The following outlines the principal regulations that governs a Rule 506(b) Private Placement and discusses the participants in a Private Placement.
- Private Placements are Offerings of Securities which do not involve registration of the underlying Security with the Securities Exchange Commission (“SEC”). They are traditionally offered discreetly and sold to Investors, historically, in a non-public manner (i.e. without public advertising). See “Regulation D, Rule 506(b)” for more information.
- However, a recent SEC Rule authorizes general solicitations for some privately placed Securities which are purchased only by Accredited Investors (see “Accredited Investors Questionnaire” and “Regulation D, Rule 506(c)”).
- Regulation D is a regulation of the SEC, and it contains specific rules for the proper conduct of a Private Placement in the United States (“safe harbor” guidelines). Following the Rules within Regulation D is strongly recommended. All CFG private Offerings follow Regulation D guidelines.
- A registered Securities Broker-Dealer may act as a Placement Agent to conduct an Offering on behalf of the Issuer, or the Issuer can offer Securities directly to Investors. If a Placement Agent is used, the firm must be a registered Broker-Dealer with the Financial Industry Regulatory Authority (“FINRA”).
- Private Offerings can include any form of Security, such as Promissory Notes or equity interests (e.g. common stock, preferred stock or membership interest in a Limited Liability Company).
- Investors in Private Placements include individuals, wealth managers, managed funds, insurance companies, etc.
- Private Placements are subject to all federal and state regulations regarding Securities issuance, including those relating to misrepresentation and fraud.
For a discussion of certain risks associated with Private Placements, please read “Private Placement Investment Considerations.”