Reed Smith Client Alert

Key takeaways

  • Securities offerings under Regulation D that make use of public advertising have become much easier
  • This new flexibility takes away one of the primary reasons for avoiding public advertising in Regulation D offerings.
  • We are likely to see many more private funds and companies using public advertising in their Regulation D securities offerings

Introduction

In March of this year, the Staff of the SEC Division of Corporation Finance issued a no-action letter that makes it much less painful for  private fund managers, independent sponsors and companies to make securities offerings under Rule 506(c) of Regulation D using public advertising, such as websites, media placements and group emails.  A copy of the no-action letter can be found online.

Key elements of the no-action position

  • Minimum investment thresholds. A commitment of at least $200,000 in cash (or the right to call cash) for natural persons and at least $1 million for entities is deemed sufficiently high to serve as objective evidence of accredited investor status.
  • Written self-certification. The investor must furnish a written representation (e.g., in the subscription agreement or a separate certificate) that it qualifies as an accredited investor and that the committed funds are not financed by a third party for the specific purpose of making the investment.
  • No “look-through” to third-party documentation. So long as the investor meets the applicable minimum investment amount and provides the required self-certification, the issuer need not review tax returns or brokerage statements or obtain third-party confirmations from lawyers, accountants or verification service providers.
  • No actual knowledge of contrary facts. The no-action relief is unavailable if the issuer is aware of information suggesting the investor is not an accredited investor or is financing the investment for the specific purpose of participating in the offering.
  • Flexibility for capital-call structures. The investment can be satisfied through an immediate cash contribution or a binding commitment subject to capital calls over time, aligning the verification method with common private fund and independent sponsor economics.