The Seminar List, the Vendor List, and a 506(b) Offering
You are a private placements representative at a mid-size broker-dealer. An issuer client is raising $8 million under Rule 506(b) using a deck your principal approved. You sponsored a seminar that drew 40 attendees; 12 were not accredited. Two attendees have been your customers for years and have bought private deals with you; a third attended once, asked to be added to your list, and has never discussed finances with you. Separately, you bought a list of 300 'high-net-worth' contacts from a vendor and want to email the deck to 60 of them. The issuer's deadline is in three weeks and the offering is 40% subscribed.
1. May you email the approved deck to the 60 contacts from the purchased vendor list?
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No. A 506(b) offering cannot be marketed by general solicitation. A purchased list of strangers is the paradigm case: you have no pre-existing substantive relationship with those 60 people, so a mass email of offering material is general solicitation and can disqualify the issuer's reliance on 506(b) for the entire offering - not just for those recipients.
Reasoning steps:
- The key question is not whether the recipients happen to be accredited, but how the relationship was formed. A relationship built from a vendor list on the eve of an offering is not pre-existing and not substantive.
- Tainting the exemption exposes the issuer (and the firm) to rescission and to liability under the antifraud provisions.
- If the issuer wants to reach cold contacts, the offering would have to be converted to 506(c), which permits general solicitation but requires the issuer to take reasonable steps to verify each purchaser's accredited status. That is the issuer's decision, not yours.
- Even in a 506(c) deal, the email itself would still need principal approval, fair and balanced presentation, and compliance with the firm's written supervisory procedures and FINRA communications rules.
2. Which of the seminar attendees may you solicit, and on what basis?
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Sort them by relationship and by what you actually know:
- The two long-standing customers: likely permissible. You have a pre-existing substantive relationship formed before this offering, and you have enough financial history to form a reasonable belief about accreditation and sophistication. Still document that basis and have the communication approved.
- The one-time attendee: generally not. Attending one seminar and asking to be on a list does not create a substantive relationship; you have never discussed finances and cannot form a reasonable belief about accreditation.
- The 12 non-accredited attendees: they are not automatically excluded from a 506(b) deal. Up to 35 non-accredited purchasers are permitted if they (or their representative) have the sophistication to evaluate the investment. But you need a documented reasonable belief of sophistication, and the issuer must count them against the 35-person cap.
The trap is treating 'attended my seminar' as equivalent to 'pre-existing relationship.' It is not.
3. The issuer now says it will switch the offering to 506(c). What changes for you, and what does not?
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Switching to 506(c) solves the general-solicitation problem but creates a verification problem.
- Changes: you may generally solicit, including to the vendor list, because 506(c) permits it. But every purchaser must be accredited, and the issuer must take reasonable steps to verify that status - self-certification alone is not enough.
- Does not change: the deck still needs principal approval; communications must be fair and balanced and not misleading; the firm's private placement procedures still apply; and you still must be able to demonstrate a reasonable basis for any recommendation you make.
- Practical consequence: the 60 cold contacts become reachable, but each one now needs documentary verification (tax forms, recent account statements, or a third-party verification letter), which is a slower and more invasive process than a 506(b) questionnaire.
Recommend confirming the change in writing from the issuer and getting compliance sign-off before sending anything.