PRIVATE PLACEMENT MEMORANDA REGISTRATION

What is the Difference Between a 506(b) Offering and a 506(c) Offering? Meeting these financial thresholds thus generally opens the door to an individual’s participation in a Rule 506(b) or Rule 506(c) offering. To qualify as accredited, an individual investor must have a net worth (excluding his or her primary residence) of at least $1 million dollars or an annual income of over $200,000 (or over $300,000 in joint income with a spouse) for the two most recently completed years with a reasonable expectation of achieving the same level of income in the current year. The Definition of “Accredited Investor” and Why This Term is Important.Īs a predicate to understanding Rules 506(b) and 506(c), it is first necessary to understand the legal term “accredited investor.” This term is defined by the SEC and largely governs which individuals can participate in a Regulation D offering. Investors in private placements should be familiar with these rules so they know the ‘rules of the game’ the issuer is supposed to be playing.

PRIVATE PLACEMENT MEMORANDA REGISTRATION

The most commonly relied upon exemptions from registration are Rules 506(b) and 506(c) of SEC Regulation D. Investing in securities through a private placement is riskier than investing in the same securities issued through a registered offering. Investors in private placements cannot take advantage of the legal protections and disclosure obligations incident to the securities registration process. But what is good for an issuer is not necessarily good for investors. Issuers like to sell securities through private placements because it is generally easier, quicker, and less expensive for the issuer than conducting a registered securities offering. Why do Issuers Sell Securities Through Private Placements? Investors in private placements should do their own due diligence on the offering, including potentially consulting with their own legal counsel. Investors should never assume that just because a securities issuer is claiming to offer a security pursuant to a valid exemption from registration that this is actually true. But the rules governing exempt offerings are very complex and navigating them generally requires the advice of legal counsel.

There are many potential ways in which a securities offering could properly be exempt from registration with the SEC and with state securities regulators. Private placements allow companies to sell stocks, bonds or other securities to investors without completing the rigorous disclosures necessary in a registered offering. What is a Private Placement?Ī private placement is a securities offering that is not required by law to be registered with federal or state securities regulators. Because fraudsters often try to capitalize on current issues and problems to promote their scams, the Department of Financial Protection and Innovation (DFPI) is issuing this investor alert on exempt securities offerings, also known as “private placements,” in light of the coronavirus pandemic. The COVID-19 pandemic has caused significant disruption and anxiety to individuals and the financial markets.

Private placement memoranda