We often get asked if we can create an all-accredited offering with no Private Placement Memorandum (PPM). The answer is yes, but unless it’s going to include a very small group of investors whom you know extremely well, we don’t recommend it. You save money upfront (that could be reimbursed by the fund investors) but add significant risk for yourself.
Anyone who sells securities has an obligation to give investors “all of the material facts they need to make informed consent.” The PPM does this. It’s the place where the Fund Manager explains all of the things that could go wrong that are outside of the Fund Manager’s control.
Think of the PPM as being like an insurance policy. The investors, in the Subscription Agreement, certify that they have read all the information provided by the Fund Manager, including all of the risks provided in the PPM. By subscribing, the investors agree to “assume the risks” of the investment. If one of the things they were warned about happens, investors can’t sue the Fund Manager for any resulting loss, unless it was due to the Fund Manager’s own wrongful act or gross negligence.
Without a PPM, investors can claim they were unaware of the risks, and wouldn’t have invested if they had known. Thus, they weren’t told all the material facts.
Why wouldn’t a Fund Manager want to spend the extra money to protect itself from lawsuits that could cost hundreds of thousands of dollars and years to resolve?
What’s in a Securities Offering?
A private placement securities offering includes a number of documents, which collectively...