Bucks Blog: Defining Who Can Invest in Private Offerings

In the years before the financial crisis, private offerings of stock held much allure. They often offered outsize returns, but only to those who seemed to have the inside track.

But the great recession inflicted much damage to many of those offerings — defined as anything from real estate deals to hedge funds. While some of the investments in these offerings dropped significantly in value, there are still offerings that hold the prospect of large returns.

Paul Sullivan, in his Wealth Matters column this week, discusses the current guidelines for who can participate in private placements, the term the financial industry uses. The two most commonly used measures are annual income — over $200,000 for an individual and $300,000 for a couple — and net worth of at least $1 million.

But Mr. Sullivan talks to a number of lawyers and financial service professionals who argue that wealth should not be the sole criterion for these types of investments. Instead, they said, investors need to have a certain financial sophistication so they understand the risks of private placements.

The question for regulators, as he points out, is how do you define who is wealthy enough and financially sophisticated enough to invest in these offerings? Any suggestions?

Article source: http://feeds.nytimes.com/click.phdo?i=6c65af59a27b77420c4475a9a6e87f06