State securities regulators have issued a warning about risky private placements, ahead of rule changes designed to open up the U.S. exempt market.

The North American Securities Administrators Association (NASAA) issued an advisory Tuesday warning investors about the risks of these sorts of offerings in advance of a federal rule to allow these deals to be advertised more widely. Existing U.S. securities laws do not allow general solicitation or advertising of private placement offerings. However, legislation passed last year (known as the JOBS Act) directs the U.S. Securities and Exchange Commission (SEC) to lift this ban as long as the sales are limited to accredited investors; and NASAA notes that the SEC is finalizing its proposed rule lifting the ban.

Once implemented, this rule will allow companies and promoters to offer securities through direct mail, cold calls, free lunch seminars and television or radio commercials, NASAA says. “As a result, unscrupulous companies and promoters may take advantage of the new rules to offer potentially fraudulent investments,” it warns in its advisory.

Indeed, as these offerings are not reviewed by regulators, NASAA says that “they have become a haven for fraud.” It says that its most recent enforcement statistics indicate that private placement offerings are the most frequent source of enforcement cases conducted by state securities regulators.

“State securities regulators are concerned that Main Street investors will be lured into high-risk or fraudulent investments when the ban on general solicitation of private placement offerings is lifted,” said NASAA president and Arkansas Securities Commissioner, Heath Abshure.

The advisory includes information on the risks associated with private placements and tips for investors on how to protect themselves when considering such an offering.

Abshure noted that, while state securities regulators want small businesses to be able to thrive and create jobs without unnecessary regulatory impediments, “A healthy private placement marketplace requires investors who feel adequately protected.”