Seeking Business: Marketing Private Placements Within the Exemption
Prospecting Inside the Private-Placement Exemption
Every conversation a Series 82 representative has with a prospect about an unregistered offering sits inside a narrow lane carved out by the Securities Act. Section 4(a)(2) exempts transactions not involving a public offering; Rule 506 of Regulation D supplies a safe harbor. Under Rule 506(b) the issuer may sell to an unlimited number of accredited investors plus up to 35 non-accredited but sophisticated purchasers, but may not engage in general solicitation or general advertising - no cold calls to strangers, no mass emails, no website blasts, no press releases. Under Rule 506(c) general solicitation is permitted, but every purchaser must be accredited and the issuer must take reasonable steps to verify that status.
Know the mechanics of a pre-existing substantive relationship: it is what makes outreach permissible under 506(b), and it must predate the offering. Know that paying someone transaction-based compensation to find investors can make that person an unregistered broker-dealer. Know FINRA Rule 2210 for retail communications, and the TCPA and Do-Not-Call rules for the telephone.
Traps: questions that assume a 506(c) offering can accept a non-accredited buyer; questions that treat a purchased contact list as a defense to general solicitation; questions implying a finder may be paid a percentage of the raise.
Rule of thumb: In a 506(b) deal you may only talk to people whose relationship you can already document; in a 506(c) deal you may talk to anyone but sell only to verified accredited investors.
Worked example: An issuer asks you to email a term sheet to 10,000 purchased addresses for a 506(b) offering. That is general solicitation and destroys the safe harbor. Decline and use targeted outreach to existing relationships.