FINRA PROVIDES GUIDANCE ON PRIVATE PLACEMENTS
FINRA has posted an educational webcast on private placements, which addresses sales practices by issuers and broker-dealers selling products that are not SEC-registered. FINRA explained that sales of unregistered products cannot involve a general solicitation i.e. no advertisements, seminars, or cold calling. However, an issuer or selling broker-dealer could hold a seminar for potential investors with whom the host has a pre-existing relationship and the host has determined that each attendee is an accredited investor. FINRA also explained that in a Section 4(2) offering (outside Regulation D but not involving a public offering), potential investors must have the same access to material information as would be available to an insider. The webcast also addresses resales under Rule 144 and Rule 144A, although most private fund distributions prohibit resales.
OUR TAKE: Many issuers and selling broker-dealers know the pre-existing relationship requirement but forget to document the process for determining that potential investors are accredited investors. FINRA also raised the bar by requiring access to information akin to that of an insider.