NASAA 2010 Investment Adviser Training Private Placements Lindsay DeRosia State of Michigan

NASAA 2010 Investment Adviser Training These views are my own views and not necessarily those of NASAA or the State of Michigan

NASAA 2010 Investment Adviser Training Regulation D Regulation D covers 3 federal securities exemptions: Regulation D covers 3 federal securities exemptions: Rule 504Rule 504 Rule 505Rule 505 Rule 506Rule CFR § – CFR § – 508

NASAA 2010 Investment Adviser Training Regulation D Breakdown § : Definitions § : Definitions § : General (Integration / Information) § : General (Integration / Information) § : Form D Filing Information § : Form D Filing Information § – 506: Specific Exemption Details § – 506: Specific Exemption Details § : Disqualifying Provision § : Disqualifying Provision § : Insignificant Deviations § : Insignificant Deviations

NASAA 2010 Investment Adviser Training Securities Act of 1933 § 3(b) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any class of securities to the securities exempted as provided in this section, if it finds that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering; but no issue of securities shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $5,000,000. § 3(b) The Commission may from time to time by its rules and regulations, and subject to such terms and conditions as may be prescribed therein, add any class of securities to the securities exempted as provided in this section, if it finds that the enforcement of this title with respect to such securities is not necessary in the public interest and for the protection of investors by reason of the small amount involved or the limited character of the public offering; but no issue of securities shall be exempted under this subsection where the aggregate amount at which such issue is offered to the public exceeds $5,000,000.

NASAA 2010 Investment Adviser Training Rule 504 Based on §3(b) of the 33 Act Based on §3(b) of the 33 Act Offer and sale of up to $1,000,000 in a 12 month period Offer and sale of up to $1,000,000 in a 12 month period Can sell to an unlimited number of investors Can sell to an unlimited number of investors General solicitation generally not allowed* General solicitation generally not allowed* Must file a Form D Must file a Form D

NASAA 2010 Investment Adviser Training Rule 505 Based on §3(b) of the 33 Act Based on §3(b) of the 33 Act Offer and sale of up to $5,000,000 in a 12 month period Offer and sale of up to $5,000,000 in a 12 month period Can sell to an unlimited number of accredited investors and up to 35 other persons Can sell to an unlimited number of accredited investors and up to 35 other persons No general solicitation or advertising No general solicitation or advertising Must file a Form D Must file a Form D

NASAA 2010 Investment Adviser Training Rule 506 Section 4(2) of the Securities Act exempts from federal registration “transactions by an issuer not involving any public offering.” Section 4(2) of the Securities Act exempts from federal registration “transactions by an issuer not involving any public offering.” Rule 506 was a Rule created to help provide objective standards for when an offering satisfied the 4(2) exemption, and is therefore considered a “safe harbor” for the private offering exemption found in 4(2). Rule 506 was a Rule created to help provide objective standards for when an offering satisfied the 4(2) exemption, and is therefore considered a “safe harbor” for the private offering exemption found in 4(2).

NASAA 2010 Investment Adviser Training Rule 506 National Securities Markets Improvement Act (“NSMIA”) preempted state regulation of Rule 506 offerings, by classifying them as “federally covered securities.” National Securities Markets Improvement Act (“NSMIA”) preempted state regulation of Rule 506 offerings, by classifying them as “federally covered securities.” States, however, do still retain authority in regards to fraud and notice filing requirements. States, however, do still retain authority in regards to fraud and notice filing requirements. There is no offering dollar limit, so it is a popular avenue. There is no offering dollar limit, so it is a popular avenue.

NASAA 2010 Investment Adviser Training Rule 506 Can raise an unlimited amount of money Can raise an unlimited amount of money Can sell to an unlimited number of accredited investors and up to 35 other purchasers Can sell to an unlimited number of accredited investors and up to 35 other purchasers Cannot use general solicitation Cannot use general solicitation Must file a Form D Must file a Form D

NASAA 2010 Investment Adviser Training Accredited Investor See § (a) for complete list: See § (a) for complete list: Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of his purchase exceeds $1,000,000 Any natural person who had an individual income in excess of $200,000 ($300,000 with spouse)Any natural person who had an individual income in excess of $200,000 ($300,000 with spouse)

NASAA 2010 Investment Adviser Training PPM Private Placement Memorandum Private Placement Memorandum Specific disclosure requirements vary amongst the exemptions, but generally a Private Placement Memorandum is utilized Specific disclosure requirements vary amongst the exemptions, but generally a Private Placement Memorandum is utilized Protects the issuer from future charges of violating the antifraud provisions of federal securities laws. Protects the issuer from future charges of violating the antifraud provisions of federal securities laws.

NASAA 2010 Investment Adviser Training

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