Avoid Regulation D private offering dreck like the plague

An Iowa Farmer Tried to Dodge Stock-Market Turmoil. It Cost Him $900,000.

Brokers and financial advisers are steering clients to assets that don’t trade. Such securities can often be dodgy, sometimes lose all their value — and getting out is a lot harder than getting in.

By Jason Zweig, The Wall Street Journal, Jan. 13, 2023


Financial firms are pile-driving their clients into assets that have no market. Over the past two years, investors bought an astonishing $878.9 billion in so-called Regulation D private offerings of debt and equity that don’t trade. These are different from Reg D offerings of “pooled investment funds,” which can include private-equity, venture-capital and hedge funds from major firms. Many of these other corporate offerings instead come directly from tiny issuers or through dodgy brokers and financial advisers.

And, to be blunt, they are often dreck. The investments sometimes end up worthless, and egregious conflicts of interest are rife among those selling them…

The fatal flaw: You can’t always sell when you want to, and often you can’t sell at all. Financial disclosures range from minimal at best — an offering document, perhaps cursory annual or quarterly reports — to nonexistent. The risk of default or bankruptcy is high. Commissions and other fees can easily exceed 10%. …Because Regulation D companies aren’t obligated to issue current financial statements, investors can remain in the dark even as they sink deeper and deeper into the hole. …

Buy nothing whose fees aren’t explicitly disclosed upfront in writing. Buy nothing without a prospectus or offering memorandum that discloses financial data, risks and conflicts of interest. Be wary of anybody who suggests putting private placements in your IRA or 401(k)…[end quote]

The first stop for anyone considering a new financial advisor or broker is FINRA. The second is to check the markets to see the volume and liquidity of the proposed investment. If it isn’t listed and/ or isn’t trading on large daily volume, steer clear.

Personally, I avoid all sales people and brokers. I’d rather deal with a computer.

Wendy

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It is not BTC this time?

I like how the WSJ actually used the word “dreck” in this piece.

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I suspect the WSJ’s computer would reject the English for “dreck” just like TMF’s computer.

If the author was a little more refined, he could have said “merde” but then his Jewish readers might not have understood what he meant. :wink:

Wendy

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Why? It’s a perfectly good word in English. The common English meaning is rubbish or trash. That it might have a Yiddish meaning as well doesn’t impact it’s use in standard English.

–Peter <== who would happily say “dreck” in polite company.

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I always took dreck to mean the bottom of the barrel in English. Or a bad soup.

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‘Dreck’ is dirt or trash, nor merde. That’s the “S” word!

https://en.wiktionary.org/wiki/Scheiße

The Captain

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According to google translate, dreck is crap.

My Google translate from German says dirt

From Yiddish it says crap

Crap is not always merde even if the crapper was invented to deal with it.

The Captain

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Yiddish is a nuanced language roughly based on 9th century German intermixed with Hebrew and a smattering of other central European languages. Because of the breadth of territory covered by Yiddish speakers, there are some regional differences as well.

While the Capt. is correct that Dreck (or drek, if you prefer, as the spelling in Yiddish is actually phonetically in the Hebrew alphabet) means filth or garbage in German, it has a secondary meaning in Yiddish as “merde” as Wendy politely calls it.

There are many Yiddish words which have found their way into English. Some like kibbitz and chutzpa, while frequently mispronounced by “Anglos” retain their original meanings, but others like “putz” and “$hmuck” have lost their literal meanings, yet retained their slang usages. And then there’s shvitz (a steam bath), meaning that the verb “shvitzing” literally means “sweating”, yet is commonly used as meaning “to show off”.

I find it interesting that, while Yiddish seems to have lots of words integrated into English, there are few La%ino (substitute a “d” for “%” - for some reason TMF didn’t like that word), words to be found - despite that community actually pre-dating in the USA the influx of eastern/central European Jews into the English-speaking world. Maybe because both Yiddish and English are Germanic-based languages.

For those unfamiliar with the terms, while Yiddish is based on 9th Century German and written phonetically using the Hebrew alphabet, La%ino is spoken by Jews whose ancestors were evicted from Spain during the inquisition, is based on 15th century Spanish and frequently written phonetically in the Arabic alphabet.

Jeff

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Getting back to the point at hand, Wendy is right. These things are dreck, no matter how you define the word.

I’ve been on the selling side of two of these - pitching the dreck. One turned out pretty well, the other - not so much.

The first one benefitted from a sweetheart deal to buy a small apartment complex. The second was fueled by the “tulip bulb” mania of the day. And ended predictably.

As the organizers, most of the benefits were up front. A sizable fee for organizing the deals. Plus an ongoing cut of the profits. I personally didn’t get a cut of the fee on the first one, just a bit of the ongoing cut. I did get a bit of the fee on the second, but it cost me far more on the back end to get out.

Because my partner and I weren’t the greedy ****** that usually organize these things, as soon as it was clear things were going sideways, we did what we could to minimize the losses. Our investors got back most of their money. Something like 80-90% if I remember correctly. We waived all further fees. And since we had used our personal credit as part of the financing, we took a hit, too, as the loans were not repaid in full.

Most organizers would not have taken these steps, I suspect.

I learned a lot from these episodes. An expensive lesson, for sure.

—Peter

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One quick and easy lesson I can pass on. When the professionals in the business are cutting prices to sell quicker while everyone else thinks trees can grow into space, pay attention to the professionals. They are selling for a reason. They probably have information that the general public does not, and they are using that information to their own advantage.

And another. Sometimes, after spending a lot of time investigating a deal and checking things out and learning all you can in the allotted time, the most profitable thing you can do is not do the deal. Don’t get too tied up in the time you have spent, thinking you have to get some return on it. It might be that the best return available is to pull the plug.

–Peter

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