Broker-dealers that recommend or sell private placements have additional requirements under FINRA and SEC rules. These requirements include:
- Filing certain offering documents
- Ensuring the suitability of any investments they recommend
Two FINRA rules require firms to file certain offering documents and information about the issuer, the offering terms, and the firms selling the private placement with FINRA.
- FINRA Rule 5122 (Member Private Offerings) requires firms that offer or sell their own securities or those of a control entity to file with the Corporate Financing Department a private placement memorandum, term sheet or other offering document at or prior to the first time the documents are provided to any prospective investor.
- FINRA Rule 5123 (Private Placements of Securities) requires firms to file with FINRA's Corporate Financing Department within 15 calendar days of the date of first sale of a private placement, a private placement memorandum, term sheet or other offering document, or indicate that no such offerings documents were used.
Firms also must file any amendments or exhibits to the offering document with the Corporate Financing Department within ten days of being provided to any investor. The information filed with the Corporate Financing Department is subject to confidential treatment. Firms should submit offering documents as searchable PDFs via the private placement filing system in the Firm Gateway. Please note, 5122/5123 Notifications are "notice" filings. As such, FINRA will not respond to the filings with a comment letter nor provide a clearance letter.
- Corporate Financing Private Placement Filing System User Guide
- Frequently Asked Questions regarding Private Placements
- Firm Guidance - Private Placement Filings
- Instructions for Requesting Entitlement to the Information Requests Application in the Firm Gateway
Due Diligence and Suitability of Private Placements
FINRA will examine firms’ private placement activity to ascertain whether firms are conducting a reasonable inquiry of the issuer and offering.
The recent Regulation D amendments do not alter a firm's responsibility to conduct adequate due diligence on its offerings to ensure any recommendations to purchase securities in a private placement are suitable.
Firms must also understand their obligations to comply with Regulation BI in connection with its due diligence and suitability responsibilities.
Registration with the SEC (and exemptions from registering)
Under the Securities Act of 1933, any offer to sell securities must either be registered with the SEC or meet an exemption. Issuers and broker-dealers most commonly conduct private placements under Regulation D of the Securities Act of 1933, which provides three exemptions from registration.
- Under Rule 504 of Regulation D, issuers or firms may sell up to $5,000,000 of securities within a 12-month period.
- Under Rule 506 of Regulation D, issuers or firms may employ general solicitations and advertising when offering private placements, provided that all purchasers of the offering are accredited investors.
Firms may conduct other forms of private placements using exemptions other than those allowed by Regulation D. Please consult the Rules tab on this page for additional applicable rules and exemptions.
FINRA's Office of General Counsel (OGC) staff provides broker-dealers, attorneys, registered representatives, investors and other interested parties with interpretative guidance relating to FINRA’s rules. Please see Interpreting the Rules for more information.
- FINRA Rules
- FINRA Rules
- FINRA Rules
- FINRA Rules
- FINRA Provides Guidance on Retail Communications Concerning Private Placement Offerings
- FINRA Amends the FINRA Corporate Financing Rule
- FINRA Updates Private Placement Filer Form Pursuant to FINRA Rules 5122 and 5123
- FINRA Requests Comment on FINRA Rules Impacting Capital Formation
- Private Placements and Public Offerings Subject to a Contingency
- FINRA Rule 4518 (Notification to FINRA in Connection with the JOBS Act)
- FINRA Updates Form for Filing Private Placements of Securities Pursuant to FINRA Rules 5122 and 5123
- SEC Approves New FINRA Rule 5123 Regarding Private Placements of Securities
- FINRA Requests Comment on Proposed Amendments to FINRA Rule 5122 to Address Member Firm Participation in Private Placements
- Obligation of Broker-Dealers to Conduct Reasonable Investigations in Regulation D Offerings
- SEC Approves New FINRA Rule 5122 Relating to Private Placements of Securities Issued by a Member Firm or a Control Entity
- NASD Requests Comment on Proposed Rule 2721 to Regulate Member Private Securities Offerings
- NASD Issues Guidance on Section 1031 Tax-Deferred Exchanges of Real Property for Certain Tenants-in-Common Interests in Real Property Offerings
- GuidanceThis reference guide covers a range of private placement topics, from the basic question of "What is a private offering?" to more technical discussions on broker-dealer compliance with FINRA's private placement rules.July 16, 2019
- 2018 Exam Findings ReportFINRA has observed instances where some firms that have suitability obligations under FINRA Rule 2111 (Suitability) failed to conduct reasonable diligence on private placements and failed to meet their supervisory requirements under FINRA Rule 3110 (Supervision). FINRA Regulatory Notice 10-22 describes the circumstances under which firms have an obligation to conduct a “reasonable investigation” by evaluating “the issuer and its management; the business prospects of the issuer; the assets held by or to be acquired by the issuer; the claims being made; and the intended use of proceeds of the offering.”December 07, 2018
- Interpretive LetterRequest for Interpretive Guidance on FINRA Rule 2111 (Suitability) in Relation to EB-5 Program Securities TransactionsAugust 26, 2013
- FAQFrequently asked questions about private placements.
- Compliance ToolsThese report cards display statistics about late filings submitted to Corporate Financing.
- April 12, 2017
- FINRA Hearing Panel Sanctions Avenir Financial Group and Bars Former CEO Michael Todd Clements for FraudSeptember 20, 2016
- FINRA Sanctions Brookville Capital Partners $1.5 Million and Bars President Anthony Lodati for FraudMarch 12, 2015
- FINRA Issues New Investor Alert: Private Placements—Evaluate the Risks Before Placing Them in Your PortfolioSeptember 17, 2013
- FINRA Sanctions Eight Firms and 10 Individuals for Selling Interests in Troubled Private Placements, Including Medical Capital, Provident Royalties and DBSI, Without Conducting a Reasonable InvestigationNovember 29, 2011
- FINRA Sanctions Two Firms and Seven Individuals for Selling Private Placements Without Conducting a Reasonable InvestigationApril 07, 2011
- March 15, 2011
- April 20, 2010
- April 19, 2010
- March 18, 2010
- December 21, 2009
- Investor EducationA major milestone in some companies’ development may be an initial public offering, or IPO. But there’s an alternative to the IPO: the private placement.
- Investor AlertFINRA is issuing this alert to inform investors that investments in digital assets, such as ICO tokens and cryptocurrencies, can involve significant uncertainty, as well as risks that are different from more conventional assets like stocks or bonds.
- Investor AlertIt’s no secret that when a promising company emerges or an industry sector becomes “hot,” investors typically flock to get a piece of the action. But what happens when the company is privately held and investors can’t readily buy shares because the company has not conducted an initial public offering of its stock? FINRA is issuing this alert to warn investors about pre-IPO scams purporting to offer access to shares of Facebook and other popular, well known private companies.
- Investor AlertTo raise capital, brokerage firms sometimes sell their own or an affiliate's securities. Such broker-dealer self-offerings (BDOs) can take the form of registered public offerings or private placements.