securities offerings occurring in the previous twelve months. This is significant because if a company sells securities to accredited investors under a 506(c) offering and then later to non-accredited investors under a separate crowdfunding offering, the Commission may treat those two offerings as part of the same offering, potentially resulting in the company losing both exemptions.
How Do I Make this Work for Me – Practical Steps Now that you are bleary eyed with regulation, how do you navigate this opportunity efficiently and establish a rational plan for success. Do not go at this alone. While it is vital that the companies wanting to do an ‘exempt public offering’ under proposed Rule 506(c) wait until the final rule is adopted, this is a great time to tee your company up. Align yourself with a team of professionals who truly understand the rules. Any professionally who takes a laid back or kick the can approach to compliance with the rules will not be a good team member. Investment bankers who work in other areas such as mezzanine debt or IPO’s might jump on the new rule, but critical to the process is to work with licensed professionals acutely aware of the rules. IR groups in the microcap space will try to make inroads. Contacts in your company’s industry sector are not the key factor in successful general solicitation of a private offering. It is implicit in this opportunity to reach out to an investor pool beyond your banker’s rolodex.
Disclosures, risk factors and securities law compliance are part of the process. Not only is proposed Rule 506(c) not adopted yet, but other rules or interpretations may emerge, which could provide pitfalls for the unwary. Furthermore either an IPO or registration of the Company under the Securities Act of 1934, could be adversely impacted if a prior private offering was not reviewed by very experienced securities counsel. Similarly, once a company is publicly registered, should it seek to avail itself of a Regulation D exemption in a subsequent securities offering (including a PIPE offering – a “private investment in public equity”), it will need to continue to comply with the applicable disclosure and accredited investor requirements. Therefore, a quality securities specialist, rather than a transactional attorney without up-to-date working knowledge of the rules is a critical member of your team. Not every banker and attorney will be in favor of their clients using the new rule. As stated above the debate carries on. It will take team work of your professionals to efficiently and cost effectively manage issues that will arise. Media outlets with an existing publication or portal that has a following of investors will be in high demand as they provide exposure to the right group of readers. Media groups that expand with a related publication to support companies advertising under Regulation D will be a specialty to look for. The opportunity for misuse and abuse by opening up securities sales to public media has a strong likelihood of placing
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heightened scrutiny on unregistered offerings, and a company needs to work smart and get the right guidance to be vigilant but practical in its compliance efforts. At the same time, public advertising will provide companies with unprecedented access to new capital sources, which in today’s environment should not be passed over. Nancy Cass is an experienced investment banker and corporate attorney. She is a co-founder of MerchantCass Advisors, a banking firm headquartered in Atlanta. She holds Series her 7, 79, 24 and 63 securities licenses and executes securities transactions with StillPoint Capital, Member Firm FINRA/ SPIC. Ms. Cass is licensed to practice law in Illinois, Florida and Colorado. Mitch Goldsmith is a shareholder with the law firm of Shefsky & Froelich Ltd. of Chicago Illinois. Mr. Goldsmith advises numerous issuers domestically and abroad in a broad array of industries with respect to their offerings and general corporate activities. Camilla Merrick is an associate with Shefsky & Froelich Ltd. and counsels domestic and foreign clients on securities offerings, securities regulation and general corporate matters. Nancy Cass, Esq. MerchantCass Advisors www.merchantcass.com Telephone: 561-889-5210 E-Mail: ncass@merchantcass.com Mitchell D. Goldsmith, Esq., Shareholder Shefsky & Froelich Ltd. 111 East Wacker Drive ‑ Suite 2800 Chicago, IL 60601 Telephone: 312-836-4006 Mobile: 312-320-4657 E-Mail: mgoldsmith@shefskylaw.com Camilla Rykke Merrick, Esq., Associate Shefsky & Froelich Ltd. Telephone: 312-836-4041 E-Mail: cmerrick@shefskylaw.com n
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