Information, Recommendations, Transfers, and Recordkeeping
Telling the Story Straight
The private placement memorandum is the primary disclosure document, but it is not a shield. The representative must understand the structure, use of proceeds, fees and conflicts, dilution, illiquidity, and risk factors well enough to explain them. Regulation Best Interest requires the firm and the representative to act in the customer's best interest through the disclosure, care, conflict-of-interest, and compliance obligations. FINRA Rule 2210 governs retail communications: no misleading statements, no projections of investment returns, and no implying regulatory approval - the SEC never approves an offering or passes on its merits.
Restricted securities carry a legend and cannot be resold absent registration or an exemption. Rule 144 permits resale after a six-month holding period for reporting issuers and one year for non-reporting issuers; affiliates also face volume limits, current-public-information conditions, and Form 144 filing. Never promise a resale market, an IPO, or a liquidity date.
Records: Rules 17a-3 and 17a-4 set content and retention (generally six years, the first two readily accessible); FINRA Rule 4511 requires books and records consistent with those rules; Rule 4512 requires a trusted contact person. Account statements, confirmations, correspondence, and investor questionnaires all become part of the file. Transfers of restricted stock require attention to legends, signature guarantees, and transfer-agent requirements.
Traps: treating "the PPM discloses it" as a complete defense; assuming Rule 144 creates immediate liquidity; describing an offering as SEC-approved.
Rule of thumb: A statement that makes an illiquid, high-risk deal sound safe is a violation no matter what the memorandum says.