Aug 29, 2013 | Uncategorized

Private Funds Now Have Ability to Advertise

As of September 23, 2013 issuers will be able to promote non-registered securities offerings using print, display, and electronic media.  Issuers will be able to solicit for offerings under Rule 506(c) Reg. D if 1)  all purchasers are “accredited investors” or the issuer reasonably believes that all purchasers are “accredited investors’ at the time of sale and 2)  the issuer takes reasonable steps to verify that all purchasers are “accredited investors.”

The methods of verification include:

  1. Income Verification.  An issuer will satisfy this method by reviewing any filed IRS forms that report 2 years worth of subscriber’s income as well as obtain written representation from the subscriber that they reasonably expect to earn the same amount in the current year.
  2. Net Worth Verification.  An issuer will satisfy this method by reviewing the following documents dated within the most recent 3 months and obtaining written representation from subscriber that all liabilities necessary to make a net worth determination have been disclosed.  For assets, the issuer must obtain bank statements, brokerage statements, securities holdings, certificates of deposit, tax assessments, and appraisal reports issued by independent third parties.  For liabilities, an issuer must obtain a consumer report by one of the nationwide consumer reporting agencies.
  3. Third Party Certification.  An issuer will satisfy this method by obtaining written confirmation from one of the following entities that such entity has taken reasonable steps to verify that purchaser is an accredited investor:  Registered Broker Dealer, Registered Investment Adviser, Licensed Attorney, or Licensed CPA.
  4. Existing Investors.  Accredited investors who became investors prior to September 23, 2013 can purchase additional interests in Rule 506(c) offerings from the same issuer by re-certifying in writing that the investor qualifies as an accredited investor at the time of subsequent purchase.  Moreover, issuers may utilize Rule 506(c) for general solicitations even if they have non-accredited investors that were admitted prior to September 23, 2013.

However, before you start developing promotional material, you need to understand the limitations associated with this new rule.