How To Remain Compliant with Regulation D Rule 506 B While Marketing Your Securities Offering?

We’ve previously discussed some of the basics on how to find investors for your private investment offering without explicitly selling them on that offering right away. Because Regulation D, Rule 506 (Rule 506 B) of the Securities Act of 1933 (Securities Act) prohibits companies from generally soliciting or advertising for investors from investing in securities offerings, it is important to find ways to market your offering while remaining compliant.

To remain compliant, you cannot ignore the importance of building a network of qualified preexisting relationships through webinars, newsletters, social events, and other avenues. Our goal is to provide you with valuable insights on how to market your securities offering without inviting unwanted scrutiny from the regulators. 

Marketing Strategies

When considering how to market your securities offering, it is important to come up with a solid marketing plan. To do so, you should first identify your main goals. To delineate your goals, you need to come up with the overall message you wish to convey to potential investors. 

When pitching an investment opportunity, it is important to properly outline the risks involved in any investment. You should try to avoid using words like safe or guaranteed returns. Even though these terms are often used when pitching insurance and annuities, safety and a guaranteed return on investment is not when offering investors stock in your company, so it is important to be clear in outlining the potential risks involved.

When crafting your message, you should take a hard look at what you’re trying to put out into the world. You should make sure you’re allowed to communicate the message in a way that won’t garner the attention of regulators while remaining fully compliant with Rule 506 B. Once you’ve figured that out, you can begin to take a look at which mediums you would like to use to advertise your call to action.

Facebook Group Pages 

Nowadays, online advertising is very appealing, seeing as it allows you to reach the largest amount of people. There are many options available to build your network online. You might want to consider creating a Facebook group. However, you should be careful not to explicitly market your investment pitch directly on that Facebook page. Instead, you can cater your Facebook group to specific lifestyle interests, which can be anything like golf, travel, diet, exercise, or other hobbies.

Creating a page where your existing network can get together to share ideas about topics that aren’t directly related to your investment offering can create a stronger community of like-minded individuals that care about the things you care about. Creating this community can pay great dividends down the road if it leads to building relationships based on trust and mutual respect.

 

Email Blasts and Newsletters 

Aside from creating a Facebook group page to increase your reach and exposure to potential investors, you can also get your message out there by sending monthly newsletters and email blasts. This is a great way to stay in touch with potential investors. However, it should be noted that this method of communication is restricted to only those you have a pre-existing relationship with. Much like how webinars and events are limited to those you have a pre-existing relationship with, the same goes for email blasts and newsletters. With that in mind, you need to be extremely careful of who you send your newsletters to if you want to avoid being noncompliant with 506 B.

Creating a Network and Audience

When trying to build your network, the best thing you can do is to stay consistent in your efforts and message. While this might seem self-explanatory, it actually cannot be emphasized enough. The more contact you have with potential investors, the higher likelihood that you will have built a relationship with them based on trust and respect. 

People subscribed to your email list and newsletter will get used to hearing what you have to say through your letters, emails, and messaging and will want to be updated on what you have going on in your life and business. Consistent messaging creates momentum in the relationship which will allow you to make your securities investment offer since you will have built a pre-existing relationship. However, it is important to be careful. You don’t want any of your messaging to be misconstrued as general solicitation. This could land you into legal trouble and seriously derail your efforts in offering your securities investments.

Risk

Compliance with general solicitation, advertising and suitability regulations and concerns are risk factors that all issuers relying on Reg D must understand. Consultation with an experienced and knowledgeable securities attorney is of utmost importance.

If you’re found guilty of general solicitation, courts will often require you to offer all investors a “right of recission.” If investors elect recission, you will obligated to redisperse any money received from rescinding investors in full. If the money has already been invested, your repayment may then become a personal obligation. With that in mind, it is very important to be careful about how you contact potential investors in a way that won’t be interpreted as general solicitation. There are certain advertising restrictions, and you will need to make sure you aren’t blatantly marketing your securities offering to people you haven’t built a pre-existing relationship with.

Or worse, if you found guilty of securities fraud, embezzlement or other illegal acts, then you may go to prison.

Connecting With Your Investors Online

Having discussed some more strategies you can use to market your securities offering while remaining compliant with regulations, we would like to take this opportunity to provide an overview of how you can better connect with your current and potential investors. When thinking about your investors, it’s important to ask yourself who your investors are. As we have emphasized, your investors are your network. As was discussed in the previous article, investors can be scouted through sales groups that are registered investment advisors or broker-dealers. These third parties can provide you with investors for a finder’s fee, and this is perfectly legal. Working with them can be a great way to build your investor base and can help you mitigate the risks that come with finding your investors. What you put online can have major implications, so it is important to be careful with how you go about recruiting new investors.

If you have a website for your investment projects or business, it is important to have a certain level of security. This can be created by implementing a login system so that all current investors can have access to a secure platform. This ensures that only certain individuals are granted access and that all your investment offerings aren’t being advertised publicly.

Having current investors create a password to log in to your platform can create a sense of legitimacy for your offering and can ensure that you aren’t blatantly soliciting your offering to the general public. 

If you’re in a situation where you can’t explicitly express investment information, there is a lot of other information you can include to provide value to potential investors. This can be things like providing general information about your business as well as specific projects you and your company are focused on. Providing a lot of content on your site can get people interested in what you’re doing without you having to explicitly pitch your investment. One example of this could be if you have a real estate fund. In this scenario, you could talk about properties you’ve recently acquired and are actively managing or teaching the way, why and how you target asset acquisitions. 

Aside from that specific example, you could generally discuss your business, goals, and mission statement. This allows you to actively engage with people who could potentially become interested in your business at a later date. However, if you begin to engage with interested parties without a prior existing relationship either directly or through an authorized introductory source, you could get yourself into trouble which is why you need to be very careful not to advertise or generally solicit your Rule 506 B offering.

With that in mind, specific investment opportunities cannot be directly advertised on your website. Do not explicitly ask for money that is related to your 506 B offering. These details need to be concealed from the public and shouldn’t be accessible. Therefore, you shouldn’t have a crowdfunding portal on your site to comply with Regulation D Rule 506 B (unless provided within a client-only login). 

Crowdfunding Portals

Unlike 506 B offerings, where crowdfunding portals are not allowed, there are specific crowdfunding portals that can be implemented in a Reg D 506 C offering. In this case, general solicitation is allowed. However, the inclusion of any unaccredited investors will be prohibited. Unaccredited investors do not qualify to take part in a 506C offering and will have to go through a verification process. 

Additionally, there is regulation CF, which allows you to directly market online. But there are restrictions with this type of offering. Compliance through the crowdfunding portals of the issuers is scrutinized even so more than a Reg D 506 B offering. 

Consider some examples of what not to do when pitching your investment opportunity. If you’re advertising your offering a low-risk, safe return opportunity, you are setting off red flags with regulators. Whether we’re talking about state regulator divisions, commissions, or the SEC, you can be sure that including languages like “low risk”, “guaranteed”, “2X+ returns”, “legacy” and other words of exponential growth or investment safety when describing your opportunity may result in any of these regulatory bodies doing an investigation. Because these regulatory agencies have the authority to conduct audits and investigations, you could be served with a subpoena for them to further look into your business practices.

While it is understandable that they do this to protect the public, it can come back to haunt you if they find anything that doesn’t strictly comply with all the rules and regulations. With that in mind, it is best to try to avoid this situation. 

Even though many of these regulatory bodies have good intentions, the methods they use to conduct audits and other investigations can sometimes be questionable. For example, regulators may proactively call out for investors making questionable statements of qualifications or suitability to judge the reactions or solicitation efforts of the issuers. That’s why it is important to have a qualified attorney who can help you navigate any investigations being conducted on your company. With all of this in mind, it’s best to avoid this situation altogether by staying away from presenting any private offering information on your public site. Additionally, any language that even hints at a potential investment opportunity should come with a disclaimer that your message is not intended to be interpreted as selling a particular investment. You should always include language that any information you are providing shouldn’t be taken as investment advice and that anyone interested should always consult a professional accountant or attorney.

Discuss Your Marketing Strategy with Your Attorney

When looking to market your securities offering, it is important to go over all marketing materials with your attorney. This includes everything from websites, social media, and newsletters. As we discussed earlier, there are many ways to get into trouble with regulators which is why you’re going to want a trusted advisor to take a deeper look at all your marketing efforts. They can help point you in the right direction and ensure that you’re compliant with securities regulations.

Summary

Having discussed the things you need to keep in mind when marketing your securities offering, it has become clear that using language like “low-risk, or “safe returns” should be avoided at all costs. General solicitation of your offering is strictly forbidden and will land you in hot water with regulators if you’re not careful in how you advertise your offering. 

While this might seem to limit what you can do, there are ways to build relationships without explicitly pitching your investment right off the bat. General solicitation rules do not apply to investors you have a pre-existing relationship with. Building these relationships can be a challenge, but if you’re consistent with your company’s mission statement and overall goals, you can gain the attention and interest of more people than you could imagine. 

Overall, marketing a securities offering comes with many challenges, however, knowing the rules and regulations surrounding the sale of securities can save you from the hassle of having to deal with a subpoena or audit from regulators. Working with a qualified attorney can save you a lot of grief, and you should have one ready to help you navigate the process of securities offerings. By doing so you can ensure that you will not run into any legal trouble and can have a second set of eyes who can help you market your company in a compliant way.

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