Investor Lawyers Blog
Investors in private placement securities including Madison Funding I bonds and Poet’s Walk Funding I bonds, may have legal claims, if their investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the stockbroker or advisor.
The brokerage firm Herbert J Sims & Co., a/k/a HJ Sims reportedly offers to investors a number of private placement investments that the firm itself structures and establishes. For example, a private placement known as Madison Funding I, LLC was brought to market in 2019 by HJ Sims and issued $5,115,000 in bonds due June 1, 2024. The Madison Funding I bonds reportedly defaulted on principal payments due March 2, 2021 and have paid reduced interest since. Despite the default, Madison Funding I bonds are reportedly shown as having a full value of $100 on customer account statements.
In another private placement offering, Poet’s Walk Funding I, LLC, $10,000,000 in bonds were reportedly sold to the public. These bonds have reportedly also defaulted and have paid reduced interest.
Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.
Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm.
As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors- including private placements under Regulation D. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.
Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).