Don’t be a target for fraudsters

The Wall Street Journal

More than 16 million U.S. households can now invest in privately held companies, said Jean Eaglesham and Coulter Jones. But this market can be “a draw for fraudsters.” Companies that issue shares on the stock market have to regularly inform investors about their revenue, earnings, and other business details. Not so for privately held companies—which range from tiny startups to Silicon Valley giants such as Uber and Airbnb. Because of the hazards, only people with an annual income of $200,000 or $1 million in assets are legally allowed to invest in the private market. Back in 1982, there were just 1.5 million such “accredited” investors. That figure

has skyrocketed, as has interest in these investments. A record $710 billion in so-called private placements was sold last year, and tens of billions of dollars of those sales were handled by securities firms with “an unusually high number” of brokers with three or more investor complaints. Retirees, who make up one-third of accredited investors, are a prime target. Now regulators are looking at opening up “private placements” to even more investors—putting more Americans at risk of devastating losses. “Being an accredited investor does not today make you wealthy,” says former investment adviser Douglas Schulz, “and it absolutely does not make you sophisticated.”