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Considering an investment in a private company? Here are some tips to reduce the risk of winding up with an investment you later regret:
1. Get all important information in writing, including any guarantees, agreements and receipts, all of which should be signed and dated.
2. Review financial information about the company, including its operating history and performance.
3. Find out the names and backgrounds of the company's principals, including their past employment and any criminal history or bankruptcies.
4. Ask how the sales agent is compensated and if he or she is a licensed insurance agent or broker. Licensed brokers are more strictly regulated than other sales agents.
5. Call the Department of Financial Services' Office of Financial Regulation at (813) 272-2565 in Tampa to find out if the office has any information about a company and its principals.
6. If the company says its offering is exempt from registration under Regulation D, ask which rule it is using to qualify. Call the Securities and Exchange Commission at (202) 942-8090 to obtain a copy of the company's Form D. If the company has not filed, it may indicate that it is not in compliance with federal securities law.
7. Do not respond to unfamiliar companies that contact you by unsolicited telephone calls or e-mail.
8. Watch out for red flags such as high-pressure sales tactics, promises of unusually high returns or claims that offerings are risk-free or guaranteed.
9. Be sure you know how and when you can get your money back and how to contact that company's legal counsel if problems arise.
10. Get a financial professional who has no connection to the offering to review the information.
- Sources: Securities and Exchange Commission, National Association of Securities Dealers and Florida Department of Financial Services, Office of Financial Regulation.