Series 82 — Private Securities Offerings Representative Qualification Examination Quick Review

Quick Orientation

The FINRA Series 82 — Private Securities Offerings Representative Qualification Examination is designed around the activities of a representative involved in private securities offerings. For review purposes, think in three layers:

1. Product and offering structure — equity, debt, convertible securities, private funds, valuation, capitalization, contingencies, use of proceeds.
2. Exempt offering rules — Securities Act registration vs. exemptions, Regulation D, private placement documentation, resale limits, general solicitation, accredited investor concepts, and restricted securities.
3. Broker-dealer conduct — communications, suitability/Reg BI, due diligence, supervision, AML, conflicts, books and records, customer protection, and anti-fraud rules.

This page is an independent Quick Review. Use it to refresh decision rules before moving into topic drills, original practice questions, mock exams, and detailed explanations.

High-Yield Exam Map

Core Statutory Framework

Securities Act of 1933

The Securities Act of 1933 focuses on new issues and primary offerings. Its basic rule is simple: securities must be registered unless an exemption is available.

High-yield points:

• Registration is about disclosure, not SEC approval of investment merit.
• Exempt offerings are exempt from registration, not from anti-fraud rules.
• A materially misleading private placement memorandum, pitch deck, term sheet, or oral sales statement can create liability.
• Securities sold in private placements are often restricted securities.

Securities Exchange Act of 1934

The Exchange Act focuses on secondary trading markets, broker-dealers, exchanges, reporting companies, manipulation, and anti-fraud rules.

Know the exam logic:

FINRA Conduct Rules

FINRA rules are central to exam questions involving sales practice, supervision, communications, compensation, and customer interactions.

Expect scenarios asking: What should the representative or firm do next?

Usually correct actions include:

• Escalate to a supervisor or compliance.
• Correct or withdraw misleading materials.
• Obtain required approvals before use.
• Document diligence and suitability analysis.
• Disclose conflicts and compensation.
• Refuse or delay suspicious transactions pending review.
• Avoid guarantees, exaggerations, and unsupported predictions.

Private Placement Basics

A private placement is an offering not registered with the SEC, typically sold to a limited group of eligible or sophisticated investors under an exemption.

Parties and Roles

Private Placement Documents

Regulation D Quick Review

Regulation D provides common safe harbors for private offerings. The most tested distinction is usually between Rule 506(b) and Rule 506(c).

Regulation D Decision Rules

Use this quick filter:

1. Was there public advertising, a public website, mass email, social media promotion, or open seminar?

   • If yes, think general solicitation.
   • General solicitation is generally inconsistent with Rule 506(b).
   • For Rule 506(c), all purchasers must be accredited and verification must be reasonable.

2. Were any non-accredited investors allowed?

   • Under Rule 506(b), a limited number may participate if sophistication and information standards are satisfied.
   • Under Rule 506(c), non-accredited purchasers are not allowed.

3. Were resale restrictions disclosed?

   • Private placement securities are usually restricted.
   • Investors should not be told they can freely resell unless an exemption or registration applies.

4. Did the firm perform diligence?

   • A broker-dealer recommending a private placement must have a reasonable basis.
   • Accreditation alone does not prove suitability.

Other Exempt Offering Concepts

Accredited, Sophisticated, Qualified, and Institutional Investors

Private offering questions often test investor labels. Do not treat them as synonyms.

Accredited Investor Review Points

Commonly tested accredited investor categories include:

• Certain individuals meeting income or net worth standards.
• Certain entities meeting asset or ownership standards.
• Certain regulated financial institutions.
• Certain knowledgeable employees of private funds.
• Individuals with specified professional certifications or credentials recognized under SEC rules.
• Certain family offices and family clients meeting required conditions.

Exam trap: if a question says an investor is accredited, ask the next question: Is the recommendation still suitable and in the customer’s best interest where applicable?

Private Offering Communication Rules

Private placement sales are communication-heavy: pitch books, PPMs, emails, calls, webinars, one-on-one meetings, term sheets, and data rooms.

FINRA Communication Categories

Communication Musts

A compliant communication should:

• Be fair and balanced.
• Disclose material risks.
• Avoid exaggerated or unwarranted claims.
• Distinguish fact from opinion.
• Avoid promissory language such as “guaranteed,” unless actually guaranteed by a capable guarantor and fully explained.
• Present potential benefits with meaningful risks and limitations.
• Use current and supportable data.
• Disclose conflicts where material.
• Avoid selective disclosure that makes the overall message misleading.

Common Communication Traps

Suitability, Reg BI, and Investor Fit

A private placement can be technically exempt and still be an unsuitable recommendation.

Suitability Framework

Reg BI Review

For retail customers, Regulation Best Interest requires broker-dealers and associated persons to act in the customer’s best interest when making a recommendation.

Remember the practical obligations:

Private Placement Suitability Red Flags

A private placement is usually problematic for a customer who:

• Needs liquidity soon.
• Cannot tolerate loss of principal.
• Does not understand restrictions and risks.
• Is overconcentrated in speculative or illiquid investments.
• Is relying on projected income for essential expenses.
• Is purchasing primarily because of tax benefits without understanding economics.
• Is pressured by scarcity claims such as “last chance” or “exclusive access.”
• Has unresolved identity, funding source, or authorization issues.

Due Diligence for Private Placements

FINRA expects broker-dealers to conduct a reasonable investigation when recommending private placements. The depth depends on facts and circumstances, but the representative should understand the investment before recommending it.

Due Diligence Checklist

Diligence Traps

• Issuer reputation is not diligence. A known sponsor can still offer a weak deal.
• Third-party reports are not a substitute for review. The firm must assess reliability and relevance.
• Financial projections require assumptions. Unsupported forecasts should not be repeated as likely outcomes.
• Risk disclosure cannot be buried. Risks must be meaningful and understandable.
• Diligence is ongoing. New material information before closing must be evaluated and, if necessary, disclosed.

Offering Structures and Contingencies

Best Efforts vs. Firm Commitment

Escrow Trap

If an offering is contingent, investor funds generally must be handled according to the contingency and escrow terms. A representative should not suggest that a minimum has been met, or that funds can be released, unless the required condition is actually satisfied.

Securities Products in Private Offerings

Equity Securities

Debt Securities

Convertible Securities

Key concepts:

• Conversion ratio determines how many shares the investor may receive.
• Conversion price is the effective price at which conversion occurs.
• Convertibles combine debt/preferred features with equity upside.
• Investors face credit risk, equity risk, dilution risk, and complexity risk.

Useful formulas:

\[ \text{Conversion ratio} = \frac{\text{Par value}}{\text{Conversion price}} \]\[ \text{Conversion value} = \text{Conversion ratio} \times \text{Current common stock price} \]

Valuation and Capitalization

Private offerings often include valuation, ownership, and dilution questions.

\[ \text{Post-money valuation} = \text{Pre-money valuation} + \text{New investment} \]\[ \text{Investor ownership percentage} = \frac{\text{New investment}}{\text{Post-money valuation}} \]

High-yield trap: a headline ownership percentage may change after option pools, warrants, convertible notes, liquidation preferences, or future financing rounds.

Private Funds and Investment Company Concepts

Private offerings often involve pooled vehicles such as private equity funds, venture funds, real estate funds, hedge funds, or special purpose vehicles.

Common Private Fund Review Points

Fund Offering Traps

• A fund interest is still a security.
• A private fund exemption does not eliminate anti-fraud obligations.
• Side letters can create conflicts or preferential rights.
• Performance presentations must be accurate and not cherry-picked.
• Management fees and incentive compensation affect investor returns.
• Investor-level tax consequences may be complex and not suitable for all customers.

Resale Restrictions and Secondary Market Concepts

Private placement investors often want to know when they can sell. The safest exam answer is usually: do not promise liquidity unless a valid resale path exists.

Restricted Securities

Securities acquired in unregistered private offerings are often restricted. Resale may require:

• Registration;
• A resale exemption;
• Compliance with holding periods and conditions;
• Transfer agent approval or legal opinion;
• Issuer consent or compliance with governing documents.

Rule 144

Rule 144 provides a safe harbor for public resale of restricted and control securities if conditions are met.

Trap: Rule 144 is a resale safe harbor, not the original private placement exemption.

Rule 144A

Rule 144A permits certain resales to qualified institutional buyers. It supports institutional private resale markets.

Exam reminders:

• It is a resale rule, not the same as Regulation D.
• It is generally institutional, not retail.
• QIB status is not the same as accredited investor status.
• Securities may still be illiquid compared with exchange-traded securities.

Anti-Fraud Rules and Material Information

Materiality

Information is material if a reasonable investor would consider it important in making an investment decision, or if it would significantly alter the total mix of information available.

Examples of potentially material information:

• Misstated revenue, assets, liabilities, or cash flow.
• Undisclosed related-party transactions.
• Management disciplinary history.
• Loss of major customer or supplier.
• Use of proceeds inconsistent with disclosure.
• Pending litigation or regulatory investigation.
• Valuation assumptions with no reasonable basis.
• Conflicts of interest or compensation arrangements.
• Liquidity restrictions and lack of secondary market.

Misstatement vs. Omission

Insider Trading and MNPI

Material nonpublic information, or MNPI, must be handled carefully.

High-yield rules:

• Do not trade while in possession of MNPI.
• Do not tip others.
• Follow information barrier procedures.
• Escalate accidental receipt of MNPI.
• Do not use confidential issuer information to solicit customers improperly.

Compensation, Conflicts, and Disclosures

Private placements frequently involve fees paid by the issuer, which can create conflicts even if the investor does not write a separate commission check.

Compensation Types

Conflict Decision Rule

If the fact could reasonably influence the investor’s decision, disclose it clearly and escalate if unsure.

Common conflicts:

• Firm has investment banking relationship with issuer.
• Representative personally invests in the offering.
• Firm or affiliate receives warrants.
• Issuer uses proceeds to pay affiliates.
• Fund manager values illiquid assets and receives performance fees.
• Preferential terms are granted to selected investors.

Broker-Dealer Registration and Associated Person Issues

Registration Logic

A person receiving transaction-based compensation for securities solicitation generally raises broker-dealer registration concerns.

Series 82 candidates should distinguish:

Trap: an issuer’s ability to rely on a securities registration exemption does not automatically permit unregistered persons to sell the securities for compensation.

Private Securities Transactions and Outside Business Activities

Representatives must follow firm procedures before participating in securities transactions away from the firm or engaging in outside business activities.

Key points:

• Provide required prior written notice.
• Obtain approval when required.
• Disclose compensation.
• Do not sell away.
• Do not route customers into off-platform deals without firm authorization.
• Personal investments can still create conflicts.

AML, KYC, and Customer Onboarding

AML Program Concepts

Broker-dealers must maintain an anti-money laundering program. For exam purposes, focus on practical red flags and escalation.

AML Red Flags in Private Placements

• Investor refuses to provide identity documents.
• Funds come from unrelated third parties.
• Investor is unconcerned with risk or economics.
• Investment is inconsistent with known financial profile.
• Complex entity structure has no business purpose.
• Investor seeks rapid redemption or transfer.
• Customer is associated with high-risk jurisdictions or sanctioned parties.
• Source of funds cannot be explained.

Correct exam response: pause, investigate under firm procedures, and escalate to AML/compliance.

Supervision, Books, and Records

Supervisory Duties

Broker-dealers must supervise associated persons and securities activities.

High-yield controls:

• Written supervisory procedures.
• Principal review and approval where required.
• Communication review.
• Product due diligence.
• Training.
• Exception reports.
• Customer complaint handling.
• Escalation procedures.
• Record retention.

Records Often Relevant to Private Placements

Trap: if it was not documented, it may be difficult to prove that it was done.

Customer Accounts, Orders, and Funds

Private placement processing can be less standardized than exchange-traded securities, so procedures matter.

Customer Account Review

Before recommending or processing a purchase, confirm:

• Customer identity.
• Authority for the account.
• Investment objectives.
• Risk tolerance.
• Time horizon.
• Liquidity needs.
• Financial condition.
• Tax status if relevant.
• Concentration in illiquid or speculative investments.
• Understanding of restrictions and risks.

Handling Funds

Be especially careful with:

• Checks made payable to the wrong party.
• Funds sent directly to a representative.
• Third-party wires.
• Early release from escrow.
• Customer requests inconsistent with offering documents.
• Use of personal accounts.
• Missing subscription documents.

Correct response: follow firm procedures and offering terms; escalate irregularities.

Common Series 82 Decision Points

506(b) or 506(c)?

Suitable or Unsuitable?

Disclosure or No Disclosure?

Disclose if the information is material, including:

• Compensation.
• Conflicts.
• Illiquidity.
• Transfer restrictions.
• Use of proceeds.
• Related-party transactions.
• Financial weakness.
• Fees and expenses.
• Valuation methodology.
• Sponsor disciplinary history.
• Risks specific to the issuer or sector.

Escalate or Proceed?

Escalate when:

• Investor information is inconsistent.
• Offering documents appear misleading.
• Management refuses diligence requests.
• Funds come from unusual sources.
• Public solicitation may have occurred in a 506(b) deal.
• A representative wants to sell away.
• A customer complains.
• A material event occurs before closing.
• A communication contains exaggerated claims.

Calculation Review

Current Yield

Current yield compares annual income to current market price.

\[ \text{Current yield} = \frac{\text{Annual interest or dividend}}{\text{Current market price}} \]

Exam trap: current yield does not include capital gain or loss at maturity.

Basic Bond Price Direction

Capitalization and Dilution

Quick trap: a 20% post-money ownership interest may not mean 20% of sale proceeds if preferred shares, debt, liquidation preferences, or participating rights exist.

Exam Traps to Memorize

“Accredited” Is Not the Final Answer

Accredited status helps with offering eligibility but does not answer:

• Is the product suitable?
• Is the recommendation in the customer’s best interest where applicable?
• Is the customer overconcentrated?
• Does the customer understand illiquidity?
• Were conflicts disclosed?
• Was due diligence performed?

“Private” Does Not Mean “Unregulated”

Private offerings still involve:

• Anti-fraud rules.
• Broker-dealer registration.
• FINRA communications rules.
• Suitability and Reg BI.
• AML obligations.
• Books and records.
• Supervision.
• State anti-fraud rules.

“Filed” Does Not Mean “Approved”

A filing, notice, or disclosure document does not mean a regulator approved the investment’s merits.

“Risk Disclosure” Does Not Cure Everything

Risk factors help only if they are:

• Accurate.
• Complete.
• Specific.
• Prominent enough.
• Not contradicted by sales statements.
• Updated when material facts change.

“Issuer Says So” Is Not Enough

A placement agent should question:

• Unsupported valuations.
• Aggressive projections.
• Missing financials.
• Related-party transactions.
• Disciplinary history.
• Unclear use of proceeds.
• Pressure to close quickly.
• Refusal to provide diligence materials.

Fast Review Tables

Laws and Rules by Purpose

Correct Action Verbs

When unsure, Series 82 questions often reward conservative compliance actions:

Topic Drill Priorities

Use topic drills to test whether you can apply rules to scenarios, not merely define terms. Prioritize practice in this order:

1. Regulation D scenarios
   Especially 506(b) vs. 506(c), general solicitation, accredited investors, and verification.

2. Suitability and Reg BI scenarios
   Practice identifying when accreditation is insufficient.

3. Private placement due diligence
   Focus on what the firm must investigate and when to escalate.

4. Communications and anti-fraud
   Drill misleading statements, omissions, projections, and conflicts.

5. Resale restrictions
   Separate original issuance exemptions from resale exemptions.

6. AML and supervision
   Know when to stop, document, and escalate.

7. Product economics
   Review equity, debt, convertibles, valuation, dilution, yield, and risk.

Final 24-Hour Review Checklist

Before a mock exam or final review session, make sure you can answer these quickly:

• What makes an offering private rather than public?
• What is the difference between Rule 506(b) and Rule 506(c)?
• Why does general solicitation matter?
• What is an accredited investor, and why is that not enough?
• What due diligence should a placement agent perform?
• What makes a private placement communication misleading?
• What are restricted securities?
• How do Rule 144 and Rule 144A differ?
• What conflicts must be disclosed?
• When does Reg BI apply?
• What are the main signs of unsuitable concentration?
• What should a representative do with suspicious customer funds?
• Why can escrow not be released early in a contingent offering?
• What is the difference between issuer exemption and broker-dealer registration?
• What records support a defensible recommendation?

Practical Next Step

After reviewing this quick review, move directly into Series 82 topic drills using independent companion practice. Focus on original practice questions with detailed explanations, especially private placement exemptions, suitability, communications, due diligence, resale restrictions, AML, and supervision.