The Securities Act of 1933 requires registration of any securities sale with the Securities and Exchange Commission (SEC) unless it is specifically exempted. Section 4(2) of the Act exempts “transactions by an issuer not involving any public offering.” That exemption created a type of business in the securities industry known as “private placements.” Through negotiation, the investor and the issuer may tailor the offering to meet their needs. The issuer saves securities registration costs and obtains alternative financing. The investor makes an investment for a specified length of time at a stated rate of return. Both the investor and the issuer complete the transaction without being subject to regulatory and public scrutiny. The matching of issuers with investors is usually done by an individual or firm acting as either an agent or an advisor. In the agent relationship, the firm has authority to commit the issuer. An advisor has no such power. Regardless of whether the firm is an agent or advisor, it must act prudently and disclose all pertinent information to the investor. Furthermore, the firm must avoid possible conflicts of interest. Agents, usually investment bankers, participate in negotiations between the issuer and investor, and their fee is dependent on their involvement. Banks may not commit funds to private placement transactions. (Federal Reserve-Commercial Bank Examination Manual)