» Hedge Fund Advertises Private Offering Using Rule 506c
Last year the SEC lifted the ban on general solicitation (rule 506c), per the JOBS Act. This enables private companies, hedge funds, and overall issuers of private placement offerings to advertise their deals to the general public. The caveat is that the advertisement must specifically state that the offering is for accredited investors only. While it may be in a public magazine, television station, radio show etc. the general public is not permitted to invest through 506c of Regulation D.
This is great news for those looking to raise capital but many have been fearful about issuing advertisements for obvious reasons. If you are among the first to do so you are guaranteed to have the SEC reviewing what you are doing for potential violations.
Balyasny Asset Management is a Chicago Hedge Fund that has dipped it’s toes in the water by advertising in a magazine. Their half page ad ran in Pensions & Investments on February 3rd. The copy said, “Performing In All Conditions. Providing Strong Risk Management & Absolute Returns Since 2001.”
Balyansy isn’t the only firm to advertise since the general solicitation ban was lifted. Bridgewater Associates and Pershing Square Capital have created generic YouTube videos. All three of these firms are using the advertising as a way to promote their brand, not specific deals. This is where small issuers and companies can differentiate themselves. Rule 506c requires that investors be accredited if the specific deal is being advertised. This may be more of a daunting process for large firms but small companies gathering a specific number of investors may find this to be more manageable, enabling them to publicly advertise each private offering.
One of the concerns many people have about the rule 506c is that the SEC has kept the rules surrounding advertisements ambiguous at best. There are no set guidelines or boundaries, only the understanding that you can be penalized if you mess up. This is not a comfortable place to operate in. Issuers should error on the side of caution when creating ads and avoid promising any type of return or giving too many details.
Ideas for Advertising a Private Offering
- Promote your firm or company’s profile. Focus on building your brand and do the selling when investors reach out to you.
- Highlight what is happening in the industry. For example if you are in oil and gas, talk about the boom we are current experiencing and say something like “Investment Opportunities Available.”
- State that the offering is for Accredited Investors Only.
- Provide legal disclosures written by your attorney. This will be different for every offering.
- Do not state a projected return.
In the future the SEC is likely to review all advertisements but for now it is up to individual discretion. If you have a securities attorney ask them to review your ad prior to publishing it. Otherwise follow our tips for a generic advertisement that will make the phone ring so investors can ask you specifics in person or over the phone. Remember that if you advertise under 506c you must verify the accreditation of every investor and keep that information on file.
This entry was posted in Accredited Investors, Reg D, SEC and tagged accredited investors, general solicitation, Private offering, Regulation D, Rule 506c, SEC by John Fischer. Bookmark the permalink.