All posts tagged Reg D

Unrequested Media Coverage and General Solicitation

Unrequested Media Coverage and General SolicitationQ: If I file a Form D, as required by Regulation D, and a media outlet picks up on the filing and reports on it, have I generally solicited my offering under Rule 506?

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:

  1. Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
  2. Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising…”
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Can I Talk To the Press?

Can I Talk To the PressQ: My company is conducting a non-generally solicited offering under Rule 506(b). We have held our first closing and filed our Forms D with the SEC and various state securities departments. Now the press has picked up the Form D filing and reported about it in the paper. We didn’t talk to the newspaper that reported on it, but it they reported it anyway.

Now that the news is out, can I talk to the press about the offering, or will that blow my Rule 506(b) non-generally solicited offering status, and throw me into Rule 506(c)?

A: No, you can’t talk to the press about your non-generally solicited offering under Rule 506(b) as long as the offering is ongoing. And even after the offering is completed, you will want to exercise a lot of care in talking to the press, if, for example, you plan to conduct another offering in the near future under Rule 506(b).

It doesn’t matter that the press reported on it, based on the a Form D that you were required to file with the SEC within 15 days of the first sale.

To conduct your offering in accordance with Rule 506(b), you can’t “generally solicit” or “generally advertise” your offering.  Talking to the press about your offering would constitute “general solicitation” or “general advertising.”

If you did talk to the press about your offering while it was ongoing, that would put you in Rule 506(c), and then you would have to comply with the various obligations associated with Rule 506(c) offerings–namely:

1) Taking reasonable steps to confirm the accredited investor status of your investors, meaning reviewing Forms W-2 or similar financial statements of your investors and keeping records that you did so;

2) Checking the box that you relied on Rule 506(c) in your offering; and

3) Not taking any money from non-accredited investors.

Read my blog post The Pros and Cons of General Solicitation.

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Questions From Adam Lieb, Founder of Duxter

Adam Lieb of Duxter (2)The other day, Adam Lieb of Duxter and I had the chance to correspond with each other about the SEC’s now effective general solicitation rules and the SEC’s proposed rules regarding Regulation D and Form D.  Adam had a bunch of questions and we both thought that it would be helpful to write a blog post about them.

Questions From a Startup Founder

Adam: When I was in school I participated in a business plan competition. As part of that competition I made “an ask” where I asked the audience to invest in my business and gave terms. Under the proposed rules would I have been required to file with the SEC before the competition?

Joe: Unless this was play acting like in a Shakespeare class, if you were sincerely asking for funds, it would depend on how the event was advertised.  If the event was announced to the public on the Internet, and real prospective investors were in the crowd or on the judging panel (as is often the case), then the answer is almost certainly yes.  The reason for this is the SEC considers the posting of anything on an unrestricted website to be general solicitation.  If the proposed rules go into effect as they are proposed, you would have been required to file an “Advance Form D” 15 days before participating in the competition and making the “ask.”  If you missed this filing because you didn’t know about it, and you didn’t “cure” the mistake within 30 days, you would have been automatically disqualified from using Rule 506 for one year after the end of that offering.  An absurd result.

Adam: Most demo days I have seen have online registrations for entrepreneurs and investors to attend the event. Would this count as general solicitation under the new rules?

Joe: Per SEC guidance, posting something on the unrestricted Internet constitutes general solicitation.  If companies attend these events and pitch for funds, they will likely be considered to have generally solicited their offerings.

Adam: When I am fundraising, I change my fundraising materials A LOT. If I meet an investor three times before getting a yes or a no, and I change my materials each time, would I have to file those materials with the SEC before each meeting?

Joe: Under the proposed rules, if you are generally soliciting, each time you change your written materials you have to submit them to the SEC before their use.

Adam: What is the point of filing my materials with the SEC? Are they going to review them?

Joe: The SEC may very well review them, but is not obligated to do so..

Adam: Can my competitors view the materials I file with the SEC?

Joe: Your Form D, yes.  Your written general solicitation materials, no.

Adam Lieb is the founder & CEO of Duxter, which builds community tools for game developers to engage their fans.

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