As a syndication attorney, this
is the second most common

problem that I see happening not
only with people who I meet with

for the first time, but it's
also the problem that I think is

definitely under a lot of
scrutiny by regulators on

exactly how they can be fixed
and address this problem. We're

gonna go through that problem.
The problem is solicitation that

occurs with Regulation D, Rule
506(b) offerings. Just as an

aside that number one problem is
when people just assume that

it's not a security, that what
they're offering, they are

making investments with private
investors who are going to be

taking on a passive role. And
they're saying, Well, its

friends and family. That's the
number one problem. It's not

correct. It is a security, it
needs to be either registered

with the SEC, or fall under an
exemption, like Regulation D.

But let's go on to the number
two most common thing that I

see, in this series, this seven
part series on how to stay out

of trouble, in compliance with
both the SEC and state

regulators.

This is what it looks like.
There's a Regulation D Rule

506(b) offering, because someone
wants to include non accredited

investors in their investment.
They don't know everybody, and

that is the where the problem
lies. So we're going to talk

about solicitation, how that
works, what the problem is, and

what the what the real rules are
about it. And then we'll put

that in the context of how to be
in compliance with the SEC. So

let's go to a whiteboard. So we
can outline things a little bit

easier here. So what is
solicitation?

Well, it falls under Rule 502.
"But I thought we were talking

about Rule 506(b)?" Yes, it
does. And 506. Rule 502 is where

we have in Rule 502(c), as it
relates to Rule 506(b) just for

manner speaking, because what
it's what this rule says is any

kind of offering except as
provided in rule 504(b)(1),

which no one really uses
anymore. So let's get rid of

that. Or if it falls under
506(c). So what does that leave

us with? We're not doing we're
not really talking about rule

504. We're not talking about
Rule 506(c) that means we must

be talking about

506(b).

So we're talking about Rule
506(b) here. So we've heard

different things about well, you
can't advertise you can't do

this need to have a they need to
be people are known you people

in your network. Let's put it
all in context. The rule

actually doesn't say explicitly
that you need to know everybody.

However, what it does say is the
following. So there are two

there are two examples that are
given on what is what is

solicitation. So the first set
of examples is an advertisement

a article a notice a that is in
like a newspaper.

Magazine or similar media or TV
or radio. Now this just kind of

shows how lawmakers really
aren't that up to date. Because

this was I mean, we revised this
whole section much later. Come

on who's really doing this
anyway, it was really

advertising in the newspaper
We're actually a lot of people

do advertise their fiber 60s in
the newspapers successfully. But

that's not really what we're
interested in most of the time

people want to know about, what
about the web?

And social media. Right? I mean,
that's what most people are

going to as their first time.
But Rule 502(c) is really saying

that this is general
advertising. But it's it's

includes this, it's not limited
to just this. It's really

anything. So I think this is the
similar, I think any regulator

would agree that if you put it
on the web, or social media or

Tik Tok, or YouTube or whatever,
we're talking about something

similar. So that is definitely
general solicitation, right. The

other example that they give,
actually, we'll go to the other

example in just a minute. Let's
talk first about what we mean by

putting it, putting this
advertisement out there on the

network and what you can and
what you can't do. So when we

are advertising and when we're
soliciting. So a general

solicitation means we're making
a public announcement to the

world, we're putting it out
there where anybody could find

out about it and come to us.
What the SEC is trying to

prevent here in Rule 506(b), is
they're trying to prevent people

from putting together
syndications and funds by just

broadcasting it out whereby they
get non accredited investors.

Because the thought is this, if
you could put a net out there,

that is broadcast totally loud,
loud. But we're able to bring in

non accredited investors, those
non accredited investors don't

have as much protection. So
that's the main interest of the

state and the and the SEC, is
protecting those individual non

accredited investors. If you're
broadcasting it out, there's no

one watching your back. So
compare this compare this to

rule two, a Regulation A
offering, and a Regulation A

offering, all the documents are
put together, and it's given to

the SEC who reviews it and and
makes sure that it's that

there's enough there that an
investor a non accredited

investor could go in. That's why
it's okay to advertise on a

Regulation A offering. And it's
okay to have non accredited

investors in the same one. But
under 506(b), it would be

completely abnormal. It used to
be 506(c) originally didn't

exist. It used to be that the
only kind of ways to market to

market a Regulation D was not on
was no solicitation of any kind.

So actually allowing
solicitation to occur under

506(c) is totally new. It's very
different and brand new for us.

Whereas 506(b) is it's been
there for for pretty much since

the get go. And under 506(b) now
we're trying we are trying to

say okay, if you know if you
have this relationship, then you

could do it. So that brings us
to this. Well, the establishment

of the relationship issue,
right? Because if you can't do a

general advertisement, then
there's only one other

conclusion, right, that the
investor had to have come to you

through another means right?
Meaning that you knew them. So

you weren't making a general
solicitation. You were making a

very specific solicitation.
Brother in law, are you

interested in investing in this
very clear cut, very directed,

it's to somebody who I know as
well already within my network.

That's the difference. So that's
kind of the overarching thought

about why you need to know them.
Now, this is definitely 100% Not

to say. So I am not saying this
at all. I'm not saying that you

can bring in investors, who a
friend of a friend of a friend

knows because you're not making
a direct communication with

them. That's probably not okay.
Now, it doesn't specifically say

that in the rules. But once it
starts getting reasonably

removed from you, it stops
looking a lot like like it

starts looking more like some
sort of general solicitation.

And, or some attempt to get
around the rules, I think it's

definitely the best possible
advice that I could give you is

if you're going to do a
Regulation D rule 506. B

offering, you only solicit to
people that you already know. So

it's not a general solicitation,
it's a you go to them to the

people that you already have a
pre existing relationship with.

It's clear cut, you've already
got the relationship. I know who

all these people I'm putting
this offering out there, right.

So that's clear cut. Where
people start bending the rules

is always well, how do I have to
know them? Right, and I get this

question a lot. How do I have to
know them in order to bring them

into my offering? You know, what
about the friend of a friend?

You know, can I do that? And by
the way, I want to compensate my

friend of a friend. We'll deal
with that in the Finder

selection later. But for now,
that's probably not okay. It

probably is outside of the
rules, because it starts looking

like a general solicitation
where if I'm relying on people

that aren't me to go and talk to
other people, even if they're

not being compensated, that
starts looking a lot like some

sort of solicitation. So that
brings us to our next part, our

next example, that the SEC gives
us, or actually the the

lawmakers give us on exactly
what to do with are exactly the

most common way that used to
exist, and still pretty darn

common in order to build the
network and find investors. And

that is a seminar or meeting. So
what happened at first is people

would say, Okay, we cannot sell,
we cannot do a solicitation, but

here's what we're gonna do.
Instead, I'm gonna pull it out

there, hey, come to my meeting.
And we're going to talk about

real estate. Now, people would
show up at this, at this

meeting, I'm just using real
estate as an example. It can be

anything investing in
businesses, investing in notes,

whatever it is. So people would
show up to this meeting, and it

wasn't really about that. It was
about let me tell you about

these investment that we're
working on. And we can you can

come in that way. So this rule
very specifically under Rule

502(c)(2) says, okay, hold on a
minute here, whenever there is a

seminar or a meeting, where
there's been any kind of

advertisement.

And I'm not gonna go through the
exceptions, because there are a

few exceptions. They're actually
very, very rare. So. So there's

if there's been this sort of
solicitation of hey, come to my

meeting, but at that meeting,
where I'm basically selling,

that's not okay. That is a
solicitation as well. So these

are the two ideas. A
solicitation is, you know, no

advertising, no doing this fake
seminar thing in order to

actually advertise. This is
something that the SEC is very,

very aware of. And this is
something that every every

regulator knows is going on. To
a large extent, that

solicitations are happening,
that it's happening, you know,

and people are being sneaky and
clever. Now, there's only so

much that the SEC or any state
can regulate it. But people are

getting to get caught. And
people are going to have major,

major penalties as a result of
it. The odds of it, of getting

caught and that happening, I
predict this is a prediction. I

predict it's going to go on the
rise. I think as the economy

changes as people start
investing more and more into

alternative investments. And
these things pick up even more

than they are today. Because I
think that the alternative

investment horizon is extremely
bright. But that's another topic

for another day to about why
public markets are failing

investors, but the private
market, these alternative

investments are going to do
great, and they're going to do a

lot and they're going to make
investors a lot of money. And

they're going to make
syndicators and fund managers

Oh, lot of money in the in the
very near future mean they're

already do but they will make
even more. And what's going to

start happening is that that
hunger for investors for non

accredited investors who can
come into the offerings, people

are just going to be more and
more frustrated when they're

trying to put these deals
together because they want more

and more of those non accredited
investors. And it's

understandable that they do I
get people in my, you know, that

we just we talked to every day
who were putting put deals

together. And a lot of times,
it's how can I make this work

where I can have non accredited
investors. But I don't have but

I can make this happen. And 99%
of the time, these people are

actually trying to just do a
good thing. They're trying to,

you know, be the Robin Hood,
like the stock trading platform

of real estate or something. For
the non accredited investors,

for the every person, for the
for the people who aren't, who

don't qualify for that. That's
very noble, it's, it's a great

thing to do. It's just it's not
within the rules. And the

regulators know this. And the
whole point of the rule is to

protect those non accredited
investors from not from these

people who are trying to do a
good thing, but from the people

who are unscrupulous and will
take advantage of them. And so

how can the state regulators in
the SEC monitor this more? Well,

there's going to be a lot more
investigations, and there's

going to be a lot more things
that starts happening as people

start digging deeper into, well,
what's actually going on here.

Now, I've seen this happen
firsthand. So I have a client

who was putting together a a
Rule 506(b) offering, before

they hired me, they had put
together a Rule 506(c) offering

and and put it out there as
well. Now, that offering

actually never happened. And
actually the both two offerings,

we changed everything radically
and restructured it and and put

it forward because it was much
more there. There were technical

problems about the assets that
they wanted to actually acquire

weren't weren't available, there
were real real estate assets.

And it turned out that the that
they just didn't want to go

through that and wanted to
repackage it. So nothing

happened. But under that rule
506(c) offer. They were testing

the waters, they were putting
they put some advertisements out

there. Well, the state, one of
the states, one of the 50

states, a state regulator had
seen that ad. And they were

concerned about it. So they
thought maybe then they were

advertising a Rule 506(b)
offering. So they wrote my

client a letter and said, Please
tell us everything you can about

this offering. Now, this wasn't
the offering that I did for

them. This was actually a 506(c)
offering that was actually done,

but they didn't have an attorney
at the time, who knew to put

that sort of thing, make it very
clear that it's a Rule 506(c)

offering only accredited
investors, the independent

verification, blah, blah, blah.
So they didn't know. So the

regulator's didn't know, but
they The point is that they were

watching. And they reached out
to my client and said, Okay,

what about this and tell us
about every other offer you have

going on? Because then as they
did an investigation, they

started hearing about the other
offer that I wrote the 506(b)

offer. I don't know how it came
about, oh, I know how it came

about. Because we did a we filed
the forum D on it ahead of time.

So they they saw that they
looked up all the deals that the

that my client had done, they
saw that there was also this

this Rule 506(b) offer. And they
wanted to know about what went

on Who are they how many
investors did they have? What

states were they coming from
what what was the money? Why

didn't they receive notice?
Well, the fact is, is that

didn't know if there hadn't been
a sale occurred. So it was okay

that nothing happened. But they
were watching. And I think

they're going to be watching
more and more. You see a lot of

advertisements of these offers
that are out there. And it's

kind of hard to figure out
whether it's Rule 506(c) or

506(b). And so but they'll make
may makes mention of a state

where we've got this great
multifamily property in Texas,

hey, we're going to be doing oil
and gas in Louisiana or

wherever. In North Dakota. The
states are also looking and

monitoring it because they're
concerned that their their

citizens are going to be taken
advantage of. So they are going

to be watching and they're going
to increase the level of

investigation. Now the SEC today
He doesn't proactively

investigate until there's been a
lawsuit. But they could change

their mind, they could decide to
be more proactive about. And

they may, certainly the states
can can do whatever the states

want in terms of investigating,
they have a right to not only

make sure that they get noticed,
but also to investigate to see

if that what's going on. And I
predict that it's going to

happen more and more. One thing
I've also noticed is that people

are putting together, what
they're saying is, oh, we're

testing the waters and plan on
doing a Regulation A offering,

where they're not trying to do a
Regulation A offering, as soon

as you submit to there. Tell me
more about this investment.

Because it says specifically for
non accredited investors, you're

going to notice that oh, this,
we're actually not going to be

able to do the the Regulation A
offering. But we are doing a

Regulation D Rule 506(b)
offering. That's not going to

fly. No regulator is going to
let that slip, I predict that

all the people that are doing
that are also going to get

munched and rightly so they're
trying to skirt the rules.

Again, just like I discussed in
the first video, this series,

regulators are very smart
people. They're great lawyers,

they really are. And their job,
their mission in life is to

protect the public. Don't try
and get clever, just follow the

rules, and everything's fine.
Their rules are wide enough for

everybody to be able to raise as
much money to do whatever

projects they want to do. The
rules are there to protect the

public. And by complying with
the rules, we stay out of

trouble with the SEC and the
states. We're in compliance,

we're doing better for our
investors anyway, because we're

complying with those rules. I
mean, how awful would it be if

one of your investors loved what
you were doing? They just loved

it. It was so amazing. They
called you every week. We're

just like, Oh, you're the
greatest person ever. But

someone else was unhappy. And
then the SEC stomped on them.

Because they were you did
something or I was wrong. And

now the person who who loved
you. They're out also, their

whole deal just fell completely
apart suddenly and they love.

That's why investors get hurt by
this as well. So I hope this

helps. That is about
solicitation. So solicitation of

Regulation D Rule 506(b) offers.
It's happening out there, but it

doesn't need to, and it
shouldn't it is against the

rules. And when we say no
solicitation, bottom line is no

solicitation. That's all the
regulators are asking for is to

follow that very simple rule
that you follow. Rule 502(c)

have really good Regulation D
Rule 506(b), my name is Tilden

Moschetti.

I am a syndication attorney with
the Moschetti Syndication Law

Group. If we can help you with
your Regulation D Rule 506(b)

offering or your 506(c)
offering. Feel free to give us a

call and let's talk about your
project so we can make sure that

you are in compliance and that
ultimately you're successful in

putting raising the money and
bringing what you want people to

invest in out to the public so
that people can invest, make

money, you make money, everybody
wins.