Private Placements and the Internet Revisited
In his Real Estate Securities column, Peter M. Fass reviews relevant changes and recent SEC guidance as applicable to a private offering using the Internet in light of changes in Regulation D in July 2013 which eliminated the ban on general solicitation and general advertising of securities offerings conducted under Rule 506(c).
October 09, 2015 at 03:18 PM
12 minute read
Starting in mid-2009 through February 2010, this column discussed the securities law considerations in connection with the offer and sale of unregistered real estate securities using the Internet. In light of changes in Regulation D in July 20131 which eliminated the ban on general solicitation and general advertising (General Solicitation) of securities offerings conducted under Rule 506(c), this column will review the relevant changes and recent Securities and Exchange Commission (SEC) guidance as applicable to a private offering using the Internet.
Overview of Regulation D
Section 4(2) of the Securities Act of 1933 (1933 Act) provides that Section 5 (the registration requirement section) shall not apply to “transactions by an issuer not involving any public offering.” Traditionally, this has been regarded as providing an exemption from registration, available only to the issuer of the securities, for bank loans, private placement of securities with institutions, and the promotion of a business venture by a few closely related persons. It has not been considered available as an exemption for offerings of speculative ventures to unrelated and uninformed persons.
The SEC and the courts have taken the position that whether a transaction is one not involving any public offering is essentially a question of fact and necessitates consideration of all surrounding circumstances, including the relationship between the offerees and the issuer, the nature, scope, size, type and manner of the offering. In the leading case, the Supreme Court held that the exemption must be interpreted in view of the statutory purpose to “protect investors by promoting full disclosure of information thought necessary to informed investment decisions,” and that its applicability “should turn on whether the particular class of persons affected need the protections of the Act.”2 The courts have developed flexible tests for the private placement exemption, focusing upon (1) the number of offerees; (2) the sophistication of the offerees; (3) the size and manner of the offering, and (4) the relationship of the offerees to the issuer.3
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