1.5 - SEC Reg D (Rule 506)

Under Regulation D, accredited investors in a private placement must meet minimum standards that may include which of the following? I.Annual income in excess of $200,000 for at least the last 2 years. II.Annual income in excess of $100,000 for at least the last 2 years. III.Net worth, excluding the primary residence, in excess of $1 million. IV.Net worth, excluding the primary residence, in excess of $200,000. A) I and III. B) I and IV. C) II and IV. D) II and III.

A) I and III. The requirement for an accredited investor under the private placement exemption is either a net worth, excluding the primary residence, in excess of $1 million, or annual income in excess of $200,000 in the last 2 years and the same or more income expected this year, or $300,000 for joint incomes.

Under the Securities Act of 1933, an accredited investor may be: I. a bank, insurance company, investment company, or employee benefit plan valued in excess of $5 million. II. a wealthy person in some cases. III. partners, officers, and directors of the issuer for a particular issue. A) I, II and III. B) II only. C) I only. D) I and III.

A) I, II and III. Accredited investors are financial institutions, wealthy persons meeting specific requirements, and (for a particular issue) persons involved in the management of the issuer.

Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are TRUE? I.Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot. II.Rule 506(c) offerings are limited to 35 nonaccredited investors, while Rule 506(b) offerings do not have a limit. III.The bad actor provisions only apply to Rule 506(c) offerings. IV.Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings. A) III and IV B) I and IV C) I and II D) II and III

B) I and IV As long as the offering is limited exclusively to accredited investors, Rule 506(c) offerings may be publicly advertised; Rule 506(b) offerings can never be advertised. The limit of 35 nonaccredited investors applies to Rule 506(b); there is no limit on the number of accredited investors for either rule. Both rules are subject to the bad actor provisions.

Identify the accredited investors from the list below. I.An individual with a net worth of $800,000 and an annual salary of $150,000 II.A married couple with a net worth of $2 million consisting of a home worth $500,000 and pension plans and other assets worth $1.5 million III.An insurance company IV.A corporation with a net worth of $3 million A) I and II B) I and IV C) II and III D) III and IV

C) II and III Institutional investors such as insurance companies are regarded as accredited investors. An individual with a net worth of $800,000 and a salary of $150,000 does not meet either of the 2 qualification criteria for individuals, while the married couple with a net worth of $2 million, which, after excluding the value of the primary residence is still in excess of $1 million, is accredited. In order for a corporation to meet the definition, it must have a net worth of at least $5 million.

Jim is buying stock through a private placement. Under the Securities Act of 1933, which of the following statements is TRUE? A) Jim must notify the SEC that he is buying private placement securities. B) The stock must first be fully registered with the SEC. C) The stock need not be registered with the SEC. D) Jim will receive a letter stating his ownership.

C) The stock need not be registered with the SEC. Private placements are exempt transactions under Regulation D of the Securities Act of 1933 and are therefore exempt from registration.

An issuer properly files Form D in accordance with Rule 503 of Regulation D of the Securities Act of 1933. As such, the securities that are the subject of any transaction are: A) available only to institutional purchasers. B) required to register with the state(s) in which they are sold. C) required to register with the SEC. D) federal covered securities.

D) federal covered securities. Securities sold under Regulation D of the Securities Act of 1933 are private placements and, under the NSMIA, are considered federal covered securities.

An issuer wishing to comply with Regulation D of the Securities Act of 1933 must file a Form D with the SEC: A) no less than 20 days prior to the first expected date of sale. B) no later than the time of the first sale. C) no later than 30 days after the first sale. D) no later than 15 days after the first sale.

D) no later than 15 days after the first sale. Issuers wishing to avail themselves of the private placement exemption offered under Regulation D of the Securities Act of 1933 must file a Form D with the SEC no later than 15 days after the first sale.

To be exempt under Regulation D of the Securities Act of 1933, the sale of securities must be limited with respect to the number of: A) shares issued. B) agents authorized to sell the security. C) broker-dealers who offer the securities. D) nonaccredited investors to whom the security is sold.

D) nonaccredited investors to whom the security is sold. Regulation D provides a private placement exemption for securities that are sold to no more than 35 nonaccredited investors. There is no limit to the number of shares that can be issued nor the number of accredited investors who may purchase the shares.

Ways in which offerings under Rule 506(c) of Regulation D of the Securities Act of 1933 differ from those under Rule 506(b) include each of these EXCEPT A) general solicitation is permitted under Rule 506(c) offerings; no advertising is permitted under Rule 506(b) B) the issuer must take "reasonable steps" to verify that all purchasers are accredited investors in a 506(c) offering, while no such obligation falls upon issuers in a 506(b) offering C) all purchasers of the Rule 506(c) securities must be accredited investors as defined in Rule 501 whereas Rule 506(b) permits a limited number of sophisticated, but not accredited investors. D) securities issued under Rule 506(c) are federal covered while those under Rule 506(b) are not

D) securities issued under Rule 506(c) are federal covered while those under Rule 506(b) are not Under the NSMIA, any security issued under the federal transaction exemption offered under Rule 506, either (b) or (c), is considered to be a federal covered security.