As retail investors navigate the complex landscape of investment opportunities, it's crucial to understand the implications of different offerings, particularly Rule 506(b) and Rule 506(c) under Regulation D.

In a collaborative effort with the 506(c) Working Group, Marc Slavny, Chief Investment Officer here at Fortitude Investment Group, created an informative white paper that sheds light on the nuances of these exemptions and their effects on retail investors.

Here are some highlights from the white paper:

• Rule 506(b) provides an exemption from registration for securities offerings, allowing issuers to raise capital from investors, including up to 35 non-accredited investors, without registering with the SEC. However, it prohibits general solicitation or advertising, limiting the pool of potential investors.
• One critical aspect of Rule 506(b) is the contemplation rule, which restricts investors brought in through general solicitation from participating unless a substantive relationship existed prior to the offering. This limitation poses challenges, especially for sponsors seeking to close out programs or attract new investors.
• On the other hand, Rule 506(c) offers a game-changing provision by allowing issuers to publicly advertise and solicit offerings, provided all investors are verified as accredited. This exemption expands the reach of investment opportunities, enabling companies to access a broader investor base.
• To effectively utilize Rule 506(c), adherence to best practices is essential. This includes implementing robust internal compliance protocols and conducting regular training sessions for employees involved in solicitation and advertising activities. Furthermore, issuers must take reasonable steps to verify the accredited status of purchasers, ensuring regulatory compliance.
• The flexibility of Rule 506(c) offers significant advantages, notably the ability to market offerings publicly without the requirement of a pre-existing relationship. This opens doors to a wider array of communication channels, potentially expediting capital raises and fostering a larger investor base for future investments.
• As retail investors evaluate investment opportunities, understanding the implications of Rule 506(b) and Rule 506(c) offerings is paramount. Insights from industry experts like Marc Slavny and the 506(c) Working Group provide valuable guidance, empowering investors to make informed decisions.

You can read the full white paper HERE. 

For more information on these offerings and investment opportunities, please feel free to schedule a consultation with our team here at Fortitude.