Regulation D Private Placements

Regulation D (Reg D) is the SEC's rulebook for private placements: securities sold without going through SA registration. Instead of a registration statement and prospectus, Reg D offerings rely on exemptions and deliver a private placement memorandum (PPM) to investors. The Series 6 exam tests the exemption types, the investor caps, and the solicitation rules.

What does Regulation D establish, and who counts as an accredited investor?

Regulation D's framework provisions establish that it is a set of exemptions from SA registration built on the statutory small-offering authority and the private-placement exemption.

Regulation D's definitions provisions define key terms. The most heavily tested term is accredited investor.

Accredited Investor Categories

An individual qualifies as accredited if they meet any of these tests:

• Income: over $200,000 in each of the last 2 years (or $300,000 joint with spouse), with a reasonable expectation of the same this year
• Net worth: over $1,000,000 alone or with spouse, excluding primary residence
• A director, executive officer, or general partner of the issuer

Entity-level accredited investors include:

• Banks, insurance companies, registered investment companies, and broker-dealers
• Certain pension plans and trusts
• Any entity with assets exceeding $5,000,000 not formed for the specific purpose of buying the offered securities

Exam Tip: Gotchas

• Primary residence value is excluded from the $1 million net worth test. This is the most-missed piece of the accredited investor definition. A homeowner with a $2 million house and no other assets does NOT meet the net worth test based on the house.

What are the four general conditions on Regulation D offerings?

Regulation D's general-conditions provisions set four cross-cutting conditions on Reg D offerings:

• Integration: offers that are part of the same plan of financing are treated as one offering. Issuers cannot artificially split an offering to fit two separate exemptions.
• Information disclosure: if any non-accredited investor participates, the issuer must provide disclosure documents similar to a registered offering. If the offering sells only to accredited investors, no specific disclosure document is required (but antifraud rules still apply).
• Manner of offering: no general solicitation or general advertising under the small-offering exemption or the traditional private-placement variant. Only the accredited-only general-solicitation variant permits general solicitation.
• Resale limits: Reg D securities are restricted securities. A resale typically requires compliance with the restricted-stock resale rule (holding period plus other conditions).

Think of it this way: The tradeoff is simple. Reg D lets an issuer skip SA registration, but in exchange the buyers get locked in (restricted securities) and the issuer cannot broadcast the offer to the public.

When must Form D be filed under Regulation D?

After an issuer begins selling under Reg D, it must file a Form D with the SEC.

• Filed within 15 calendar days after the first sale of securities
• A short notice filing, not a registration statement
• Identifies the issuer, the exemption relied on, the amount sold, and the use of proceeds

Exam Tip: Gotchas

• Form D is filed within 15 days AFTER the first sale. It is not filed before the offering begins. A common exam trap is to present Form D as a precondition to selling; it is not.

What does the Regulation D small-offering exemption allow?

Regulation D's small-offering exemption is the smaller-dollar private placement option.

• Maximum raise: $10,000,000 in any 12-month period (raised from $5M in 2021)
• Permitted to non-accredited investors with no cap on number
• General solicitation generally prohibited (with limited state-level exceptions for certain registered offerings)
• Form D filing required within 15 days of first sale

Note: Older study materials may reference the historical $5M cap; the current SEC ceiling is $10M, but Series 6 items may test either depending on when they were written.

How do the traditional and accredited-only general-solicitation variants of Regulation D differ?

Regulation D's unlimited-dollar exemption is the most heavily used path because it has no dollar limit. It has two variants that the exam loves to compare:

"Sophisticated" non-accredited under the traditional variant means a person who (alone or with a purchaser representative) has sufficient knowledge and experience in financial and business matters to evaluate the merits and risks.

"Reasonable steps to verify" under the general-solicitation variant can include reviewing:

• Tax returns, W-2s, or pay stubs (for income-based accreditation)
• Bank, brokerage, and credit reports (for net-worth-based accreditation)
• Written certifications from licensed professionals (attorneys, CPAs, registered investment advisers, or registered broker-dealers)

Exam Tip: Gotchas

• The traditional variant allows up to 35 non-accredited but sophisticated purchasers. The general-solicitation variant allows ZERO non-accredited purchasers. This is the most-tested Reg D distinction on Series 6.
• General solicitation is only permitted under the accredited-only variant, and it requires VERIFICATION of accredited status (not just self-certification). If an offering is advertised publicly, every single investor must be accredited and verified.

When should each Regulation D exemption be used?

Why is the small-offering exemption capped at $10 million when the unlimited-dollar variants are uncapped?

• The small-offering exemption is the simplest of the three: it is the only one that admits non-accredited investors with no sophistication test or verification requirement
• The $10M cap is the trade-off for that simplicity
• The unlimited-dollar variants demand more rigor on the investor side (sophistication for non-accredited under the traditional variant, accredited-only with verification under the general-solicitation variant), so they earn an unlimited offering size in return
• Pattern: more rigor on investor screening = higher dollar limit

Where each one tends to show up:

• Small-offering exemption: small or emerging companies raising modest amounts of capital, often through a small group of local investors
• Traditional unlimited-dollar variant: the most common private placement. Suits issuers who already have a network of accredited investors and do not want to advertise the deal publicly
• Accredited-only general-solicitation variant: issuers who want to publicly market the offering (online platforms, demo days, mass email). The cost of advertising is that every buyer must be verified as accredited, with no exceptions

When can an issuer be disqualified from using Regulation D?

An issuer that has been enjoined by a court for violating the Form D filing obligation is disqualified from using Reg D for future offerings.

• SEC may grant case-by-case waivers
• Disqualification is a "bad actor" provision: it strips future access to the exemption

What does the insignificant-deviation provision protect against in a Regulation D offering?

A technical failure to comply with a Reg D condition does NOT destroy the exemption as to a particular purchaser, if:

• The failure did not pertain to a term directly intended to protect that individual
• The failure was insignificant relative to the offering as a whole
• The issuer made a good-faith and reasonable attempt to comply

What the insignificant-deviation provision does NOT do:

• Does not shield the issuer from SEC enforcement action
• Does not save the exemption if the deviation was material or intentional

Exam Tip: Gotchas

• The "insignificant deviation" protection saves the exemption for an individual purchaser only; it does NOT prevent SEC enforcement against the issuer. The issuer can still be sanctioned even if investors keep their exemption.