Investors Be Warned: Direct private placements (DPPs) and limited partnerships are exceedingly risky. They are not suitable for the average conservative investor. Wall Street investment advisors and brokerage firms who fraudulently sell these risky investments to unsuspecting consumers can be held liable for the damages that occur as a result.
State and federal securities laws prohibit securities industry professionals from selling direct private placements and limited partnerships to investors without disclosing the risks involved. These legal protections are especially applicable to risk-averse investors and income-dependent retirees who should not be gambling with direct private placements.
If you’re the victim of DPP and limited partnership fraud, and you lost money because of it, you can take action to try and get your money back. Depending on the facts of your case, you may be eligible to receive full or partial compensation for your financial damages.
About Direct Private Placements
DPPs and limited partnerships are a way for non-publicly traded companies to raise money by selling ownership shares to select investors. They’re also a way for investors to invest in the real estate market without owning actual property.
More dangerously, DPPs and limited partnerships are a way for stockbrokers and Wall Street brokerage firms to earn heaps of cash through commissions and fees. Stockbrokers, investment advisors, and brokerage firms are getting very big commissions for finding investors to buy direct private placements and limited partnerships (typically earning upwards of 10% in commissions as their reward).
Because of the big payoff, brokers are aggressively marketing risky DPPs and limited partnerships to senior citizens, conservative investors, and retirees without disclosing the hazards involved. This violates numerous stock fraud laws.
Dishonest stockbrokers don’t care about the quality or safety of DPPs. They just want to find a buyer and get their commission.
Does this mean that direct private placements are inherently bad? No. The companies that issue DPPs are only trying to raise capital for their business. These companies are simply looking for investors to share in the risks. Stockbrokers and brokerage firms, on the other hand, are misrepresenting those risks and many unsuspecting consumers are getting harmed as a result.
The worst stockbrokers will say, omit, or do anything just to make the sale.
How Direct Private Placements Happens
Direct private placement programs and limited partnerships can be particularly attractive investments for retirees and conservative investors looking for safe investments to provide a steady and reliable income. But their attractiveness stops as soon as investors understand the risks involved.
Nevertheless, many stockbrokers and investment advisors prey upon investors who don’t have the investment experience to appreciate the risks of DPPs and limited partnerships.
Unscrupulous brokers are experts at sweeping investor concerns under the carpet, hiding the dangers of these investments, and getting innocent consumers to buy into “time bomb” investments that have no chance of ever paying off.
Here are some of the traps unsuspecting investors fall into when it comes to direct private placements and limited partnerships:
- The Promise of High Returns: If a direct private placement or limited partnership promises a 30% return on your investment, remember that the potential for big gains always comes with very big risks. If you buy into a DPP that makes exorbitant claims of high returns, know that it probably won’t pan out, and you could lose a very high percentage, if not all of your investment. Remember: if it sounds too good to be true, it probably is.
- “Risk-Free” DPPs and Limited Partnerships: Many retirees and conservative investors get tricked by dishonest brokers falsely claiming that a DPP is “risk-free.” Perhaps an experienced investor who knows the DPP inside and out could fully understand the risks involved, but 99 percent of the time, getting into a DPP is a very big gamble. There’s just no way around it – few investors (and few stockbrokers) are knowledgeable enough to understand the full level of risk associated with these investments.
- Omissions and Misrepresentations: A dishonest stockbroker might spend an hour talking about the benefits and strengths of an investment and five minutes talking about the drawbacks and dangers. Dishonest stockbrokers can be highly creative and manipulative when they want to be.
- Private Placement Real Estate Investments: These primarily include non-traded REITs (Real Estate Investment Trusts) and TICs (Tenants In Common). Private placement real estate investments provide a way for people to invest and profit from real estate without owning land or property directly. The problem is that non-traded REITS and TICs contain a host of dangers and they’re often illiquid (i.e., extremely difficult to sell and convert to cash if you need your money). Considering the volatility of real estate in recent years, buying into a private placement real estate investment represents a very big risk. REITs and TICs are also loaded with conflicts of interest, high fees and management problems. To learn more about these problematic investments, make sure to read the Consumer Investor Resource Center’s articles on REITs and DBSI TICs.
If you entered into a DPP or limited partnership but didn’t fully understand the risks involved, it’s not your fault and you may have a very strong claim to get your money back.
Know Your Rights
The Financial Industry Regulatory Authority (FINRA), which regulates and polices the investment industry, punishes brokerage firms and investment advisors for selling direct private placements and limited partnerships to unsuspecting investors.
When an investor files a claim for private placement fraud, the unsuitability of the recommendation is extremely important. Therefore, FINRA Rule 2111 and FINRA Rule 2090 will apply to most DPP claims. Click here to learn more about the doctrine of suitability, and unsuitability claims in general.
Try and Get Your Money Back!
The loss of one’s life savings can be emotionally devastating, but the realization that your stockbroker lied to you is equally unsettling. If you have fallen victim to this kind of fraud, it’s important to remember this is not your fault!
Pursuing a stock fraud claim will teach big banks and Wall Street brokerage firms that it’s unacceptable to prey upon innocent consumers and completely disregard their best interests and needs. Your claim may even prevent others from suffering as you have by forcing Wall Street brokerage firms to conduct business with honesty and integrity.
You may be eligible to receive compensation regardless of whether you still to hold the DPP or limited partnership at issue. Contact us today to set up a free consultation. We will listen to your story, answer any questions you may have, and discuss your legal rights and options.