally refers to securities that are being offered for sale
to the general public to begin trading on an exchange. These securities are able to be sold to the general public because they are registered with the Securities and Exchange Commission (SEC) and meet specific disclosure and reporting requirements. Such requirements include, but are not limited to, disclosures regarding material risks, and audited financial reports. The reason for such requirements is to protect 1) the investing public and 2) ultimately, the integrity of the financial markets from unscrupulous actors in the securities industry. As a result, such securities can be purchased (and ultimately sold) by anyone, which in turn creates a liquid secondary market.
Pre-IPOs (i.e., private placement securities) on the other hand, are not registered with the SEC. Thus, they have not met the stringent disclosure and reporting requirements designed to protect the investing public. Because of this lack of registration, such securities cannot be sold to the general public. Rather, they can only be sold to a narrowly defined type of investor in a private offering, pursuant to Regulation D of the Securities Act of 1933. Hence the name private placement. As a result, these types of securities are extremely illiquid, as there is no readily available secondary market.
Private placement securities (i.e., Pre-IPOs), as an asset class, are inherently riskier than registered securities purchased through an IPO. This increased risk is directly attributable to their lack of registration with the SEC.
Suitability of Securities Recommendations
Prior to making recommendations to an individual investor, brokerage firms and brokers are required by the Financial Industry Regulatory Authority (FINRA) to make a good faith determination of a client’s investment objectives and risk tolerance. Under FINRA Rule 2111, customer recommendations should only be made if the investment is suitable for an individual investor given their age, investment objectives, investment experience and risk tolerance.
Regulation Best Interest (Reg BI)
In addition to suitability obligations under FINRA Rule 2111, broker dealers and financial professionals have an obligation to act in the best interests of their clients pursuant to Regulation Best Interest (Reg BI) under the Exchange Act of 1934. Such obligations include, but are not limited:
- disclosing all material facts relating to the scope and terms of relationship with the customer; and
- disclosing all material facts relating to conflicts of interest that are associated with the recommendation.
As Reg BI is applied specifically to broker-dealers offering/recommending Pre-IPOs, FINRA has identified effective practices for a broker-dealer to meet its obligations which include, but are not limited to:
- verifying representations and claims made by the issuer that are crucial to the performance of the offering (e.g., costs projected to execute the business plan, projected timing and overall rate of return for investors);
- identifying any red flags with the offering or the issuer, such as questionable business plans or unlikely projections or results; and
- addressing and, if possible, resolving concerns that would be deemed material to a potential investor, such as liquidity restrictions.
Brokerage firms that make unsuitable recommendations and/or violate Reg BI can be held accountable through securities arbitration for losses sustained.
Have You Lost Money in Pre-IPOs Through Boustead Securities, LLC or Sutter Securities, Inc.?
If you have lost money in Pre-IPOs recommended by or purchased through Boustead Securities, LLC (CRD# 141391) and/or Sutter Securities, Inc. (CRD# 30770) the Law Office of Kevin J. Deloatch, Esq. is interested in speaking with you.
The Law Office of Kevin J. Deloatch, Esq. has an extensive securities law practice dealing with securities fraud. The Law Office of Kevin J. Deloatch, Esq. has over 35 years of experience on Wall Street. If you would like to file a lawsuit or arbitration, call today at (646) 792-2156 for a free consultation. The time to file your claim may be limited. Call today to avoid delay.
