SEC Staff Issues New CDIs on General Solicitation Prohibition under Regulation D

Except in limited circumstances (small offerings [i.e., less than $1 million] under Rule 504 and offerings made to accredited investors only under the new crowdfunding provisions of Rule 506(c)), Regulation D conditions an offering’s or private placement’s exemption from registration on the absence of general solicitation or general advertising. However, Rule 502(c) does not provide much guidance on the meaning of the terms “general solicitation” and “general advertising.” With the new Compliance and Disclosure Interpretations (CDIs) issued by the SEC’s Division of Corporation Finance (Division) on August 6, 2015, issuers now have more clarity on these general solicitation issues.

The main takeaways of the new CDIs can be summarized as follows:

  • Websites: As the SEC has stated previously, the use of an unrestricted, publicly available website to offer securities constitutes a general solicitation and is prohibited by Rule 502(c). However, if an issuer is relying on Rule 506(c) to exempt its offering from registration (and the offering meets such Rule’s requirements), it may be able to use unrestricted, publicly available websites to offer its securities, but again, sales may only be made to accredited investors.
  • Factual Business Information: An issuer can widely disseminate certain information not involving an offer of securities without violating Rule 502(c). Specifically, factual business information that does not condition the public mind or arouse public interest in a securities offer may be widely disseminated. However, what constitutes factual business information depends on the facts and circumstances. Factual business information is typically limited to information about the issuer, its business, financial condition, products or services, but generally does not include predictions, projections, forecasts or opinions with respect to valuation of a security.
  • Pre-Existing Substantive Relationship: The Division gave some guidance regarding what it means to have a “pre-existing, substantive” relationship with a prospective offeree. A “pre-existing” relationship is one that the issuer has formed with an offeree before the securities offering or, alternatively, that was established through either a registered broker-dealer or investment adviser prior to either party’s participation in the offering. A “substantive” relationship is one in which the issuer has sufficient information to evaluate, and does, in fact, evaluate a prospective offeree’s financial circumstances and sophistication in determining his or her status as an accredited or sophisticated investor. The mere act of a prospective offeree checking a box to certify his or her financial sophistication is not enough to meet the “substantive” requirement. However, an issuer need not have a direct pre-existing, substantive relationship with a prospective offeree to comply with Rule 502(c). If an issuer shares information about an offering with members of a pre-existing informal, personal network of individuals with experience investing in private offerings (e.g., angel investors), this may allow the issuer to establish a reasonable belief that the offerees in the network have the requisite financial sophistication, and thus, these communications would not be general solicitations.
  • Investment Advisers: For a while, it has been known that registered broker dealers are able to form a pre-existing, substantive relationship with a prospective offeree as a means of establishing that a general solicitation is not present in a Regulation D offering, but now the Division has confirmed that it believes investment advisers registered with the SEC can also do the same if the prospective offerees are clients of the adviser and the investment advice being provided is suitable for each client. The Division took it one step further and stated that even issuers may be able to develop these pre-existing, substantive relationships with prospective offerees, but that it may be much more difficult for them if there is no prior business relationship or a recognized legal duty to offerees.
  • Demo Days/Venture Fairs: The Division also confirmed that demo days and venture fairs do not necessarily constitute a general solicitation. Whether a demo day or venture fair, a general solicitation will depend on the fact and circumstances of each case. For example, if the issuer is giving a presentation at one of these events that involves an offer of a security, such presentation may not constitute a general solicitation if attendance is limited to persons with whom the issuer has a pre-existing, substantive relationship or who have been contacted through a pre-existing informal, personal network.

The new CDIs can be accessed by clicking this link.

For more information please contact your Michael Best attorney, Michael H. Altman at or 414.225.4932, or Vincent M. Morrone at or 414.277.3477.


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