When raising money, it’s crucial to know what advertising and communications are allowed – and what is not. This depends on what securities exemption is being used for the offering.
Many securities exemptions – including Rule 506 and the California 25102(f) exemption – do not allow “public” advertising. (The Model Accredited Investor Exemption (MAIE) and the California 25102(n) exemption allow only a very brief public “tombstone” ad.) Still, even without public advertising, certain communications with potential investors are allowed.
A company or real-estate syndication making an offer can communicate with potential investors that it reasonably believes meets the investor qualifications for the particular securities exemption being used. Those communications can include emails, letters and the transmission of offering information.
Each securities exemption imposes requirements as to the investors. For example, with a Rule 506 offering each investor must be either accredited (meet certain net worth or income levels) or be sophisticated in terms of investments.
What if you are not reasonably sure that a potential investor meets the requirements? In that situation, an offeror can provide very basic information about the company and what it does – and ask the potential investor to complete an investor questionnaire to receive further information. (The questionnaire cannot be “check Yes or No”; it has to ask for specific information.) If and only if the answers show that the potential investor is qualified, then the offeror can have full communication with that investor about the offering. (You are entitled to rely on the answers unless you have some reason to believe that they are wrong.)
An offeror can distribute general information about itself and what it does so long as it does not refer to any specific past, present or future offerings or specific rates of return. This general information can be posted on web sites, social-media pages, emails and letters – or presented at an educational seminar. The general information should not be used without review by a securities attorney: It is easy to cross the line and violate the securities laws regarding advertising and a disclaimer that the information does not constitute an offering should be included.
The general information can say that further information about the offeror can be obtained by submitting answers to an investor questionnaire. Often with a web site a button is provided that, when clicked, takes the reader to a special page; there a questionnaire can be downloaded and instructions can be read as to how to return the completed questionnaire.
We frequently advise offerors as to what advertising and communications are allowed and how to word them to avoid violating the securities laws.
For more information, see Overview of Marketing, Promoting and Advertising Securities Offerings.
The foregoing constitutes general information only and should not be relied upon as legal advice.
You are welcome to copy and distribute this document for non-commercial purposes, but it may not be edited and the prior warning and the following must be left on it:
Bruce E. Methven,2232 Sixth StreetBerkeley,CA94710
Phone: (510) 649-4019; Fax: (510) 649-4024
Copyright 2012 Bruce E. Methven, All Rights Reserved.