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Use of General Solicitation and Advertising in Rule 506 Offerings

August 15, 2013 By Andrew Abramowitz Leave a Comment

Generally, the terms “public offering” and “private offering” have the meanings that the words imply: a public offering of securities is made to hundreds or thousands of investors who may have no connection to the company, and a private offering is made to a select group of investors known to the company or its broker. Historically, private offerings made under widely-used SEC Rule 506 (part of Regulation D) were required to be completed without the use of any “general solicitation or general advertising.” However, a provision of the federal JOBS Act, enacted in 2012, blurred the lines between private and public offerings by permitting general solicitation or advertising in Rule 506 offerings, subject to conditions imposed by the SEC. The SEC has now done its imposing, establishing rules to become effective in September 2013.

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Related posts:

  1. Links to Some of My Greatest Hits
  2. Reluctance to Engage in Accredited Investor Verification
  3. Simultaneous Regulation CF and Rule 506(c) Offerings

Filed Under: Financing Transactions/Securities Offerings

Use of Finders in Securities Offerings

July 22, 2013 By Andrew Abramowitz 1 Comment

In private securities offerings where the company does not engage an investment banker who is a registered broker-dealer to market the offering to investors, companies will often seek the assistance of so-called “finders,” who are not registered as broker-dealers, to connect the company with potential investors.  These finders are often paid a pre-determined percentage of the amount ultimately raised by the company from the investors introduced by the finder.  Though this practice is extremely common, this area of the law is very much a gray area, and there are significant risks to both the finder and the company that should be considered.

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Related posts:

  1. The SEC’s Change of Heart on Private M&A Brokers
  2. Simultaneous Regulation CF and Rule 506(c) Offerings
  3. Pushing Back Against the SEC on Finders Rules

Filed Under: Financing Transactions/Securities Offerings

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"Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said every investor should approach a private placement skeptically." -- Paul Sullivan (New York Times)

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"If the goal [...] is to protect people from losing all of their money in an illiquid investment, the current standard fails on that count, too. Andrew Abramowitz, a lawyer in Manhattan who has worked with both buyers and sellers of private placements, said a better standard might be to limit how much of their net worth people can invest." -- Paul Sullivan (New York Times)

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