Private Placement Program Trading

STRUCTURING, SETUP, DUE DILIGENCE AND FRAUD PROTECTION

As an experienced team of economists, lawyers and bankers specialized in the financial sector, De Micco & Friends is one of a small number of law firms which provide qualified assistance and consulting in Private Placement Programs (PPP). More than twenty years of experience in private and public financial transactions makes the group a good partner for investors, institutions and banks.

 

PRIVATE PLACEMENT PROGRAMS

Private Placement Programs, also called “High Yield Investment Programs”, are private (non-public) investment programs which are based on the purchase or sale of bank financial instruments. In most cases MTNs are mainly used. These instruments are bought fresh-cut with a high discount on their base value to later be resold at a higher price in the secondary market. The difference between the sale price and the purchase price is the investor’s profit. These programs are offered to investors with high spending capacity and can only be executed by qualified traders with a license to carry out these kinds of transactions. A very special aspect of these programs is that usually the largest part of the returns is allocated to humanitarian causes as well as to the financing of larger business projects. So, any institution takes precedence on this type of operation.

Actually, PPPs are not well known publicly, and only a very small group of investors that own significant funds or Bank Instruments have access to them. Most programs can be joined by invitation only. These programs have been issued since for the past 60 years to finance humanitarian projects and international trade.

DOWNLOAD THE PRIVATE PLACEMENT PROGRAM BROCHURE

RISKS FOR INVESTORS

Private Placement Programs do pose risks for the investor! Indeed, one of the biggest risks is to have the funds blocked for one year or more.  This happens when a transaction was not well prepared and organized. All rules given by financial institutions, the law and international money laundering regulations have to be complied with fully. The purchase and sale of MTNs is "risk-free" provided that the trader is guaranteed the exit to the instrument that was previously acquired (arbitrage trades). If De Micco & Friends selects, engages and contracts a trader, such an exit will be guaranteed by contracts and therefore the risks for the investor is minimized. Before the start of the program, the trader will "prepare" such a program by planning the future purchases and sales and determining beforehand the benefits that each of them will bring.
In a second phase the program will be executed, which means nothing but carrying out the purchases and sales that were previously planned and negotiated with the cutting houses.

PRIVATE PLACEMENT PROGRAM FRAUD PROTECTION/DEFENCE

In any case, there are significant risks for an investor, as we will explain below.

The funds of an investor will not be turned over to the trader but will always remain in the investors account. To start a program, the funds will only need to be locked for a period of time. The one and only safe way is to lock the funds with a Swift MT-799 and Swift MT-760. The MT-760 is a Swift message used to block funds in favour of someone other than the owner, collateralizing the asset via this message, while allowing for loans and liens against it.  Most private placements require the investor to send an MT-760 to the trader’s account, allowing the trader to use this swift as a collateral guarantee for their bank. This block will remain in place for the length of the program, which is a minimum of one year.
And here we have another risk for the investor. The fees for blocking a large amount of funds via an MT-760 can be more than some people expect. In most cases, a bank will charge 1-2% of the value being blocked for this service.  For example, on a 100M bank instrument this can be 1-2M that the investor must pay, unless they have a very special relationship with their bank. The final conditions have to be negotiated in any case.

The POF (Proof of Funds) will be issued by the Bank where the investor has the resources deposited, demonstrating their quality and amount, but does not enable anyone to move them or dispose of them.

When all the required documents are submitted, including the due diligence and the bank documents, we proceed to verify the funds.

Once these preliminary procedures are successfully completed, within 48 to 72 hours the Program Manager will contact the investor or his representant for a formal presentation and also to agree on how to block the funds.

For the last step, the investor will receive and sign an LOI (pre-contract) which later will be delivered to the traders’ office.

When the trade starts, the profits are collected weekly at the bank or paymaster designated by the trader. From the time that the first profit is collected, this capital will be fully available to the client. The investor’s funds must be clear, clean and of course must have a non-criminal origin. For every asset, the location of the deposited resources should be clearly stated by the bank in question. If any doubts arise at the time of verification, the transaction will be automatically dismissed.
All programs are strictly confidential. The parties involved, including lawyers, brokers and traders, sign a non-disclosure agreement.

In conclusion, before blocking any funds, the whole deal structure of the PPP transaction must be organized, prepared and committed to in advance by all involved parties. The preparation and structuring of such a transaction takes 3-4 months.

PPP - Setup Procedures

Individual Analysis and Assessment

A Private Placement Program trade is a complex process and is not really daily business.  Every case is different. De Micco & Friends is NOT a broker or mediator and we never provide representation for them! Our experienced lawyers and economists take care of the structure, connecting the involved parties, such as banks, investors, program managers and traders, the communication between the parties and due diligence.  As previously explained, it makes no sense to block funds, pay upfront fees or sign any contracts before the structure is settled and committed to in advance.

1. Mandate
The investor files a mandate with De Micco & Friends which includes legal advice and representation. The mandate includes the following services:

Analysis of the investor´s situation and needs

  • Legal advice before and during the whole process
  • Structuring of the private placement program
  • Due diligence regarding the source of funds
  • Localisation and contacting all involved parties and presentation of the project
  • Selection, negotiations and contracting the banks
  • Presentation and negotiation with the program manager
  • Localisation and contracting of a qualified (and real) trader or a trading team
  • Preparing the pay-outs to the investor with the receiving banks
  • Monitoring the trades and pay-outs of the profits

If an investor has an offer from a program broker or mediator, we offer a legal check and verification of the offered program for a fixed fee. We strongly recommend that the investor not sign any contracts, joint ventures or consultant contracts and never pay any upfront-fee before obtaining legal advice, verification and examination of the offer.

2. Analysis of the investor´s situation, KYC and due diligence regarding the funds

3. Setup compliance
After studying the viability of the operation, the investor will be provided with a compliance set (a set of documents) for them to be properly completed and signed. We will complete 90% of the compliance set so the client will simply need to review and then proceed to sign it.

4. Proof of Funds
Fund verification, source, bank certificate and verification by the Euroclear system/DTCC.

5. Joint Venture Agreement
Together with the compliance set of documents, the client will be provided with a "Commercial Agreement", which is determined and managed by the ICC 600.

6. Due Diligence and asset verification
These are procedures which include verification of the assets and the execution of due diligence (under study for acceptance) for the client and the submitted assets. The client must not be connected with crime organizations, drug trafficking, weapons, terrorism or any other illegal activities. Also, the asset must be clear, clean, with a non-criminal origin and must be 100% freely available to the investor.

7. Direct contact with the program manager
The client will be contacted directly by the program manager via phone, Skype or a personal meeting.

8. Execution
The client's bank will issue a Swift MT-799 prior notice and a Swift MT-760 lock to the bank the Trader specifies on the contract. The recipient of the MT-760 will be the trader, which enable him to “use” the funds through a loan given by a second bank that accepts the MT-799.

9. Contracting the trader
Trading contract will be concluded between trader and investor which includes the timing, arbitrage regulations, funds volume, markets, profit distribution, pay outs, etc.

10.  Acceptance of the investor
Once the trading contract is signed and the assets are locked, the investor will be admitted to the program within about 15 banking days.

11. Start of trading
The trader will start trading after a final confirmation from the program manager.

12. The yields
The trader will continue with a formal invitation to collect the first yields. On the invitation, the investor will be informed of the day, time, place and bank venue where the pre-opened account will be located. For the length of the program, each account that is opened will be the destination for the collected yields.

The investment's benefits will be fully and freely available for the client from the outset.

De Micco & Friends supports and assists transactions starting with a volume of about 100 M Euro. We don’t assist “pool-transactions” with more than 3 investors.

Here you can find further information about PPP fraud defense and scam protection services.

FURTHER INFORMATION AND COMENTS

The “Private Placement Program” which we describe here is the process to trade discounted bank instruments (MTNs, BGs) to generate profits, and should not be confused with “Private Placements” of private equity shares, for example to raise funds pre-IPO.

An MT-760 Swift message is used to block funds in favour of a third party, collateralizing the asset via this message, while allowing for loans and liens against it.  The fees for blocking a large amount of funds via MT-760 are about 1-2 %. Once the MT 760 reaches the trader’s account, the line of credit should become available within about 3 working days.  At that time, the trader should be able to make their first bank instrument purchase and give a clear timeline to the investor for the first profit disbursement.

The key to run a successful PPP is to find a real trader. When an investor considers a private placement program, one should always be sceptical of the offers.  Since there are only a few “real” traders in the markets, the chances of finding one are not very high. Traders in these secondary markets usually don’t advertise their services on Facebook.

THE APPLICATION STEPS

1. Compliance package: the investor provides a proof of funds and their compliance package
2. Trader or trade group submits application to the compliance department for review
3. Investor “due diligence”, trader contact, contracting
4. Investor contacts their bank to complete the private placement transaction
5. Investor´s funds are blocked, conditionally assigned to the trader in accordance with the contract
6. Trader accesses the line of credit from the trading bank
7. Trader uses line of credit to deal discounted bank instruments issued from bank
8. Investor receives payment of his part of the profits weekly

Most private placement programs are intended to fund humanitarian projects. Typically, 60-70% of the program’s profits must go to projects, while the remaining 30-40% is for “administrative use”. As a result, the 30-40% can be used at the investor´s discretion. In any case, the investor must make sure he is funding projects. Actually, the platform does not regulate this, but authorities like the FED or the European Central Bank oversees all of the parties who have applied and received money in these types of programs.

 

DOWNLOAD THE PRIVATE PLACEMENT PROGRAM BROCHURE.

 

Please contact us for further information.
Phone: +34 871 955 077 | eMail: office@demicco.ch