Can a syndicator do both a 506 b
offering in order to get non
accredited investors and a 506 C
offering in order to advertise

at the same time?

My name is Tilden Moschetti. I'm
an attorney for the Moschetti
syndication Law Group. Our
practice focuses exclusively on

Regulation D, rule 506 B, and
506. C offerings. So it's only
natural that one question that
we oftentimes hear is can the

syndicator do a rule 506 B
offering in order to get
investors who are not accredited
in and a rule of 506 C offering

in order to advertise and get
investors who they don't know in
into the same syndication? Well,
the answer is, there's one kind

of way that sort of works. And
there are two ways that don't
work. But let's talk about the
rules in general. And then we'll

go through the specifics of the
different strategies that we get
asked about. So in general rule
506 B is a rule that is an

exemption to your registration
with the SEC, it allows up to 35
non accredited investors into
your syndication over a 90 day

period. So you can stack those,
so it can be 35, and then 35
More and then 35 More as long as
there's no more than 35 in that

90 day period. But how do you
get them in and the general
public as well. So the big
problem with rule 506 B is a

prohibitionist meaning you can't
do it of doing a general
solicitation, which means you
can't put a billboard on Main

Street to advertising your offer
during that time. Rule 506 C. On
the other hand, you can make a
general solicitation, you could

put in skywriting across the sky
all about your syndication, and
looking for investors, doesn't
matter if you know them or not.

So the problem with that
syndicators have sometimes is
raising money and getting enough
capital. So the idea is okay, if

I can pull from the general
public and get as much as I can
from there, but the most easiest
way to raise money is from the

people I already know, because I
Are they already trust me. And
if I can put those two together,
I would have no problem ever and

raising funds. The challenge, of
course, is that you can't really
do this and the way most people
think so the first strategy that

we get asked about, and probably
the way I'm asked most often is
can I do a rule 506 B and rule
506 C at the exact same time in

order to get the investors in?
The answer is clearly no. If you
were to do that, it would
basically be akin to having a

end run around this prohibition
of general solicitation. It just
negates the whole point of the
rule. So there's no way you'd

actually be able to do it, you
would have people who were non
accredited investors, seeing the
advertising and still coming

into your investment. The other
strategy that we get asked about
that does not work either, is
doing a rule 506 C offering,

closing it, and then doing a
rule 506 B offering. Now here's
what would happen if you did it
that way. You would would an

unscrupulous syndicator not to
you and not my clients may come
up with the idea of doing it
this way, simply because they

could advertise it out to the
world saying we're doing a 506 C
offering. Now when non
accredited investors call, they

would just say, well, let's
build that relationship. Because
you know what I'm going to do,
I'm going to close that rule 506

C offering and then I'm already
going to have that relationship
with you, where you can come in
under Rule 506 B, and I will get

all the investors that I want.
So that way is simply not going
to work because it's clear that
it's an end run again, around

the rules.

The third way to do it, which
probably would work it would
look old. little funny, but it
doesn't pass the boy that would

never work test. So I wouldn't
necessarily say this is what you
should do. But it is an option
out there, that probably is

going to be okay, as long as
it's really documented very,
very well. And that strategy
would be to do a rule 506 B

offering first, talk to all of
your friends and family, don't
do any advertisement whatsoever,
nothing and bring them into your

syndication. And make it clear
that Okay, in this 506 B
offering, it's closed, you have
to know me, we're going to talk

about how you know me and what
that relationship looks like.
And make sure that's very well
documented. Let those investors

know, look, once this closes,
we're going to have another
round, that's going to be 506 C.
Now it's a completely different

round. It's in the same
syndication, but it might even
be a different class of
membership units altogether. And

then once that's closed, you
would then do a 506 C, offering
a little while later. And then
at that point, you could

advertise now do not make the
mistake of your friend Joe
calling you and saying, Okay, I
know that you're in the 506 C

period right now, and we close
the 506 B and that you want it
in, but you didn't make it in.
You're a non accredited

investor. But since I know you
so well, I'll pull you in
anyway, do not make that
mistake. Because once you've

done that the whole house of
cards falls apart completely.
Because now you've brought in a
non accredited investor into

your 506 C offering. So I hope
that helps. My name is Tilden
Moschetti. I am the attorney for
the Moschetti syndication Law

Group. If you need anything as
it relates to Regulation D
offerings under Rule 506 B or
rule 506 C, please don't

hesitate to give us a call or
visit our webpage.