The Steak-Dinner Seminar and the Non-Accredited Dentist

The public website and the 4,000-household mailing are general solicitation. That means the offering cannot be conducted under Rule 506(b), which prohibits general solicitation and permits up to 35 non-accredited but sophisticated purchasers.

The likely exemption is Rule 506(c): general solicitation is permitted, but every purchaser must be accredited and the issuer must take reasonable steps to verify accredited status - a self-certification questionnaire alone is generally not enough under 506(c). Verification can include review of tax returns, bank and brokerage statements, or a written confirmation from a CPA, attorney, or registered broker-dealer.

Consequences for the two clients:

• Dan may purchase, but only after documented verification of his accredited status. His representation is a starting point, not the finish line.
• Priya may not purchase. Her sophistication is irrelevant - 506(c) admits only accredited investors, and her net worth and income fall short.

Also confirm the units are registered or exempt under your state's blue-sky law, and that your firm's participation and the seminar materials have been approved under Rules 2210 and 2210's principal-approval requirements.

Both are high-risk and neither should be repeated as presented.

The write-off claim. Intangible drilling cost deductions reduce taxable income; they do not return capital. A dollar of IDC deduction saves only the investor's marginal rate, and the deduction reduces basis, which increases taxable income on later production or sale. Presenting it as a 3-to-1 “write-off” implies an economic return that does not exist and is a material misrepresentation under Rule 2210(d)(1). Any tax illustration must be clearly labeled hypothetical, state its assumptions, disclose that results will vary, and be approved by a registered principal; it may not be framed as a projection of investment results.

The historical chart. “Historical well results” for a developmental program typically reflects wells the sponsor did not drill or prospects that were not sold to investors. Using it implies a predictive relationship that cannot be supported. Prior performance must be presented with the assumptions, the population measured, and prominent disclosure that past performance does not predict future results.

Before you say anything to a client, obtain the sponsor's source data, submit the materials through your firm's advertising review, and confirm the principal approval is current. Verbal versions of a prohibited claim are still communications.

It is a payment from an issuer to the firm connected to the sale of its securities, and it must be treated as such rather than as hospitality.

• Non-cash compensation rules and Rule 3220. Compensation arrangements tied to the sale of a program are heavily restricted; the firm may not accept payments that influence or reward a recommendation. Entertainment and meals are generally not permissible non-cash compensation for DPP sales.
• Disclosure. If any part of the arrangement is retained, it must be disclosed to the customer as remuneration in connection with the transaction - including on the confirmation under Rule 10b-10 - and in the firm's conflicts disclosures.
• Firm approval. Accepting anything of value from a sponsor typically requires prior written approval from compliance and must be recorded on the firm's outside-activity/gift register.
• Recommendation integrity. Reimbursed dinners create an incentive to favor this sponsor's program. That does not make a recommendation impermissible, but it sharpens the Rule 2111 obligation to show the recommendation was based on the client's objectives, not the event.

Practical handling: decline or remit the $1,500 to the firm per policy, document the sponsor's solicitation practices, and do not let the reimbursement influence which program, if any, you recommend to Dan.