What the New 506(c) General Solicitation Means for a Capital Fundraiser
There are both opportunities and challenges with the updates to 506(c) general solicitations, first, through a quick overview of the new offerings. From the beginning of Regulation D until 2012, the general solicitation was unavailable, which required specifically targeted marketing and regulation adherence. The new 506(c) Regulations D Offering allows general solicitation. Additionally, these offerings must be sold only to accredited investors.
Opportunities with 506(c) Marketing
The ability to generally solicit in terms of 506(c) Offerings is the apparent opportunity. With the freedom to market on the internet, social media, and television, the reach of marketing campaigns to new and untapped investors is easier than ever. It also makes it easier to raise funds for small companies and saves them administrative costs of marketing with cost-efficient 506(c) Marketing. Under the additional ruling, crowdfunding would be allowed (when legal) by companies not registered with the Securities and Exchange Commission (SEC).
506(c) Regulations D Offering Challenges
The primary challenge with this new offering is the concern for fraud and abuse because of the ability for general solicitation. Secondarily, there is a concern of fraud as the JOBS Act does assume that issuers are determining the credentials of accredited investors. This determination could include the investor’s status based on their ‘circumstances’ such as the minimum investment amount and the proposed investment’s nature. Unfortunately, this approach could lead to an absence of oversight in the varying approaches to verifying investors of each offering’s issuer.
A Side Note About Liability
While there are challenges and opportunities with the new 506(c) Offerings, it is essential to note that due diligence remains important to issuers and intermediaries alike. The securities laws for misstatements have not changed under the new 506(c) general solicitations changes.
Final Thoughts on the New 506(c) General Solicitation Proposal
The SEC’s site has already been updated with new regulations surrounding general solicitation; however, both issuers and investors should take care of these new offerings. Due diligence remains critical in ensuring the risk of fraud or abuse remains low or is recognized early. With the allowance of general solicitation, the investor market is readily available to new eligible investors, an opportunity to build our economy and small company arena.
The above does not provide every vital detail of the topic with which it describes and is not legal or other advice. If you’re taking the next step in real estate, oil, or gas investments we can help build your brand, marketing campaigns, build websites, create lead generation, videos, and photography. Contact Russell Creative Group, your visual marketing professional is happy to help!