One of the troubling aspects of private placements is trying to draw the line between public advertising for the business and public advertising for selling securities. This aspect is even more apparent for private equity funds and real estate funds that want to tout their deals without jeopardizing their fundraising. The Securities and Exchange Commission offered some updated guidance.
The SEC published The 11 Securities Act Rules Compliance and Disclosure Interpretations that provide guidance on “general solicitation” under Rule 502(c)
Question 256.24 What information can an issuer widely disseminate about itself without contravening Rule 502(c)?
Answer: Information not involving an offer of securities may be disseminated widely without violating Rule 502(c). For example, factual business information that does not condition the public mind or arouse public interest in a securities offering is not an offer and may be disseminated widely. Information that involves an offer of securities through any form of general solicitation would contravene Rule 502(c). [August 6, 2015].
Which of course leads to the next question:
Question 256.25: What is factual business information?
Answer: What constitutes factual business information depends on the facts and circumstances. Factual business information typically is limited to information about the issuer, its business, financial condition, products, services, or advertisement of such products or services, provided the information is not presented in such a manner as to constitute an offer of the issuer’s securities. Factual business information generally does not include predictions, projections, forecasts or opinions with respect to valuation of a security, nor for a continuously offered fund would it include information about past performance of the fund. (Release No. 33-5180). [August 6, 2015]
Not deep guidance, but it’s still guidance.
Questions 256.26 through 256.33 offer insight into the pre-existing, substantive relationship you need to avoid general solicitation.
A “substantive” relationship is one in which the issuer (or a person acting on its behalf) has sufficient information to evaluate, and does, in fact, evaluate, a prospective offeree’s financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor. Self-certification alone (by checking a box) without any other knowledge of a person’s financial circumstances or sophistication is not sufficient to form a “substantive” relationship.
Sources:
- 11 Securities Act Rules CDIs (256.23 – 256.33)
- Securities Act Forms CDI (130.15)
- General Solicitation & Reg D: Corp Fin Issues 12 New CDIs (& a No-Action Letter) in Corporate Counsel .net
