Due Diligence and Offering Review

Due diligence is the control process that lets a firm decide whether a DPP can be sold and how it must be described. Series 22 does not expect you to perform legal, accounting, or engineering review like a specialist. It does expect you to recognize the categories of information that should be reviewed before representatives solicit customers.

A strong Series 22 answer treats due diligence as more than collecting a private placement memorandum or prospectus. The firm has to understand the sponsor, assets, economics, fees, conflicts, projections, tax assumptions, escrow terms, and liquidity claims well enough to communicate the offering fairly and to decide whether customer recommendations can be supported.

Learning objectives

After this lesson, you should be able to:

• explain the Series 22 purpose of due diligence and offering review in the DPP sales workflow
• identify the customer, product, documentation, and supervision facts that change the answer
• recognize common traps involving illiquidity, fees, conflicts, tax language, or unsupported assumptions
• choose the answer that protects fair disclosure, suitability, and the firm record

What the exam is really testing

Series 22 questions rarely ask for isolated trivia. They usually present a DPP fact pattern and expect you to decide whether the representative has enough information, has described the product fairly, has escalated the right issue, or has documented the correct step. For due diligence and offering review, the strongest answer is the one that keeps the offering documents, customer profile, and supervisory record aligned.

Due diligence workflow

    flowchart TD
	  A["Review offering documents and sponsor materials"] --> B["Test assets, assumptions, fees, conflicts, and tax claims"]
	  B --> C{"Are material risks and limitations understood?"}
	  C -->|"No"| D["Escalate or withhold approval before selling"]
	  C -->|"Yes"| E["Approve controlled communications and suitability review process"]

How to answer fact patterns

Use this sequence when the topic appears inside a longer DPP scenario:

1. Identify the specific DPP feature, role, cost, document, or tax claim being tested.
2. Ask whether the customer has enough information to understand the risk and liquidity limit.
3. Ask whether the representative is relying on an unsupported claim, stale document, or incomplete profile fact.
4. Choose the answer that documents the issue, discloses the material risk, or escalates the gap before the sale proceeds.

Common exam traps

• Treating delivery of an offering document as the same thing as firm due diligence.
• Accepting sponsor projections without reviewing assumptions, reserves, and expense levels.
• Ignoring related-party arrangements because they are disclosed somewhere in the documents.
• Describing a redemption feature as liquidity when it is conditional or limited.
• Failing to document due diligence findings and supervisory escalation.

Key concepts

• Sponsor review: know what it changes in the recommendation, disclosure, or recordkeeping analysis.
• Offering documents: know what it changes in the recommendation, disclosure, or recordkeeping analysis.
• Use of proceeds: know what it changes in the recommendation, disclosure, or recordkeeping analysis.
• Projection assumptions: know what it changes in the recommendation, disclosure, or recordkeeping analysis.
• Tax opinion limits: know what it changes in the recommendation, disclosure, or recordkeeping analysis.
• Liquidity claims: know what it changes in the recommendation, disclosure, or recordkeeping analysis.

Key takeaways

• Series 22 treats DPP sales as a documented workflow, not a product pitch.
• Illiquidity, sponsor economics, fees, conflicts, and tax uncertainty must be explained before they become customer misunderstandings.
• The best answer usually slows the sale down when the product facts, customer profile, offering documents, or supervisory record do not line up.