PPM Attorney
Private Placement Memorandums: Essential Components, Common Deficiencies, and Enforcement Risk
The private placement memorandum is the issuer's primary defense against antifraud liability in a Regulation D offering. A deficient PPM creates liability that persists for years after the offering closes. Securities counsel ensures the document is complete, accurate, and enforcement-resistant.
Why the PPM Exists
The private placement memorandum serves a dual purpose: it provides investors with the information they need to make an informed investment decision, and it creates a disclosure record that protects the issuer against claims of material misrepresentation or omission under Section 10(b) and Rule 10b-5 of the Securities Exchange Act. While Regulation D does not require a PPM for offerings limited to accredited investors, the antifraud provisions of the securities laws apply to all offerings regardless of exemption. A well-prepared PPM is the issuer's best evidence that it disclosed all material information to investors.
Essential Components
A PPM prepared by securities counsel includes a detailed company description, management biographies with disclosure of relevant legal and regulatory history, risk factors tailored to the specific company and industry, a capitalization table showing pre-offering and post-offering ownership, use-of-proceeds disclosure with sufficient specificity to be meaningful, financial statements appropriate for the stage and size of the company, and offering terms including pricing, minimum and maximum offering amounts, and closing conditions. Each section is drafted with an awareness of how enforcement attorneys and plaintiff securities lawyers read these documents.
How Enforcement Reads a PPM
Enforcement attorneys and plaintiff counsel read PPMs backward. They start with what went wrong, then work backward through the PPM to identify what was disclosed, what was omitted, and what was misleading. Risk factors that are generic rather than company-specific provide no protection. Use-of-proceeds disclosure that is vague allows claims that the actual use of funds was inconsistent with investor expectations. Management biographies that omit regulatory history or failed ventures create inference of concealment. Securities counsel prepares PPMs with this enforcement reading methodology in mind.
Frequently Asked Questions
What is a PPM?
A private placement memorandum (PPM) is a disclosure document provided to prospective investors in a private offering. It describes the company, the offering terms, the use of proceeds, the risks of investment, and the management team. While not required by the SEC for offerings limited to accredited investors, it is the primary document that protects the issuer against antifraud liability.
What should a PPM contain?
A comprehensive PPM includes an executive summary, company description, management biographies, risk factors, use of proceeds, capitalization table, offering terms, subscription procedures, financial statements or financial information, and legal disclaimers. Each section must be accurate and complete as of the date of the offering.
What are common PPM deficiencies?
Common deficiencies include generic risk factors not tailored to the company, outdated financial information, inadequate disclosure of related-party transactions, failure to disclose material litigation, overly promotional language, missing or inaccurate capitalization information, and failure to update the PPM when material changes occur during the offering period.
Questions about your specific situation?
Frederick M. Lehrer is a former SEC Enforcement Attorney with over 30 years of issuer-side securities law experience. All consultations are confidential. Flat-fee engagements.