The Intelligent Investor: Want to Buy a Private Stock?

Under the Dodd-Frank financial-overhaul law of 2010 and the JOBS Act of 2012, Congress required the SEC to study how knowledgeable the investing public is and, at the same time, to allow companies to market their private securities to anyone they care to pitch to. The end result: rules that make some of the biggest changes to the investment world in more than a quarter of a century. In the latest development, the Securities and Exchange Commission proposed on August 29 a rule permitting issuers to promote private offerings to the general investing public for the first time. The new regulations will ease capital-raising for many legitimate companies. But they also could subject unwary and vulnerable investors to deals that offer limited financial disclosures and even less liquidity.

"Because the promoters are being supplied with much larger nets to try to catch their investors, there's going to be much more possibility of fraud and abuse," says Bob Robbins, a partner at the law firm of Pillsbury Winthrop Shaw Pittman in Washington, D.C. "You could see ads on the Shopping Channel or the checkout screen at your neighborhood nail salon.”