On September 23, 2013, the SEC brought an action against 10 brokers who worked for the now defunct McGinn Smith & Co. , of Albany, NY, for selling $125 million in private placement securities to clients despite red flags that should have stopped the investments.
The firm was owned by Timothy McGinn and David L. Smith, who were sentenced in August 2013 to 15 years and 10 years, respectively for conspiracy to commit mail and wire fraud, securities fraud and filing false tax returns.
The brokers who worked for the firm racked up commissions of nearly $4 million and the SEC is seeking compensation and penalties. According to the complaint, about 750 customers lost $80 million in the scheme. William Lex of Phoenixville, PA, received $1.5 million in commissions, according to the SEC.
The securities were issued by new, and small companies which the selling brokers should have known to require greater due diligence before recommending to customers.
Law Change on Sale of Private Placements
In July 2013, the Securities and Exchange Commission made a major change to private placement capital raising under Regulation D. This change now permits advertising for private funds and unregistered securities.
While the investments are still limited for sale to customers meeting certain income and asset thresholds, the new change permits advertising the investments for sale in the press, TV and internet.
Investors should be wary of private placements and should carefully evaluate the risks associated with such investments. These investments are not publicly traded so if liquidity is important to your financial plan, you might reconsider the suitability of such an investment.
Rex Securities Law , located in Boca Raton, FL, provides representation to investors nationwide who are seeking recovery of investment losses due to the negligence or fraud of stockbrokers and broker dealers. If you have questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases handled on a contingent fee basis meaning that you do not pay legal fees unless we are successful.
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