Tilden Moschetti: My name is Tilden, Moschetti, securities
attorney with the Moschetti syndication Law Group. Today
we're going to do a deep dive into Regulation D Rule 506c and
go line by line through the actual regulation itself to
explain everything that's going on there.
When I was in law school, one of my professors told me a little
secret about when there was anything that you were confused
about what was going on, was go to the rule itself and
understand that, and that will explain everything, which is why
today I wanted to go through Rule 506c and another video, I
already went through rule 506b, but it's useful to go through
506c in case that's one of the options that you are considering
for your own syndication or fun. So let's go ahead and open up
the case of the law itself. So this is the text of Regulation D
rule 506c you can see it's in book 17 of the Code of Federal
Regulations, Rule 230.506 exemption with that exemption
for limited offers and sales without regard to dollar amount
or offering. So I've cut out a and b here. And so really,
here's the law as of 506c. So first, we talk a little bit
about the conditions that must be met in order for it to be a
to fall under here. And there are some specific or there are
some general considerations. First, it must satisfy all the
terms and conditions of two 30.5 of one and two, A and D. So
those are here to 3501 is the where all the definitions and
terms are described. Most importantly, probably for 506c
people is that accredited investor definition under 501.
A, we also have a video about that. And if you're more
interested in finding out what an accredited investor is. Rule
502 is the general other general conditions that must be met. Now
it says and 506c, that is A and D. So here we're talking about
integration under a what that means is if let's say a fund,
put together multiple offers, right? So it put together an
offer this offer and then this offer and this offer, maybe
they'd have one under 506 B and then one under 506c, it says
that well, this is how we need to first determine whether those
offers should be integrated. By integrated, of course we mean,
should they be considered one and the same. That's always a
consideration of ours. And it's also important, especially if
you're thinking, Well, I'm going to do a 506c, but I'd like to do
a 506 B. Because if it becomes integrated, suddenly you've got
a problem. You've got those people who came in on a 506 B,
because you did it later. Maybe if it's integrated, then those
people came in incorrectly because they saw your
advertising. So integration is a big deal. 502d is limitations on
resale. I also did a video on the limitations of resale.
Basically, you should not be buying this security in order to
with the intent of selling it. It is not a speculative
purchase, where you're looking to sell it into a market the SEC
is not interested in you putting out offers where investors are
going to create their own markets. So that is certainly
true. So that is 506c one. There are specific conditions as well
that need to be addressed. But really, we're talking about one
specific condition, the status of the investors must be
accredited investors, we know that. So all investors must be
accredited investors. Now how what further are they talking
about? It's this. It's this verification of the accredited
investor status. So that's what the SEC ultimately wants to do.
It's saying that yes, you can advertise or make a general
solicitation of your offer it to the public out to the world,
except that it must, you must have verification Should that
this accredited investor is a, in fact an accredited investor.
It is almost certain that the best way to do this is to rely
on third parties to verify we in order to verify that they're an
accredited investor, you the issuer must take reasonable
steps to verify that they are. Right the best way and the
simplest way to prove that you've taken reasonable steps is
to rely on third parties. So that means in this case, a
written confirmation. This and this under see is just an
example, a written confirmation from somebody such as a
registered broker dealer who has a knowledge about whether or not
they are a an accredited investor, or an investment
advisor registered with the Securities and Exchange
Commission. This could be somebody who's their registered
investment advisor, there are IA, who has knowledge of what
their account status is, and whether or not they are a
accredited investor, a licensed attorney can say whether or not
they are now the attorney needs to know that person and needs
that be knowledgeable about the fact that they are, for example,
I have written a letter to like this for not for clients and not
for investors, but for investors that I knew. And I looked over
their accounts, and I verified that they were in fact,
accredited investors under the rule of 501. A, that they
qualified for that. And so I felt comfortable writing a
letter that confirm that, in my opinion, this person is an
accredited investor under Rule 506. A and would therefore
invest in a an an offering that was under Rule 506c. Lastly, is
a certified public accountant who's duly registered as well,
they may have those same, that same kind of knowledge, they
should have that from the investor or from their workings
with that investor of their financial position to be able to
determine that they are in fact a credited investor. Those are
just some of the ideas on what that the SEC gives in terms of
what it is, there are companies that also give up certification
of that person being an accredited investor are not. Now
in order to be compliant with that almost all of them will
have an attorney on staff or a accountant on staff, who also
supervises the work to verify in their opinion that they are an
accredited investor. And then they issue that certificate,
which can be sent to you as the sponsor of the security. This is
the deep dive into Rule 506c you can see there's actually not a
lot going into it a under Rule 506c, you can raise an unlimited
amount of money, you can raise over you can raise up to a year
or longer if you extend it. But what you have to do is make sure
that you qualify that we're talking about accredited
investors, that you obtain this verification of their accredited
investor status, and that they know also that they that there
are these limitations on resale, and that there is a possibility
that offers could be integrated with each other. And so you need
to consider what that what effect would have on yours. My
name is Tilden Moschetti. I am a securities attorney with the
Moschetti syndication Law Group. I put together a lot of Reg D
506c offerings for syndicators for funds for businesses, all
sorts of things in order for them to be able to raise capital
legally without registering with the SEC. They only are making a
filing under Regulation D if I can help you please feel free to
get in contact with me and we can have a conversation and see
if I can help you