Investment Opportunity and Risk of Fraud in Private Placement Offers: A Case of Middle Eastern Investors Investing Outside the Middle East

Abstract

This study raises the question about the level of misstatement risk and fraud associated with the Private Placement Memorandum. The reason for raising this question is that Private Placement Memorandum is circulated among potential investors without any regulatory approval to ensure the content. Individuals have tremendous wealth and liquidity in the Middle East region, particularly the six countries of the Gulf Cooperation Council; Hence, investment opportunities through Private Placement Offers are numerous for the investors in the region., The associated risk of fraud or misstatement, therefore, is equally high with Private Placement Memorandum due to lack of any regulatory bodies that control and monitor Private Placement Memorandum in the Middle East. A qualitative study approach was used with a questionnaire circulated among a selected population to secure direct feedback based on participants’ experience. The results of the survey conclude the need for direct regulatory control on the Private Placement Memorandum with the goal to give better protection to investors in the region. The data collected suggests that the Private Placement Memorandum is not transparent mainly due to there being no direct monitoring of the content of Private Placement Memorandum from regulatory authorities in the region. Hence, the study achieved the objective of highlighting the need for statutory bodies to regulate and protect investors’ interests in the region. This study could help authorities understand factors to be considered, while allowing private placement with best possible disclosure in Private Placement Memorandum, with legal and criminal consequences in case of intentional misstatement, misleading information, or lack of sufficient disclosures.