What happened was, we raised $100,000 on a potentially $750,000 convertible debt round. The Form D required us to report what we had raised so far, and what we were hoping to raise. So, we reported we had raised $100,000 so far, on a $750,000 round. The press reported this. It also reported the name of our company, and the names of all of our officers and directors.
Now that the media reported on our offering, are we necessarily out of the 506(b) box and in 506(c), or can we still rely on 506(b) somehow?
A: Merely filing a Form D does not constitute general solicitation. The rules specifically answer this situation:
- “Provided, however, that…filing with the Commission by an issuer of a notice of sales on Form D (17 CFR 239.500) in which the issuer has made a good faith and reasonable attempt to comply with the requirements of such form, shall not be deemed to constitute general solicitation or general advertising for purposes of this section…”
It is important to note too that the prohibition on general solicitation talks about issuers and “any person acting on [an issuer's] behalf…” A media outlet, unless you own it or control it, is not acting on your behalf when it reports on your offering without you asking it to. The prohibition on general solicitation is quoted below.
If are conducting a Rule 506 offering, it is important that you exercise a lot of care to not generally solicit your offering, unless you intend to and are willing to take on the additional work that general solicitation entails.
“Limitation on manner of offering.” Except as provided in Rule 504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following:
- Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
- Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising…”