Real Estate Securities

Webster Management Assured Return Equity Management Group Trust (available Feb. 7, 1987), dealt with no prior relationship solicitation. Although the broker-dealer proposed to solicit only highly sophisticated offerees, it planned a relatively unrestricted solicitation: “Kidder would like to authorize its registered representative to make potential customers [qualified employee benefit plans in which 'in almost every case' the investment decision would be made by a bank, insurance company or registered investment adviser] aware of the [securities offered], if appropriate. As a result, Kidder would be offering Units to investors with which [none of the offerors, including Kidder] had a relationship prior to commencement of the Offering.”

The staff declined a no-action position:

Although the Webster Management letter can be read narrowly, it raises a question about the common assumption that an offering without general advertising to highly sophisticated persons will not be considered a “general solicitation.” The assumption is grounded (improperly) on the notion that sophistication is the core basis for both the “accredited investor” definition and Rule 506 in Regulation D and the long-standing and numerous private placements by world-class issuers with large institutional investors under Section 4(2). The no “general solicitation” requirement is in addition to the nature of the final purchaser requirements of Rules 505 and 506. The manner of the offering and the nature of the purchasers are separate requirements under Regulation D.

Use of referrals. Offers to “new investors through referrals” violates the preexisting substantive relationship rule. See, Robert T. Willis, Jr., P.C., SEC No-Action Letter (available Jan. 18, 1988). In order to identify potential purchasers or interest in real estate partnerships organized by the parent of a broker-dealer, the latter proposed to enter into agreements with a large number of independent insurance agencies nationwide and with a real estate brokerage company under which these parties would be paid a fee for “collecting certain financial information concerning, and for providing to the broker-dealer the names of, and introducing to it, potential investors in the limited partnerships.” The staff stated that the proposal “may raise questions regarding whether there would be an impermissible general solicitation” under Rule 502(c). See, Colonial Equities Corp., SEC No-Action Letter (available Sept. 2, 1988).

Using a business database to select investors. In AgriStar Global Networks, Ltd., SEC No-Action Letter (available Feb. 9, 2004) the SEC staff rejected AgriStar’s argument that its proposal for identifying and qualifying prospects for unregistered offerings of its own securities would not violate Rule 502(c). AgriStar, a satellite-based communications company that linked commercial farms and ranches, and the companies with which they transacted business, charged basic subscription and service fees from the more than 100,000 farms and ranches that subscribed to AgriStar services. A Regulation D offering to a limited number of selected accredited investors to be qualified by AgriStar pursuant to the procedures described below was the subject of the no-action letter request.