What's a Reg D security really worth? Finra has questions

Finra is considering giving further guidance to broker-dealers that sell Regulation D private placements. The Financial Industry Regulatory Authority Inc. may issue another notice to its broker-dealer members about how private-placement securities are valued on account statements, said Joe Price, vice president of corporate finance for Finra. That move would follow up on a Finra notice to members in February 2009 that gave broker-dealers guidance about pricing of real estate investment programs that are sold through broker-dealers and not listed on a national exchange. “There's not a notice yet” about private-placement pricing, said Mr. Price, who spoke Tuesday afternoon at the Real Estate Investment Securities Association’s annual meeting in Las Vegas. The question facing broker-dealers, he said, is: “How are securities valued on account statements?” Finra is focusing on the stale pricing of private securities. Regarding the pricing of real estate securities, Finra said that 18 months after the conclusion of an offering, firms cannot use par value in a client's account statement unless a fresh appraisal of the program's assets and operations reach that conclusion. So far this year, Finra has focused plenty of attention on private placements. In April, it issued a notice to its members reminding them of the obligations of selling Regulation D private placements. In July, it followed with a request for comment about a proposed rule asking for more disclosure in firm's monthly and quarterly financial statements, known as Focus reports. That proposal would affect firms generating more than 10% of revenue from the sale of unregistered offerings. Mr. Price said the goal for the proposal is to catch private placements with financial problems that are still being sold in the market. He characterized REISA's response to that proposal as the “burden outweighing the benefits.”