The core of this scenario revolves around the specific requirements of a private placement conducted under Rule 506(c) of Regulation D. Unlike a Rule 506(b) offering, a Rule 506(c) offering permits the use of general solicitation and advertising. However, this flexibility comes with a significant condition: the issuer must take reasonable steps to verify that all purchasers are, in fact, accredited investors. The standard for verification is principles-based, meaning the specific steps required depend on the facts and circumstances of the offering and the investor. Simply accepting a self-certification from the investor, such as through a questionnaire or a checked box in a subscription agreement, is generally considered insufficient, especially when there is no pre-existing, substantive relationship with the investor, which is often the case when general solicitation is used. The SEC has provided a non-exclusive list of methods that are deemed to be reasonable steps for verification. For an individual investor qualifying based on income or net worth, these methods include reviewing recent IRS tax filings (like Form W-2 or Form 1040) that demonstrate the required income level, or obtaining a written confirmation from a licensed attorney, a CPA, a registered investment adviser, or a registered broker-dealer stating that such person has taken reasonable steps to verify the purchaser’s accredited status. Therefore, the most compliant and appropriate action for the placement agent is to obtain and review objective, third-party documentation that substantiates the investor’s claim of accredited status before finalizing the sale.

The core issue is whether the placement agent’s communication constitutes general solicitation, which is prohibited under Rule 502(c) for a Regulation D Rule 506(b) offering. For a communication not to be considered general solicitation in a 506(b) context, the placement agent must have a pre-existing, substantive relationship with the potential investor. A pre-existing relationship is one that is established before the offering commences. A substantive relationship is one in which the placement agent has sufficient information to evaluate the prospective offeree’s financial circumstances and sophistication, enabling the agent to form a reasonable belief that the offeree could be an accredited investor or has the requisite knowledge and experience to evaluate the investment’s merits and risks. In this scenario, the placement agent, Mateo, met the potential investor, Dr. Chen, at a non-investment-related social event. The relationship was formed during the offering period, not before, so it is not pre-existing. Furthermore, a brief social conversation does not provide enough information for Mateo to have a substantive basis for evaluating Dr. Chen’s financial sophistication. Therefore, sending the Private Placement Memorandum (PPM) to Dr. Chen immediately after this brief encounter constitutes general solicitation and is a violation of the conditions of Rule 506(b). The fact that the communication was a direct email does not change its nature as a solicitation to someone with whom no proper relationship existed.

The decision to use a publicly accessible website and targeted social media advertisements to market a private placement constitutes general solicitation. Under the Securities Act of 1933, using general solicitation to offer securities under Regulation D places the offering squarely within the framework of Rule 506(c). While Rule 506(b) prohibits general solicitation, Rule 506(c) permits it, but with very specific and stringent conditions. The most critical condition is that all purchasers in the offering must be accredited investors. Furthermore, the issuer or its placement agent cannot simply rely on a potential investor’s self-certification of accredited status, such as checking a box on a subscription agreement or investor questionnaire. Instead, Rule 506(c) imposes an affirmative duty on the issuer to take “reasonable steps to verify” that the purchasers are indeed accredited investors. This is a significantly higher standard of diligence than what is required in a Rule 506(b) offering. The methods for verification are not prescribed but can include reviewing tax returns, bank statements, or obtaining written confirmation from a registered broker-dealer, investment adviser, attorney, or CPA. The allowance for up to 35 non-accredited investors is a feature exclusive to Rule 506(b) offerings and is forfeited the moment general solicitation is employed. The concept of a pre-existing, substantive relationship is a safe harbor to demonstrate that general solicitation has not occurred under Rule 506(b); it does not provide an exemption from the verification requirements once general solicitation is used under Rule 506(c).

The core of this scenario involves the intersection of two key regulations: SEC Rule 506(c) under Regulation D and FINRA Rule 5123. Under Rule 506(c), which permits general solicitation and advertising, the issuer or its placement agent has an affirmative duty to take “reasonable steps to verify” that all purchasers are accredited investors. The SEC provides a non-exclusive list of methods for this verification, one of which is receiving a written confirmation from a licensed Certified Public Accountant who has reviewed the investor’s financials. Therefore, accepting the CPA letter from Dr. Sharma is a valid step in the verification process. The firm must maintain records of the steps it took to verify each investor’s status. Separately, FINRA Rule 5123 imposes an obligation on member firms that act as placement agents in private placements. The rule requires the firm to file certain information and documents, such as the private placement memorandum (PPM) or term sheet, with FINRA. This filing must be made no later than 15 calendar days after the date of the first sale of securities in the offering. This filing requirement is independent of the investor verification process but is a mandatory compliance step for the firm managing the offering. The correct course of action for the firm is to fulfill both its SEC obligation to verify and record the verification steps, and its FINRA obligation to file offering documents in a timely manner after the first sale.

The core of this scenario involves the intersection of FINRA Rule 5123, which governs the filing of private placement documents, and the nature of the marketing materials used. FINRA Rule 5123 requires a member firm to file with FINRA’s Corporate Financing Department any private placement memorandum, term sheet, or other offering document used in connection with a private placement within 15 calendar days of the date of the first sale. The term “other offering document” is interpreted broadly to include materials that provide substantive details about the offering, such as an executive summary. The fact that the offering is conducted under SEC Regulation D Rule 506(c), which permits general solicitation, makes the communication aspect critical, but the filing requirement itself is dictated by Rule 5123. The rule does not provide an exemption from filing based on the type of investor receiving the document; the obligation is triggered by the firm’s participation in the offering and the use of the document. Therefore, even though the summary is sent to a mix of investors including QIBs, it is considered an offering document. The firm must file this executive summary with the Corporate Financing Department no later than 15 calendar days after the first sale of securities in the offering. This is separate from the internal principal approval requirements mandated by rules like FINRA Rule 2210 for communications.

Logical Deduction to Final Answer: 1. Identify the offering type: The offering is a “mini-max,” which is a type of contingency offering. 2. Identify the governing rule: SEC Rule 10b-9 specifically governs contingency offerings and prohibits manipulative or deceptive acts in connection with them. 3. Identify the proposed action: The issuer wants to lower the minimum contingency from $5 million to $3.5 million. 4. Analyze the action’s impact: Lowering the minimum is a fundamental and material change to the terms of the offering. The original investment proposition was based on the company receiving at least $5 million in funding. A lower amount could significantly alter the company’s prospects and the risk profile of the investment. 5. Determine the required procedure under Rule 10b-9: SEC guidance on Rule 10b-9 clarifies that if a material term like the minimum offering amount is changed, the offering must be restructured. The placement agent cannot unilaterally change the terms for investors who have already subscribed. 6. Conclude the obligation: The placement agent must inform all existing subscribers of the material change. This requires providing them with updated disclosure (e.g., a supplement to the Private Placement Memorandum) and giving them an affirmative choice to either rescind their purchase and receive a full refund from escrow, or to reaffirm their commitment under the new terms. This process ensures that all investors, both original and new, are making their investment decision based on the same, accurate set of offering terms, thereby preventing a violation of Rule 10b-9. SEC Rule 10b-9 makes it a manipulative or deceptive practice for a broker-dealer to represent that a security is being offered on a contingency basis, such as an “all-or-none” or “mini-max” arrangement, unless the offering proceeds are promptly returned to investors if the specified contingency is not met. A critical aspect of this rule is how material changes to the offering terms are handled. Changing the minimum amount required to close the offering is considered a fundamental, material change. The original investors made their decision based on the premise that the issuer would have a certain minimum amount of capital to execute its business plan. A lower capital amount could materially increase the risk of the venture failing. Therefore, the placement agent cannot simply amend the terms and continue. To comply with the rule and avoid fraudulent misrepresentation, the firm must effectively extend a new offer to the existing subscribers. This involves providing full disclosure of the new terms and offering each subscriber the affirmative right to either reconfirm their investment under the new conditions or to have their subscription funds returned in full. This re-solicitation process ensures that every investor’s commitment is based on the final, accurate terms of the deal.

The determination of the trust’s accredited investor status requires a step-by-step analysis of the definitions provided in SEC Rule 501(a) of Regulation D. First, we evaluate the trust under Rule 501(a)(1). This rule states that a trust can be an accredited investor if it has total assets in excess of $5,000,000, was not formed for the specific purpose of acquiring the securities, and its purchase is directed by a sophisticated person. The Chen Family Legacy Trust has total assets of $4,000,000. Since this amount is less than the required $5,000,000 threshold, the trust does not qualify as an accredited investor under this specific provision, even though the other conditions might be met. Next, we must consider other provisions. Rule 501(a)(8) provides an alternative path for entities. It states that any entity in which all of the equity owners are accredited investors is itself an accredited investor. For the purposes of this rule, the beneficiaries of a trust are considered its equity owners. The scenario states that the trust has two beneficiaries, each with a personal net worth exceeding $2,000,000. To determine if the beneficiaries are accredited, we apply the individual test from Rule 501(a)(5), which defines an individual as an accredited investor if they have a net worth, either individually or jointly with a spouse, exceeding $1,000,000 (excluding the value of the primary residence). Since each beneficiary has a net worth over $2,000,000, they both independently qualify as accredited investors. Because all of the equity owners (the two beneficiaries) of The Chen Family Legacy Trust are accredited investors, the trust itself qualifies as an accredited investor under Rule 501(a)(8). The placement agent can therefore reasonably conclude the trust is an accredited investor based on this provision.

The first sale of securities in the Regulation D offering occurred on June 1st. Under both SEC Regulation D (Rule 503) and FINRA Rule 5123, relevant filings must be made within 15 calendar days after the date of the first sale. The deadline for these filings was therefore June 16th. The issuer, BioGen Innovations, filed its Form D with the SEC on June 21st, which was \(21 – 16 = 5\) days late. While SEC Rule 508 might provide a safe harbor for the issuer regarding insignificant deviations from Regulation D’s terms (potentially preserving the federal exemption if the failure was not intended to protect the specific investor), this does not absolve the FINRA member firm, Apex Capital, of its own distinct obligations under FINRA Rule 5123. FINRA Rule 5123 requires a member firm acting as a placement agent to file specific documents and information with FINRA no later than 15 calendar days after the first sale. These required documents include any private placement memorandum, term sheet, or other offering document, and critically, a copy of any Form D that the issuer files with the SEC. Because BioGen filed a Form D, Apex Capital was required to ensure a copy of it was filed with FINRA as part of its complete filing. The issuer’s failure to file the Form D by the June 16th deadline made it impossible for Apex Capital to fulfill its own complete filing requirement with FINRA within the mandated timeframe. The member firm is responsible for its own compliance, and the issuer’s tardiness causes the member firm to be in violation of FINRA Rule 5123. The initial filing made by Apex on May 28th does not satisfy the full requirement once the Form D is created and filed by the issuer.

The core issue revolves around the “reasonable steps to verify” accredited investor status as required under Rule 506(c) of Regulation D. While Rule 506(c) permits issuers and their placement agents to use general solicitation and advertising to offer securities, it imposes a heightened verification requirement. All purchasers in a 506(c) offering must be accredited investors, and the issuer must take reasonable steps to verify this status. Simply relying on an investor’s self-certification through a check-the-box questionnaire, especially when it is the sole basis for providing immediate access to offering documents like the Private Placement Memorandum and subscription agreement, is generally considered insufficient to meet this standard. The SEC has provided a non-exclusive list of methods for verification, which includes reviewing tax returns or other IRS forms, reviewing bank or brokerage statements, or obtaining a written confirmation from a registered broker-dealer, investment adviser, attorney, or CPA. The principle is that the issuer or placement agent must undertake an objective verification process and cannot passively rely on the investor’s own attestation. The fact that the firm plans to review the questionnaire later does not cure the initial deficiency of providing offering materials based on an unverified claim. The verification process should be completed before the consummation of the sale.

The core issue revolves around the intersection of SEC Rule 506(c) and FINRA Rule 5123. Under Rule 506(c) of Regulation D, an issuer is permitted to use general solicitation and advertising to offer its securities. However, a critical condition is that all purchasers in the offering must be accredited investors, and the issuer or its placement agent must take “reasonable steps to verify” that the purchasers are indeed accredited. This verification is not a mere formality; it must be completed prior to the sale of securities to that investor. FINRA Rule 5123 requires a member firm acting as a placement agent to file a notice with FINRA containing certain documents and information regarding the private placement. This filing must be made no later than 15 calendar days following the date of the first sale of securities. In the scenario, the first sale occurred on June 1st. The placement agent filed the notice with FINRA on June 10th, which is within the 15-calendar-day window. However, the agent did not complete the reasonable steps to verify the investor’s accredited status until June 20th. By filing the notice with FINRA on June 10th, the firm is effectively representing that the offering is being conducted in compliance with the claimed exemption, Rule 506(c). Since the mandatory verification of the first purchaser’s status had not yet been completed, the sale on June 1st was not compliant with Rule 506(c) at that time. Therefore, filing the notice with FINRA before completing this fundamental condition of the exemption constitutes a significant regulatory failure. The violation is not the timing of the FINRA filing itself, but that the filing was made for an offering that was not, at that moment, in compliance with its underlying SEC exemption requirements.

The core issue revolves around the specific requirements of a private placement conducted under Rule 506(c) of Regulation D. This rule permits issuers and their placement agents to engage in general solicitation and advertising. However, this permission is coupled with a strict condition: the issuer must take reasonable steps to verify that all purchasers in the offering are, in fact, accredited investors. Sales may only be made to verified accredited investors. In the described scenario, the public-facing webinar itself is a permissible form of general solicitation. The compliance failure occurs at the point where a potential investor can access offering-specific materials, like the Private Placement Memorandum (PPPM), without first undergoing the verification process. A simple click-through or self-attestation on a landing page is generally considered insufficient to meet the “reasonable steps to verify” standard when general solicitation is used. The correct procedure requires establishing a clear gate between the general advertisement and the provision of offering documents. The “Request More Information” link must lead to a process designed to verify the investor’s status. This process typically involves collecting information through a detailed investor questionnaire and then verifying that information by reviewing documents such as tax returns, W-2s, bank or brokerage statements, or by obtaining a written confirmation from a qualified third party like a registered investment adviser, a licensed attorney, or a certified public accountant. Only after the firm has successfully completed these reasonable verification steps for a particular investor can it provide that investor with the PPM and other offering materials.

The core issue stems from the placement agent’s responsibilities under both SEC Rule 506(c) and FINRA Rule 2210. Under a Rule 506(c) offering, while general solicitation is permitted, the issuer and its agents must take “reasonable steps to verify” that all purchasers are accredited investors. A simple, pre-emptive self-attestation checkbox on a public-facing landing page is generally considered insufficient to meet this verification standard. The verification process must be more robust, often involving a review of financial documents or third-party confirmation. Furthermore, FINRA Rule 2210 holds member firms responsible for all communications with the public used in connection with their business. This responsibility extends to materials created by third parties, including the issuer or a marketing firm, if the member firm is participating in the offering. The placement agent cannot simply defer to the issuer’s judgment regarding marketing. The communication must be fair, balanced, and not misleading. Promissory language that guarantees or overstates potential returns would violate this standard. Therefore, the placement agent’s primary regulatory exposure is twofold: first, for participating in an offering where the verification process for accredited investors is deficient under Rule 506(c), and second, for the use of non-compliant public communications under FINRA Rule 2210. The firm has an obligation to review and approve such materials or halt their use if they are non-compliant.

The determination of the correct action is based on the specific verification requirements of Rule 506(c) of Regulation D. 1. Identify the offering type: The offering is conducted under Rule 506(c), which permits general solicitation and advertising. 2. Identify the core requirement: A critical condition of Rule 506(c) is that the issuer must take “reasonable steps to verify” that all purchasers are accredited investors. A simple self-certification by the investor is not sufficient. 3. Identify the investor and the basis for accreditation: The investor is a trust seeking to qualify based on having total assets in excess of $5 million. 4. Evaluate the provided documentation: The trustee has provided a letter from a personal accountant who is not a Certified Public Accountant (CPA). 5. Analyze against SEC guidance: The SEC provides a non-exclusive list of methods that are deemed to be “reasonable steps.” For verification via a third-party confirmation, the confirmation must come from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney in good standing, or a CPA in good standing. Since the letter is from an accountant who is not a CPA, it does not satisfy this safe harbor. 6. Conclude the appropriate action: Because the provided documentation is insufficient to meet the “reasonable steps” verification standard, the placement agent cannot accept it. The firm must inform the investor that it requires adequate documentation, which could include primary financial documents (like bank or brokerage statements) or a verification letter from one of the qualified third parties listed in the rule’s guidance. Proceeding without this would put the entire offering at risk of losing its exemption. The “reasonable steps” requirement under Rule 506(c) is a significant departure from the standard for Rule 506(b) offerings, where an issuer can rely on an investor’s self-certification if there is a pre-existing, substantive relationship. When general solicitation is used, the burden of proof shifts to the issuer and its agents to actively verify the status of each investor. The SEC has provided a principles-based framework, meaning the steps required may vary depending on the facts and circumstances, such as the nature of the purchaser and the information the issuer has. However, the SEC also provided a non-exclusive list of verification methods that serve as a safe harbor. Relying on a confirmation letter from a party not on that list, such as a non-CPA accountant, without any other corroborating evidence, would likely not be considered a reasonable step. The placement agent has a regulatory obligation to obtain sufficient proof of accredited status before finalizing the sale. Failure to do so could be viewed as a violation of Section 5 of the Securities Act of 1933.

The core of this scenario revolves around the specific requirements of a private placement conducted under Rule 506(c) of Regulation D. Unlike a Rule 506(b) offering, which prohibits general solicitation and allows issuers to rely on an investor’s self-certification of accredited status, a Rule 506(c) offering permits general solicitation but imposes a heightened obligation on the issuer to take “reasonable steps to verify” that all purchasers are indeed accredited investors. The SEC has provided several non-exclusive safe harbor methods for this verification. One such safe harbor involves obtaining a written confirmation from a third party, such as a licensed attorney, a registered investment adviser, a registered broker-dealer, or a licensed Certified Public Accountant (CPA). For this method to be valid, the written confirmation must affirm that the third party has taken reasonable steps to verify the investor’s accredited status, that the determination was made within the preceding three months, and that the investor is accredited. Therefore, the placement agent’s primary responsibility upon receiving such a letter is to review it to ensure it meets these criteria. The agent must confirm the letter is from a qualified professional, is dated within the last three months, and explicitly states the investor’s accredited status. The agent cannot simply accept the letter without this review and must not have any knowledge that would contradict the certification. This verification is a distinct and mandatory step under Rule 506(c) and precedes the finalization of the investment.

The core of this scenario revolves around the specific requirements of Regulation D offerings under the Securities Act of 1933, particularly the distinction between offerings conducted under Rule 506(b) and Rule 506(c). When an issuer decides to engage in general solicitation and advertising, such as using a public-facing website and social media to attract investors, it is prohibited from using the traditional Rule 506(b) exemption. Instead, it must rely on Rule 506(c). While both rules are exemptions from registration for private placements, Rule 506(c) has a critical trade-off for permitting general solicitation. The issuer and its placement agent are restricted to selling securities exclusively to accredited investors. More importantly, they must take what the SEC defines as “reasonable steps to verify” that all purchasers are, in fact, accredited investors. This is a significantly higher standard than the self-certification (e.g., checking a box in a subscription agreement) that is often acceptable in a Rule 506(b) offering where no general solicitation occurs. Examples of reasonable verification steps include reviewing recent tax returns or W-2s, examining bank or brokerage statements, or obtaining a written confirmation from a registered broker-dealer, investment adviser, licensed attorney, or certified public accountant. Therefore, the decision to publicly market the offering fundamentally shifts the compliance burden to a proactive verification process for every single investor.

The core issue revolves around the specific disclosure requirements under Regulation D when an offering includes non-accredited investors. According to SEC Rule 502(b) of Regulation D, if an issuer sells securities to any non-accredited investor, it must furnish specific types of information to all purchasers a reasonable time prior to the sale. For a non-reporting company conducting an offering exceeding $7.5 million, Rule 502(b)(2)(i)(B) mandates the provision of financial statements. Crucially, the financial statements for the most recent fiscal year must be audited by an independent public or certified accountant. While there are provisions for using unaudited statements if audited ones cannot be obtained without unreasonable effort or expense, this exception primarily applies to financial statements of the issuer, and the balance sheet must still be audited. Given the presence of non-accredited investors in this offering, the issuer’s preference for providing only unaudited statements is non-compliant. The placement agent, operating under its due diligence obligations and the requirements of FINRA Rule 5123, has a duty to ensure the offering complies with federal securities laws. Therefore, the agent must advise the issuer that providing audited financial statements for the most recent fiscal year is a non-negotiable prerequisite for legally including non-accredited investors in the offering. Proceeding without these audited financials would violate the conditions of the Regulation D exemption.

The core issue involves the interaction between SEC Rule 506(c), which permits general solicitation, and FINRA Rule 2210, which governs member firms’ communications with the public. The proposed public-facing website is a form of general solicitation. Because the website will be made available to an unlimited and unknown number of individuals, it qualifies as “retail communication” under FINRA Rule 2210. This rule defines retail communication as any written communication distributed or made available to more than 25 retail investors within any 30 calendar-day period. A key requirement of FINRA Rule 2210 is that a registered principal of the member firm must review and approve all retail communications before they are used or distributed. This internal approval is a fundamental supervisory obligation designed to ensure that the communication is fair, balanced, and not misleading. While Rule 506(c) allows the act of general solicitation, it does not override the placement agent’s separate obligations as a FINRA member to supervise its communications. Therefore, the primary and initial step required by FINRA is the pre-use approval of the website content by a registered principal. FINRA Rule 2210 establishes the standards for how member firms communicate with the public. It categorizes communications into three types: correspondence, retail communication, and institutional communication. The website in this scenario clearly falls under retail communication due to its broad, public accessibility. The rule mandates that such communications must be based on principles of fair dealing and good faith, be fair and balanced, and provide a sound basis for evaluating the facts. The pre-use approval by a registered principal is the mechanism by which the firm ensures compliance with these standards. This is distinct from any SEC filing requirements, such as Form D, which is a notice filing made after the first sale, or the steps taken to verify an investor’s accredited status, which occurs before accepting a subscription. The firm’s internal supervisory procedures, as dictated by FINRA, are paramount in this context.

The correct course of action is to obtain a written confirmation from a designated independent third party. Under Rule 506(c) of Regulation D, when an offering involves general solicitation, the issuer or its placement agent must take reasonable steps to verify that all purchasers are accredited investors. The SEC has provided a non-exclusive list of methods that are deemed to be reasonable steps. One of these methods is obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney in good standing, or a certified public accountant in good standing that such person or entity has taken reasonable steps to verify the purchaser’s accredited investor status within the prior three months and has determined that such purchaser is an accredited investor. This method provides a safe harbor for the placement agent, as it relies on the verification performed by another qualified professional. Simply relying on an investor’s self-certification via a questionnaire is generally considered insufficient for a Rule 506(c) offering, as it lacks independent verification. Reviewing tax returns from two years prior is also inadequate because the information is not current and may not accurately reflect the investor’s present financial situation or net worth. A referral from an existing client, while valuable for business development, does not satisfy the specific verification requirements mandated by Rule 506(c). The placement agent has an affirmative duty to perform this verification and cannot substitute a referral for this regulatory obligation.

The offering is being conducted under Regulation D, Rule 506(c). A key feature of a Rule 506(c) offering is that it permits the use of general solicitation and advertising to market the securities. However, this permission comes with a significant and strict condition. The issuer, and by extension its placement agent, must take reasonable steps to verify that all purchasers of the securities are, in fact, accredited investors. This verification standard is higher than in a Rule 506(b) offering, where general solicitation is prohibited and the issuer can generally rely on a potential investor’s self-certification via a questionnaire. When Kenji, the registered representative, posted about the offering on a public professional networking site, he engaged in general solicitation. This action is permissible under Rule 506(c), but it irrevocably locks the offering into the rule’s heightened compliance requirements. The most critical and direct consequence of this public communication is the triggering of the “reasonable steps to verify” obligation. This means the firm cannot simply accept a subscription agreement where the investor checks a box. Instead, the firm must obtain objective proof of the investor’s status. The SEC provides non-exclusive safe harbor methods for this verification, such as reviewing recent tax returns or W-2s to verify income, reviewing bank or brokerage statements to verify net worth, or obtaining a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant. This verification must be completed for every single purchaser in the offering.

The logical determination is as follows: The offering is conducted under Rule 506(c) of Regulation D, which explicitly permits the use of general solicitation and advertising to market the securities. However, the placement agent is a FINRA member firm, and its representative is a registered person. This means that all their business conduct, including communications with the public, is governed by FINRA rules. Specifically, FINRA Rule 2210 applies to all communications, regardless of the securities exemption being used. Rule 2210 mandates that all communications must be based on principles of fair dealing and good faith, must be fair and balanced, and must not be misleading, exaggerated, or promissory. Furthermore, any material intended for broad public dissemination, such as a website or advertisement, would be classified as retail communication and requires review and approval by a registered principal of the firm before it is used. Therefore, the permission to use general solicitation under the Securities Act of 1933 does not override the content and supervision requirements imposed by FINRA on its member firms. The representative must ensure the materials are factually accurate, present risks alongside potential benefits, and secure principal approval prior to dissemination. A private placement conducted under Rule 506(c) of Regulation D allows an issuer to engage in general solicitation and advertising to find potential investors. This is a significant departure from a Rule 506(b) offering, which strictly prohibits general solicitation and requires a pre-existing, substantive relationship with potential investors. Despite the freedom to advertise under Rule 506(c), a broker-dealer and its registered representatives acting as placement agents are still subject to the comprehensive standards of FINRA Rule 2210, Communications with the Public. This rule does not prohibit the act of general solicitation permitted by the SEC, but it heavily governs the content of those communications. All marketing materials, whether a website, a social media post, or a print advertisement, must be fair, balanced, and not misleading. They cannot make unwarranted or promissory statements about the issuer or the potential returns of the investment. Crucially, because these materials are distributed to the public, they are considered retail communications under FINRA rules. This classification mandates that a registered principal of the firm must review and approve the materials in writing before they are distributed or made available to any potential investor. The SEC’s allowance for the *method* of communication does not negate FINRA’s rules on the *substance and supervision* of that communication.

The core issue revolves around the specific requirements for conducting a private placement under SEC Regulation D, Rule 506(c), which permits general solicitation and advertising. While this rule allows issuers and their agents to publicly advertise an offering, it imposes a strict condition: the issuer must take reasonable steps to verify that all purchasers of the securities are, in fact, accredited investors. The process of verification is critical to maintaining the exemption. In this scenario, the use of targeted social media ads and a public-facing website to announce the capital raise constitutes general solicitation, which is permissible under Rule 506(c). However, the compliance failure occurs in the subsequent step. Allowing any individual who provides a simple email address to immediately access the full Private Placement Memorandum (PPM) does not constitute a reasonable step to verify accredited investor status. The PPM contains detailed, sensitive information about the offering’s terms, risks, and financial projections. Providing this document to the general public without any pre-qualification or verification process undermines the entire framework of Rule 506(c). A proper procedure would involve collecting information through an investor questionnaire, reviewing third-party verification letters, or examining financial documents *before* granting access to detailed offering materials and certainly before accepting a subscription. Simply collecting an email address is insufficient and creates a significant compliance risk, potentially jeopardizing the offering’s exempt status. This practice also conflicts with the principles of FINRA Rule 2210, which requires communications to be appropriate for their audience.

The core issue revolves around a member firm’s obligations upon discovering a potential securities law violation related to an offering it participated in, even after the offering has concluded. The scenario describes the discovery of a material misrepresentation in the Private Placement Memorandum (PPM) by the issuer’s CEO. This action constitutes a potential violation of the anti-fraud provisions of the Securities Exchange Act of 1934, specifically Rule 10b-5. FINRA Rule 4530, titled “Reporting Requirements,” mandates that member firms promptly report specified events to FINRA. Specifically, Rule 4530(b) requires a firm to report to FINRA within 30 calendar days after the firm has concluded, or reasonably should have concluded, that the firm or an associated person of the firm has violated any securities, insurance, commodities, financial, or investment-related laws, rules, regulations, or standards of conduct of any domestic or foreign regulatory body or self-regulatory organization. In this case, the placement agent, Apex Capital Partners, has received credible information indicating a significant violation of securities law by the issuer, which directly impacts the integrity of the offering documents the firm used. The firm’s due diligence process is also implicated. Therefore, the firm’s primary regulatory duty is to report this finding to its SRO, which is FINRA. While other actions, such as informing investors or conducting an internal review, are prudent, the explicit regulatory reporting requirement to FINRA under Rule 4530 is the paramount first step. Failing to report this could subject the firm to disciplinary action for violating Rule 4530 itself.

The correct action is for the placement agent to file the offering documents with FINRA’s Corporate Financing Department. FINRA Rule 5123 imposes a requirement on member firms that act as placement agents in private placements. The rule mandates that the firm must file a copy of the private placement memorandum, term sheet, or other offering document with FINRA. This filing is a distinct obligation from the issuer’s requirement to file a Form D with the SEC under Regulation D. The purpose of the FINRA filing is to allow the self-regulatory organization to review the fairness and reasonableness of the offering’s terms and the compensation arrangements for the member firm. The timing for this filing is critical: it must be made no later than 15 calendar days after the date of the first sale of securities in the offering. The “date of first sale” is typically interpreted as the date on which the first investor is irrevocably contractually committed to invest, which in this scenario is the date the first executed subscription agreement and funds are accepted. Therefore, the placement agent’s primary obligation under this specific rule is the timely submission of the offering documents to the correct FINRA department. This is separate from the operational requirement to handle investor funds properly under SEC Rule 15c2-4 or the issuer’s duty to file Form D.

The correct course of action involves a multi-step compliance process governed by several interlocking regulations. First, under FINRA Rule 2210, any materials used for general solicitation, such as a public website or social media advertisements, are considered retail communications. These communications must be reviewed and approved by a qualified registered principal of the placement agent firm before they are used. This pre-use approval ensures the materials are fair, balanced, and not misleading. Second, the offering is being conducted under Rule 506(c) of Regulation D, which permits general solicitation but imposes a strict investor verification requirement. The placement agent must take reasonable steps to verify that all purchasers are, in fact, accredited investors. This verification must be completed prior to the sale of any securities to that investor. A simple self-certification is generally insufficient for this standard. Third, under FINRA Rule 5123, the placement agent is required to file a notice and copies of the private placement memorandum or other offering documents with FINRA. This filing must be made no later than 15 calendar days after the date of the first sale in the offering. Therefore, the compliance timeline is: principal approval of communications before use, verification of accredited status before sale, and FINRA filing after the first sale.

The core of this scenario involves the intersection of SEC Rule 506(c) of Regulation D and FINRA Rule 2210. Rule 506(c) permits issuers and their placement agents to engage in general solicitation and advertising for a private offering. However, this permission comes with a critical condition: the issuer must take reasonable steps to verify that all purchasers in the offering are, in fact, accredited investors. This verification is a higher standard than the self-certification often used in Rule 506(b) offerings where no general solicitation occurs. Therefore, a compliant marketing strategy for a 506(c) offering must be bifurcated. The public-facing communication, or general solicitation, can announce the offering and attract interest. However, it must not be misleading and must adhere to the fair and balanced standards of FINRA Rule 2210. This initial communication should then direct interested parties to a secure, controlled environment. Access to the substantive offering documents, such as the Private Placement Memorandum (PPM) which contains detailed terms, financial data, and risk factors, must be granted only after the firm has taken reasonable steps to verify the investor’s accredited status. A common method for this is requiring the potential investor to complete a detailed questionnaire and provide supporting documentation before being given access to a password-protected online data room. This process ensures that the general advertisement is separate from the delivery of the actual offer to verified accredited investors, thereby satisfying the requirements of Rule 506(c).

The core compliance issue revolves around the “reasonable steps to verify” accredited investor status required under SEC Rule 506(c) of Regulation D. When an issuer engages in general solicitation, it is not enough for an investor to simply claim they are accredited; the issuer or its placement agent must take affirmative steps to verify this status. The SEC has provided a non-exclusive list of methods that are considered safe harbors for this verification. One such safe harbor is obtaining a written confirmation from a licensed attorney, a CPA, a registered broker-dealer, or a registered investment adviser, stating that such person has taken reasonable steps to verify the purchaser’s accredited status within the prior three months. In the scenario presented, the placement agent is reviewing a subscription package that includes a letter from a CPA. However, this letter is dated 14 months prior to the review. The safe harbor explicitly requires such third-party verification to be dated within the prior three months. The logic is that an individual’s financial situation can change significantly over a year, and a 14-month-old attestation is no longer a reliable indicator of current status. The condition is that the age of the letter must be less than or equal to 3 months. In this case, \(14 \text{ months} > 3 \text{ months}\), so the condition is not met. Relying on this outdated document would not constitute “reasonable steps” and would violate the terms of the Rule 506(c) exemption. This failure jeopardizes the entire offering’s exempt status, as a single non-accredited or unverified investor can disqualify the use of Rule 506(c). The firm must therefore reject the stale documentation and obtain current, valid verification for that investor before accepting their subscription.

The core issue involves the interplay between the allowance for general solicitation under SEC Regulation D, Rule 506(c) and the content standards mandated by FINRA Rule 2210, Communications with the Public. While Rule 506(c) permits an issuer or its placement agent to engage in general advertising to find potential investors, it does not grant a license to make false, misleading, or unbalanced statements. All public communications, even for private placements advertised under this exemption, must comply with FINRA Rule 2210. This rule requires that all communications be based on principles of fair dealing and good faith, be fair and balanced, and provide a sound basis for evaluating the facts in regard to any particular security. The statement in question makes a promissory claim of a “guaranteed” outcome and presents a specific, extraordinary projection of returns (“exceeding 1000%”) without any basis, context, or disclosure of the substantial risks. Such language is explicitly prohibited as it is exaggerated, unwarranted, and misleading. For a speculative, pre-revenue biotech firm, the risks are immense, including clinical trial failure, regulatory hurdles, and the potential for a total loss of investment. A fair and balanced communication would prominently feature these risks alongside any potential rewards. The use of “guaranteed” and specific, high-return projections without substantiation is a clear and serious violation of the content standards of Rule 2210.

The correct course of action is determined by comparing the rules for pre-offering communications under Regulation A and Regulation D, Rule 506(b). Regulation A, as amended, permits issuers and their agents to “test the waters” by communicating with potential investors, including the general public, to gauge interest in a potential offering both before and after the filing of a Form 1-A offering statement with the SEC. These communications are not considered prospectuses but are subject to anti-fraud provisions and must bear a legend indicating that no money is being solicited and no sales will be made until the offering statement is qualified by the SEC. In stark contrast, a private placement conducted under the safe harbor of Regulation D, Rule 506(b) strictly prohibits general solicitation and general advertising. Under Rule 506(b), a placement agent may only solicit investors with whom the issuer or the agent has a pre-existing, substantive relationship. Distributing marketing materials to the general public via unrestricted websites or mass email would constitute general solicitation and would violate the conditions of the Rule 506(b) exemption. While Rule 506(c) does permit general solicitation, it imposes a higher burden of verifying that all purchasers are indeed accredited investors, a different standard than the broad pre-offering interest gauging allowed under Regulation A. Therefore, using public-facing materials to gauge general market interest is a key feature and advantage of a Regulation A offering that is explicitly forbidden in a traditional Rule 506(b) offering.

The representative’s actions are compliant with the regulations governing private placements. The core issue is whether the use of a website to qualify investors constitutes “general solicitation or general advertising” as prohibited under Rule 502(c) of Regulation D for a Rule 506(b) offering. The SEC has provided interpretive guidance, notably through no-action letters, that allows for the establishment of a pre-existing, substantive relationship through online means. A relationship is “substantive” if the issuer or its agent has sufficient information to evaluate, and does in fact evaluate, the potential investor’s financial circumstances and sophistication. A relationship is “pre-existing” if it was formed before the commencement of the specific offering. In this scenario, the representative uses a generic questionnaire that is not tied to any particular offering to gather information and qualify potential investors. This process allows the firm to establish a substantive relationship. The use of a password-protected area ensures that offering materials are not available to the general public. Furthermore, the implementation of a 30-day waiting period between the time the investor is qualified and when they are presented with an offering helps to clearly establish that the relationship was pre-existing. Therefore, by soliciting and qualifying investors first, and only then providing access to specific offering details after a relationship has been established, the representative avoids engaging in general solicitation.

The core issue is whether providing access to a password-protected online deal room to individuals from a third-party webinar list constitutes general solicitation, thereby violating the conditions of a Rule 506(b) offering. Under the Securities Act of 1933, a Rule 506(b) private placement explicitly prohibits general solicitation and general advertising. To avoid being classified as general solicitation, communications about the offering must be limited to investors with whom the issuer or its placement agent has a pre-existing, substantive relationship. A pre-existing relationship is one formed before the offering began. A substantive relationship is one in which the issuer or its agent has sufficient information to evaluate, and does in fact evaluate, the potential investor’s financial sophistication, knowledge, and experience in financial matters to assess their capability to evaluate the merits and risks of the prospective investment. In this scenario, granting access to the firm’s existing accredited investor clients is permissible, as a pre-existing, substantive relationship is presumed to exist. However, granting access to the 50 individuals from the webinar list is a violation. These individuals were sourced from a third-party event, and their only qualification is a self-attested checkbox. This does not meet the standard for a pre-existing, substantive relationship. The placement agent has not performed the necessary evaluation of their financial sophistication. Therefore, this communication constitutes general solicitation. The use of a password does not cure this defect; the nature of the relationship with the offerees is the determining factor. This action jeopardizes the entire offering’s exemption under Rule 506(b).