Summary: A recent GAO assignment found that investors have lost millions of dollars to unscrupulous promoters selling securities on the basis of misleading information. These promoters, misusing an exemption from Federal securities requirements to avoid registration with the Securities and Exchange Commission (SEC), have swindled the investing public. The law permits a number of exemptions, one of which is for transactions by an issuer not involving any public offering. The issuer can sell securities without registering with SEC to persons who are deemed not in need of the protection of the Federal securities law. GAO developed a database to determine the magnitude of investor losses. Many of the investors who lost their money were subjected to high-pressure sales techniques. Misuse of the private placement exemption is difficult for SEC to control. Enforcement is hampered by a variety of reasons which center on the vagueness of the Securities Act and the legal questions concerning SEC authority. It is important to investigate before investing.
