Tilden Moschetti: Hi Tilden Moschetti, its syndication attorney with the Moschetti Law Group. I focus exclusively on Regulation D filings. That's your 506 B and your 506 C. I primarily produce private
placement memorandums, operating agreements, subscription agreements, investor questionnaires, and make sure that syndicators are doing things and raising capital in the way that is legal and
compliant with the SEC and local states jurisdictions. So today, we're going to do a deep dive into one of the big sections and the rules of Regulation D, and that is rule 506. B, I thought we'd take
a deep look and really understand how it works.

Again, this is Tilden, Moschetti syndication attorney for the Moschetti Law Group. So today, we're going to do a deep dive into rule 506 B, how are we going to do that, we are going to look at the
code section itself, so that we can understand how it all works in interplays. There, and we'll talk about some of the nuances that are contained within that section. Most of our clients are either
doing 506 B, or 506 C, probably 95% of my clients are, are on those two exceptions in under Regulation D. So let's take a look at 506 B's. So this is the first part of 506 B. 506 B and the subsection
one is subsection one talks about the general conditions. But let's talk about the beginning first. So very clearly, it says 506 B, these are the conditions that must be met in offering subject to the
limitations subject to the limitations. So let's go through what those conditions are. First up general conditions subsection one. So to qualify for this exemption. So again, let's back up just a
little bit because this word exemption, what exactly do we mean by exemption. So in general, all securities must be registered either with the state or with the SEC. However, there are some
regulations which allow an exemption from that registration. Regulation D is a set of rules that are exempt offerings. And so that is one of the exemptions is 506 B. So that's what we mean by that. So
to qualify as an exemption under this section under 506, B offers and sales must satisfy all of the terms and conditions of section 230.501, and two. So let's talk about that. So automatically, we're
pointing to other rules, and it's getting a little bit more complicated. So let's try and ease it up when we're talking about 501. For the most part, we're talking about who can invest. Right, so
we're talking about in 501, the big topic is accredited investors.

And the other part of 501 is talks about also how advertising works. And what's prohibited under Rule 501 for 506 B offerings. So that's what is in 501. We'll take a deeper dive into those in just a
minute. But let's also talk about what is then rule 502. 502 is more is more the what and it's what you need to say in those in order to meet the satisfy all the terms and conditions. Here we're
really talking about ppm. Your private placement memorandum is there for a very specific purpose. It's to convey information from you the sponsor over to your investors. So I'm going to use the word
sponsor I'm going to say issuer, I'm may say syndicator, they're all the same thing. So those are the people you are the person that I'm talking to. You're the sponsor, the syndicator, the issuer.
We're all we're all talking about you as that person. So the PPM what needs to be a part of that ppm? Well, first off, there is some non financial information. Some of that is obvious, right? You need
to talk about what the investment kind of is out, you know, what, what are people giving their money for? And what are they getting out of it. But another major piece of the PPM that is a non
financial information is your risks. So identification of those risks disclosure of those risks, disclosures of any conflicts of interest that may exist between you the issuer and the investor. Those
are all non financial and must be disclosed in order to to meet the requirements of 502, which is in part part of 506 B. Number two, there must be some disclosure of but find name. Pretend I can spell
financial information. It actually uses the word statements in the code section. But what are they really looking for? You may be asking yourself, but we just got started, we don't have any financial
statements. And that's okay, they still need you to make this disclosure. So what they're really looking for here is use of funds. How when there's going to be all this money, what is that use of

funds? What, how much money? Are we talking about? How is it going to be used by you as the sponsor? What is what is, you know, what is the investor likely to get from it? How is that going to work
for businesses that are already on going and raising capital? So say you're already an existing business, those companies can't raise funds under 506 B. And what they would need to disclose in that
case is financial statements that support what just what the investors getting themselves into by investing with you. Number three, that needs to be disclosed is the opportunity to ask questions. So
investors need to have an opportunity to ask you as a sponsor questions that may they may have. Otherwise, it hasn't been really this kind of open Komono system of let me explain everything about the
investment to you, we do not keep anything in the in our investments behind closed doors, and do not let the investors know if it's something that's materially affects them. And so they need that
ability to ask those questions. And it's required by 502, that they have that opportunity. So in our PPM, we make it very clear that that opportunity is here, here's the contact information, etc. And
number four on the on these is a biggie. And we'll actually do another video on this later, but it is the limitations on resale.

The SEC doesn't want people just buying up these, buying up these in order to create a secondary marketplace where they can be traded. So these are private offerings, hence the name private placement
memorandum, or private placement. Because they're not a public offering. It's not being opened up to the public. And so we're not trying to create a marketplace here. And the SEC is very concerned
that people will try and do an end run around the system, basically do a reg D offering, which is really in disguise a public offering. That is not allowed. And that is why there is these limitations
on resale. A discussion of that must be within that PPM to satisfy the conditions of two. So this is rule 506 B, and specifically 501. Now, we have the this other rule under 501 C, and these are this
talks about the advertising. So this is this portion here that we're talking about, about advertising. So, what you are not allowed to do except as provided by rule 504, which this is not I know it
says be there. This is 504 B not 506 B that's a completely different thing. 504 offerings exist, but they are actually much more complicated and most people opt not to do them. Most people opt to do
506 B and 506 C. So except as provided by 504 B and of course 506 C which we're not really talking about here but as the other big exception under Reg D neither of The issuer nor any person acting on
its behalf may make this as a general solicitation. This is the the key phrase that's oftentimes used is this isn't a general solicitation, meaning that we cannot advertise and put it out into the
public for people that you don't know. So when you're on the phone doing a consultation with me, I will most often say, Do you have a significant relationship to all of your investors? Or do you have
a significant business relationship with all of your investors? This is why I'm asking that question. Because if you don't have a significant relationship with those investors, you cannot find those

investors because you don't have this relationship with them. You have to advertise, right. And if you have to advertise, then we're under this rule 506 C, not 506 B. So the one we're talking about
advertising, they of course, give us a definition of what they mean by advertising. Any advertisement article, notice other communication published in a newspaper, magazine, similar media broadcast
over television, radio, why they didn't mention internet, I don't know. But internet definitely applies. You cannot be putting this on social media and saying this is a great offering come invest with
us. If you get caught with that you are not in compliance with rule 506 B. And so that bad things will happen as a result of that. And then it uses the often use technique, it certainly was used a lot
more code during COVID, pre COVID days, by putting together a seminar or a meeting to discuss investments. So you can't put a seminar or some sort of live thing together in order to invite people in
and then pitch them the offering. Now, you certainly can do a seminar or a meeting and have these people just generally invited and have people that you don't know, but you cannot be pitching your
specific offering to them. You should not be saying well in here's an example, I would not discuss whatever that particular offering is, that's a 506 B offering, you should not discuss it at all at
that meeting, if you choose to do that. So that's rule, that's rule 506. 501 C. So let's take a deep dive into rule 506 B two, and then we're going to circle back to to what the accredited investors
portion of rule of that section 501 Again, so under 506 (B) (2), there are is a specific conditions on there are specific conditions on what you must do.

So there is a limitation on the number of purchasers. Now, some of this is going to be surprising, so stay tuned. There is a limitation on the number of purchasers, there may be no more than 35
purchasers of securities from the issuer in the offering under this section in any 90 day period. Right, two interesting parts there, no more than 35 purchasers. And 90 day period. So let's first talk
about the 90 day period, because here's an interesting opportunity. If you have more than 35 investors who meet this definition, then they can invest, they just cannot invest within the same 90 day
period. So a regular reg D offering is valid from that, that form D filing for a period of one year. So you could do four different offerings during that period of time. And pull in a lot more than
35. But it would have to be broken up so that you don't have more than 35 purchasers within any 90 day period. So that's interesting. Now let's talk about this 35 purchasers and you're thinking to
yourself, Wait, I thought that I could only have 35 non accredited investors in my 506 B offering. I've got a lot more who are accredited investors, how on earth am I going to make this happen? Hold
on not to worry. This is rule 501 E. So 501 E and we're going to skip right to the punch line is here. Subsection four of rule 501 He says that well first 501 says a 501 He says subsection one, it
says the following purchasers shall be excluded. And the punch line is one of those people, those people who are accredited investors are excluded, they do not count for that 35. So, not to worry,
there's actually a footnote in rule 506 (B) (2) that points directly to this rule for 501 e so that there's not any confusion. So under 501 E. So you've, you do not need to count as part of your 35
Any accredited investors, it's actually some other interesting people who are not included as well. So you have a husband and husband and wife who are where the husband is a non accredited investor,

and he wants to invest in the property, no problem, he can come in, he's friend of yours, they can come in no problem. But the spouse would also like to invest again, no problem under 501 e one, I or
one because any relative of the spouse as long as they share the same primary residence as the purchaser shall not be counted. So you only need to count the one person rather than the two. Also
interesting is a trust in a state where there is collectively where one person has as collectively more than 50% of the beneficial interest. They they do not need to count any of those other people
that are have a beneficiary beneficial interest in the trust. And you can leave it to your children because that's excluding contingent interest. So if you're still living the trust can leave that
there too. Also interesting is any corporation can can also be an invest. Egg can also be investor and so long as the beneficial owner owns more than 50%. Even if that person is a non accredited
investor, that person won't count that one person but the remainder of the people as long as they own less than 50%. They aren't going to count. Interesting. And of course, in the accredited investor
is there so this is rule 506 B. So rule 506 B is probably represents maybe half of the people that we do private placement memorandums for if you need some help with your syndication, be it for real
estate, you're

an entrepreneur, you're raising some capital for your business, or you're putting together that new cryptocurrency hedge fund. Give us a call. My name is Tilden Moschetti. I am a syndication attorney
or visit us online on at www.moschettilaw.com or if you need help just with your private placement memorandums, we've got you covered there too. ppm.moschettilaw.com