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Rule 506(b versus Rule 506(cThe SEC has recently issued a no action letter and some “compliance and disclosure interpretations” relating to the use of 506(b by an online private placement under Regulation D. The issue? Which private placement offerings involve a general solicitation and are therefore subject to the more challenging requirements of the new Rule 506(c, and which offerings still qualify under the tried and true 506(b. Some high lights: • An offering of securities to an angel investing club is not a general solicitation• With large groups it depends on who attends and the purpose. “If the company is presenting an offering of securities to a large group of people who have no specific relationship to the organizers, then one can reasonably conclude that this is, in fact, a general solicitation.”• There is no specific waiting period to create a pre-existing relationship.• Whether an issuer has sufficient information to evaluate an investor’s financial circumstances and sophistication depends on the facts. • The SEC prefers an issuer to use a series of special purpose vehicles for investment in portfolio companies, rather than using blind pools but not prohibit blind pools.Operative SEC language:“ . . . . the quality of the relationship between an issuer (or its agent) and an investor is the most important factor in determining whether a ‘substantive’ relationship exists. “A "substantive" relationship is one in which the issuer (or its agent) has sufficient information to evaluate an offeree's financial circumstances and sophistication when determining status as an accredited or sophisticated investor. See, e.g., Bateman Eichler, Hill Richards, Inc. (Dec. 3, 1985).”For additional information, please contact the author at [email protected]
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Rule 506(b versus Rule 506(c
The SEC has recently issued a no action letter and some “compliance and disclosure interpretations” relating to the use of 506(b by an online private placement under Regulation D.
The issue? Which private placement offerings involve a general solicitation and are therefore subject to the more challenging requirements of the new Rule 506(c, and which offerings still qualify under the tried and true 506(b.
Some high lights:
An offering of securities to an angel investing club is not a general solicitation
With large groups it depends on who attends and the purpose. “If the company is presenting an offering of securities to a large group of people who have no specific relationship to the organizers, then one can reasonably conclude that this is, in fact, a general solicitation.”
There is no specific waiting period to create a pre-existing relationship.
Whether an issuer has sufficient information to evaluate an investor’s financial circumstances and sophistication depends on the facts.
The SEC prefers an issuer to use a series of special purpose vehicles for investment in portfolio companies, rather than using blind pools but not prohibit blind pools.
Operative SEC language:
“ . . . . the quality of the relationship between an issuer (or its agent) and an investor is the most important factor in determining whether a ‘substantive’ relationship exists.
“A "substantive" relationship is one in which the issuer (or its agent) has sufficient information to evaluate an offeree's financial circumstances and sophistication when determining status as an accredited or sophisticated investor. See, e.g., Bateman Eichler, Hill Richards, Inc. (Dec. 3, 1985).”
For additional information, please contact the author at [email protected]
