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Stockbroker Fraud & Regulation D

Stockbroker fraud is one of the leading downfalls for people who have invested their money in stocks and securities as part of their retirement planning, stockbroker fraud lawyers in San Mateo County report. Unfortunately, far too many individual brokers and firms are more interested in making money off of their clients than protecting their interests, and through misrepresentation and misclassification, these unscrupulous brokers will swindle their clients out of hard-earned money and leave them with nothing to show for their investments.

Regulation D

Under the 1933 federal Securities Act, an offer to sell securities must either meet an exception or be registered through the U.S. Securities and Exchange Commission (SEC). Regulation D outlines three rules that provide exemptions from the SEC registration requirements, which allows some firms and companies to sell securities without registering their products. The three rules are:

  1. Rule 504 – This provides an exemption from registration for some companies when they offer and sell up to $1,000,000 of their securities in a 12-month period. This company cannot be a blank check company and cannot solicit or advertise to the public. Customers receive restricted securities.
  2. Rule 505 – This grants exemptions from registration for companies who offer and sell securities. To qualify, companies can only offer and sell up to $5 million in a 12-month period, can sell to an unlimited number of accredited investors and up to 35 others who do not satisfy accreditation standards. They must inform clients that they receive restricted securities which cannot be sold for six months without being registered, and they cannot use solicitation or advertising.
  3. Rule 506 – This allows a “safe harbor” for private offerings, and companies can raise an unlimited amount of funds, provided they do not use general solicitation and only sell up to 35 non-accredited purchasers. All accredited investors sold to must be sophisticated.

In order to qualify for exempted securities, a company is required to electronically file a “Form D” with the SEC after selling their first securities. Form D alerts the SEC to the names, executive officers, addresses and details about the security offering, but does not require as much information as would be provided in formal registrations.

Stockbroker Fraud

Brokers typically receive a higher commission for any Regulation D offerings they sell. To earn more commissions, they will improperly list investors as accredited, which would grant them an exemption under Rules 505 and 506. When these investors are listed incorrectly, brokers can make up information about the investors’ income, assets, and financial records and then have the investor sign that incorrect information. The “great investment” you may be offered in a Regulation D fraud is only great for your broker earning commission and could put you at financial risk.

Contact Us

If you have suffered a great financial hit that may put your future in jeopardy, contact a leading stockbroker fraud lawyer in San Mateo County. The Evans Law Firm, Inc. represents clients who have had their financial accounts mishandled in such a way that has left them financially unstable. To discuss your case today, contact our office online at or by phone at 415.441.8669.

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