The SEC made clear in the Rule 506(c) Release that, not withstanding general solicitations, Rule 506(c) and Regulation S offerings will continue to not be integrated,
so long as issuers maintain the separate nature of each offering. Due to similarities
between general solicitations and directed selling efforts, issuers involved with concurrent offerings must be cautious in their use of general advertising to ensure that
the provisions of Regulation S relating to directed selling efforts (activities done for
the purpose of conditioning the U.S. market) are not violated.
This article discusses suggested methods to engage in general advertising using
websites under Rule 506(c), while also avoiding directed selling efforts, so that an
issuer may claim the Regulation D and Regulation S exemptions in a concurrent
domestic and offshore offering of securities.
Complying with Regulations D and S concurrently
In the 506(c) Release, the SEC did not clarify that the use of general solicitation for
domestic offerings would not be deemed to also constitute a directed selling effort in
connection with a contemporaneous offshore offering, except to continue to point out
that concurrent offerings will generally not be integrated. Due to the lack of further
guidance, it is imperative that issuers maintain the separate nature of their offerings by
ensuring that each offering complies with the provisions of its respective exemption.
Issuers relying on Regulation S must employ precautionary measures to ensure that
offers do not target “U.S. persons” (“Use of Internet Web Sites To Offer Securities,
Solicit Securities Transactions, or Advertise Investment Services Offshore,” SEC
Release No. 33-7516 (March 23, 1998) (“Offshore Internet Release”)). In the Offshore
Internet Release, the SEC stated that “[o]ur Securities Act analysis assumes that the
information posted on a Web site would, were we to deem it to occur in the United
States, constitute…a ‘general solicitation or general advertising’ prohibited under
Rule 502(c), of Regulation D….” Due to the similarities between general advertising
and directed selling efforts, it is more than likely that information posted on a website
deemed to occur in the United States would also be deemed to violate the directed
selling efforts provision of Regulation S. (See, Offshore Internet Release).
“U.S. issuers need to be especially careful in constructing a
website offering in a way that does not give any indication
that the offering is conditioning the U.S. market for the
selling of the securities for purposes of Regulation S.”
U.S. issuers need to be especially careful in constructing a website offering in a way
that does not give any indication that the offering is conditioning the U.S. market for
the selling of the securities for purposes of Regulation S. The pertinent precautionary
measures in establishing a website are to utilize questionnaires, employ password
protections on certain content, post prominent disclaimers, and convey information
with the provisions of the relevant exemptions in mind. (See, IPONET, SEC NoAction Letter (July 26, 1996)). The following sections will walk readers through how
exactly to establish a website that is SEC compliant.
Establishing the issuer’s website
Due to advancements in technology, the SEC has adopted the “access equals delivery” model, which presumes that investors (and potential investors) have access to the
Internet (“Securities Offering Reform,” SEC Release No. 33-8591 (Dec. 1, 2005)).
This presumption means that it is important to restrict the use of materials that will
cause an issuer to lose an exemption. Thus, when establishing a website offering to
comply with the provisions of Regulation S and Regulation D concurrently, issuers
should construct separate web portals that are tailored to each exemption. Directing
potential investors to the relevant portal can be done by either setting up a generic
opening page of the website and channeling visitors from there to the appropriate
content, or by setting up completely separate websites for each offering. The generic
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