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Private Placements

SEC Proposed Rule Changes For Exempt Offerings – Part 5

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE).  The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion.  I have been breaking the information down into a series of blogs, with this fifth and final blog focusing on amendments to Regulation Crowdfunding.

To review the first blog

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June 23, 2020

SEC Proposed Rule Changes For Exempt Offerings – Part 4

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE). The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion.  I have been breaking the information down into a series of blogs, with this fourth blog focusing on amendments to Regulation A other than integration and offering communications which

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June 16, 2020

SEC Proposed Rule Changes For Exempt Offerings – Part 3

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE).  The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion.  I have been breaking the information down into a series of blogs, with this third blog focusing on amendments to Rule 504, Rule 506(b) and 506(c) of Regulation D other

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May 26, 2020

SEC Proposed Rule Changes For Exempt Offerings – Part 2

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE).  The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion.  As such, I will break it down over a series of blogs, with the second blog in the series which focuses on offering communications, the new demo day exemption, and

Read More »

April 28, 2020

SEC Proposed Rule Changes For Exempt Offerings – Part 1

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework.  The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE).  The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors.  Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The June concept release sought public comments on: (i) whether the exemptive framework as a whole is effective for both companies and investors; (ii) ways to improve, harmonize and streamline the exemptions; (iii) whether there are gaps in the regulations making it difficult for smaller companies to raise capital;

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March 17, 2020

SEC Concept Release On Private Offerings

On June 18, 2019, the SEC issued a 211-page concept release and request for public comment on ways to simplify, harmonize, and improve the exempt (private) offering framework.  The concept release seeks input on whether changes should be made to improve the consistency, accessibility, and effectiveness of the SEC’s exemptions for both companies and investors, including identifying potential overlap or gaps within the framework.

From a high level the SEC is seeking public comment on (i) whether the exemptive framework as a whole is effective for both companies and investors; (ii) ways to improve, harmonize and streamline the exemptions; (iii) whether there are gaps in the regulations making it difficult for smaller companies to raise capital; (iv) whether the limitations on who can invest and amounts that can be invested (i.e., accredited investor status) pose enough investor protection and conversely create undue obstacles to capital formation; (v) integration and transitioning from one offering exemption to another; (vi) the use of

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July 2, 2019

Structuring The Private Placement Or Venture Deal – Part 2

Back in 2013 I wrote a series of blogs about preparing for and then structuring a private placement or venture deal.  In today’s world where public markets are more difficult to access for smaller companies, it is a topic worth revisiting.  There are three primary aspects to the private placement or venture capital arena.  The first is getting dressed for the ball – i.e., preparing a company to be viewed and assessed by investors including the due diligence process; the second is determining valuation or deciding to avoid a determination through convertible instruments; and the third is structuring the deal itself.

In this two-part blog series I am discussing each of these aspects.  This first part addressed pre-deal considerations including valuation considerations and can be read HERE. This part two discusses structuring and documenting the deal.

Structuring The Deal

Although structuring a private placement and negotiating with a venture capital group are very different, the underlying mechanics of investments

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June 18, 2019

Structuring The Private Placement Or Venture Deal – Part 1

Back in 2013 I wrote a series of blogs about preparing for and then structuring a private placement or venture deal.  In today’s world where public markets are more difficult to access for smaller companies, it is a topic worth revisiting.  There are three primary aspects to the private placement or venture capital arena.  The first is getting dressed for the ball – i.e., preparing a company to be viewed and assessed by investors including the due diligence process; the second is determining valuation or deciding to avoid a determination through convertible instruments; and the third is structuring and documenting the deal itself.

In this two-part blog series I will discuss each of these aspects.  This first part addresses pre-deal considerations including valuation considerations.  Part two will address structuring and documenting the deal.

Although structuring a private placement and negotiating with a venture capital group are very different, the underlying mechanics of investments are universal.  In a venture capital

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June 11, 2019

Private Offering Rule Changes Since JOBS Act

ABA Journal’s 10th Annual Blawg 100

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As the end of 2014 approaches, I find myself reflecting on the significant successes and failures in the private offering arena since the enactment of the Jumpstart our Business Startups Act (“JOBS Act”) on April 5, 2012.  Some provisions under the JOBS Act became law without further rule-making action on the part of the SEC; others took time to pass; and significantly, Title III Crowdfunding, the most anticipated change in capital market access, has completely stalled.  This blog is a summary of the in-depth detailed blogs I’ve previously written on each of these topics with some added commentary.

506(c) – The Elimination of the Prohibition Against General Solicitation and Advertising in Private Offerings to Accredited Investors; Broker-Dealer Exemption for 506(c) Funding Websites

The enactment of new 506(c) resulting in the elimination of the prohibition against general solicitation and advertising in private offerings to accredited investors has been a slow but sure success.  Trailblazers

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December 2, 2014

Will FINRA Rule Changes Related to Private Placement Further Deter Broker Dealers From Placing the Securities of Small Businesses?

On August 19, 2013, FINRA published Regulatory Notice 13-26 about the updated Private Placement Form that firms must file with FINRA when acting as a placement agent for the private placement of securities.  A copy of the form is included with the regulatory notice at www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p325359.pdf.  The Form went effective on July 1, 2013.  FINRA has also updated the FAQs relating to the Private Placement Form.  The updated Private Placement Form has six new questions:

  • Is this a contingency offering?
  • Does the issuer have
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September 3, 2013

New FINRA Rule 5123 Takes Effect Requiring Notice of Private Placements by Member Firms

The Financial Industry Regulatory Authority has adopted new Rule 5123 requiring members to file notice of their participation in private placements.  The Rule took effect on December 3rd 2012.  The new rule does not contain a definition of “private placements” and accordingly is presumed to cover all private placements including those involving general solicitation and advertising under the new Rule 506(c) created by the JOBS Act.

Rule 5123 requires member firms to file a copy of the private placement memorandum, term sheet or other disclosure document with FINRA, for all offering in which they sell securities, within 15 calendar days of the first sale.

FINRA enacted the rule in an effort to further police the private placement market and to ensure that members participating in these private offerings conduct sufficient due diligence on the securities and its issuer

In filings with the SEC, FINRA expressed its position that Rule 5123 is consistent with the JOBS Act in

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December 5, 2012

SEC Will Not Meet Deadline to Remove Ban on General Solicitation and Advertising in Private Offerings and Hedge Funds

The SEC won’t make the 90-day deadline to draft rules and enact Title II of the JOBS Act eliminating the ban on advertising and general solicitation for private placements and allowing advertising by hedge funds, Mary Schapiro, Securities and Exchange Commission chairman told a U.S. House oversight panel on June 27, 2012.  In prepared testimony, Mary Schapiro told a U.S. House oversight panel that certain rule writing deadlines imposed by the JOBS Act “are not achievable.”

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. “The 90-day deadline does not provide a realistic timeframe for the drafting of the new rule, the preparation

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June 29, 2012

SEC Approves Revision to FINRA Rule Regarding Broker Dealer FINRA Filing Requirements for Private Placement Offerings

On June 7, 2012 the SEC granted accelerated approval to a FINRA rule change regarding broker dealer FINRA filing requirements for activities associated with private placement offerings.  The rule was originally drafted to address disclosures that must be provided to investors prior to an investment and disclosure that must be provided to FINRA following a sale in a private placement, regarding use of proceeds, the amount and type of offering expenses, and all offering related compensation to be paid to placement agents, finders, associated persons and the like.

Summary of Rule Change

FINRA Rule 5123 (Private Placements of Securities) has been amended to require that each FINRA member firm that participates in a private placement of securities file with FINRA a copy of any private placement memorandum (PPM), term sheet, or other offering document used in connection with a sale, within 15 days of the date of the first sale and any material amendment thereto, or provide a notice to

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June 13, 2012

An In-Depth Review of Private Placements Under Section 4(2)

Section 4(2) of the Securities Act of 1933 provides that the registration requirements of Section 5 do not apply to “transactions by an issuer not involving any public offering.” The definition of an “issuer” is pretty straightforward as found in Section 2(a)(4) and includes, “the person who issues or proposes to issue” a security and is understood to mean the entity that originally sells the securities. However, not so straightforward is what constitutes a “public offering,” which term is not defined in the Securities Act. In reliance on Section 4(2) the SEC enacted Rule 506 as part of Regulation D.

Rule 506 as a Safe Harbor Provision

Rule 506 is a Safe Harbor. In other words, if all the conditions of Rule 506 are met, you can rest assured that the conditions of Section 4(2) have been satisfied. However, Section 4(2) can be satisfied as a standalone exemption separate from Rule 506. The importance of the distinction between Section 4(2)

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January 25, 2010

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