private placements

NASAA 2010 Investment Adviser TrainingNASAA 2010 Investment Adviser Training

Private PlacementsPrivate PlacementsLindsay DeRosiaLindsay DeRosia

State of MichiganState of Michigan


These views are my own views These views are my own views and not necessarily those of and not necessarily those of

NASAA or the State of NASAA or the State of MichiganMichigan


Regulation DRegulation D

Regulation D covers 3 Regulation D covers 3 federalfederal securities exemptions: securities exemptions: • Rule 504 Rule 504 • Rule 505Rule 505• Rule 506Rule 506

17 CFR § 230.501 – 50817 CFR § 230.501 – 508


Regulation D BreakdownRegulation D Breakdown

§ 230.501: Definitions§ 230.501: Definitions § 230.502: General (Integration / § 230.502: General (Integration /

Information)Information) § 230.503: Form D Filing Information§ 230.503: Form D Filing Information § 230.504 – 506: Specific Exemption § 230.504 – 506: Specific Exemption

DetailsDetails § 230.507: Disqualifying Provision§ 230.507: Disqualifying Provision §230.508: Insignificant Deviations§230.508: Insignificant Deviations


Securities Act of 1933 Securities Act of 1933

§ 3(b) The Commission may from time to time by its § 3(b) The Commission may from time to time by its rules and regulations, and subject to such terms and rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any conditions as may be prescribed therein, add any class of securities to the securities exempted as class of securities to the securities exempted as provided in this section, if it finds that the provided in this section, if it finds that the enforcement of this title with respect to such enforcement of this title with respect to such securities is not necessary in the public interest and securities is not necessary in the public interest and for the protection of investors by reason of the small for the protection of investors by reason of the small amount involved or the limited character of the amount involved or the limited character of the public offering; but no issue of securities shall be public offering; but no issue of securities shall be exempted under this subsection where the exempted under this subsection where the aggregate amount at which such issue is offered to aggregate amount at which such issue is offered to the public exceeds $5,000,000. the public exceeds $5,000,000.


Rule 504Rule 504

Based on §3(b) of the 33 ActBased on §3(b) of the 33 Act Offer and sale of up to $1,000,000 in Offer and sale of up to $1,000,000 in

a 12 month perioda 12 month period Can sell to an unlimited number of Can sell to an unlimited number of

investorsinvestors General solicitation generally not General solicitation generally not

allowed*allowed* Must file a Form DMust file a Form D


Rule 505Rule 505

Based on §3(b) of the 33 ActBased on §3(b) of the 33 Act Offer and sale of up to $5,000,000 in Offer and sale of up to $5,000,000 in

a 12 month perioda 12 month period Can sell to an unlimited number of Can sell to an unlimited number of

accredited investors and up to 35 accredited investors and up to 35 other personsother persons

No general solicitation or advertisingNo general solicitation or advertising Must file a Form DMust file a Form D


Rule 506Rule 506

Section 4(2) of the Securities Act Section 4(2) of the Securities Act exempts from federal registration exempts from federal registration “transactions by an issuer not “transactions by an issuer not involving any public offering.”involving any public offering.”

Rule 506 was a Rule created to help Rule 506 was a Rule created to help provide objective standards for when provide objective standards for when an offering satisfied the 4(2) an offering satisfied the 4(2) exemption, and is therefore considered exemption, and is therefore considered a “safe harbor” for the private offering a “safe harbor” for the private offering exemption found in 4(2).exemption found in 4(2).


Rule 506Rule 506 National Securities Markets National Securities Markets

Improvement Act (“NSMIA”) Improvement Act (“NSMIA”) preempted state regulation of Rule preempted state regulation of Rule 506 offerings, by classifying them as 506 offerings, by classifying them as “federally covered securities.” “federally covered securities.”

States, however, do still retain States, however, do still retain authority in regards to fraud and authority in regards to fraud and notice filing requirements.notice filing requirements.

There is no offering dollar limit, so it is There is no offering dollar limit, so it is a popular avenue.a popular avenue.


Rule 506Rule 506

Can raise an unlimited amount of Can raise an unlimited amount of moneymoney

Can sell to an unlimited number of Can sell to an unlimited number of accredited investors and up to 35 accredited investors and up to 35 other purchasersother purchasers

Cannot use general solicitationCannot use general solicitation Must file a Form DMust file a Form D


Accredited InvestorAccredited Investor

See §230.501(a) for complete list:See §230.501(a) for complete list:• Any natural person whose individual net Any natural person whose individual net

worth, or joint net worth with that worth, or joint net worth with that person’s spouse, at the time of his person’s spouse, at the time of his purchase exceeds $1,000,000purchase exceeds $1,000,000

• Any natural person who had an Any natural person who had an individual income in excess of $200,000 individual income in excess of $200,000 ($300,000 with spouse)($300,000 with spouse)


PPMPPM

Private Placement MemorandumPrivate Placement Memorandum Specific disclosure requirements vary Specific disclosure requirements vary

amongst the exemptions, but amongst the exemptions, but generally a Private Placement generally a Private Placement Memorandum is utilizedMemorandum is utilized

Protects the issuer from future Protects the issuer from future charges of violating the antifraud charges of violating the antifraud provisions of federal securities laws.provisions of federal securities laws.


http://www.sec.gov/edgar/searchedgar/companysearch.htmlhttp://www.sec.gov/edgar/searchedgar/companysearch.html


For more informationFor more information

http://www.sec.gov/answers/regd.hthttp://www.sec.gov/answers/regd.htmm

NASAANASAA• Project GroupProject Group• Review ChecklistReview Checklist


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private placements

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