Quick Answer
A placement agent and each selling group member stay subject to ordinary broker-dealer conduct standards while distributing an offering: fair dealing and accurate, non-misleading communications with prospective investors. They also face antifraud liability under the broker-dealer antifraud rule for off-exchange trades, plus potential civil liability for a material misstatement or omission in the offering.
The antifraud rule and the civil-liability standard are not the same protection. One is a broker-dealer conduct rule enforced as a regulatory matter; the other gives an investor a private right of action for what the offering document said or left out.
What Conduct Standard Applies to a Placement Agent and Selling Group Members?
A placement agent and each selling group member remain subject to the ordinary broker-dealer standards of conduct while distributing the offering: fair dealing, and accurate, non-misleading communications with prospective investors about the offering.
What Antifraud Rule Applies to an Off-Exchange Distribution Like a Private Placement?
This protection comes from the broker-dealer antifraud rule, which covers trades away from an exchange. It makes it unlawful for a broker or dealer to use any manipulative, deceptive, or other fraudulent device or contrivance in connection with the purchase or sale of any security, other than on a national securities exchange.
A separate paragraph applies the same bar to a municipal securities dealer, but only for a municipal security. Most private placement activity happens exactly this way, off an exchange, so this rule is the antifraud backdrop for the placement agent's and selling group's conduct throughout the distribution.
A placement agent and selling group members can also face civil liability under the Securities Act for a material misstatement or omission in the offering; the elements of that liability are covered in a different unit of this course.
Exam Tip: Gotchas
- The broker-dealer antifraud rule is the counterpart to the general antifraud rule. The general rule reaches any person; the broker-dealer rule is written specifically for brokers, dealers, and municipal securities dealers acting off an exchange, which is the placement agent's normal operating environment in a private offering.
What Should You Check on Exam Day?
- Confirm a fact pattern's conduct violation is measured against fair dealing and non-misleading communication, the ordinary broker-dealer standard.
- Distinguish the broker-dealer antifraud rule (a regulatory conduct standard for off-exchange trades) from civil liability for a misstatement or omission (a private right of action).
- Remember the municipal securities dealer bar under this antifraud rule applies only to municipal securities, not to every security a municipal dealer trades.