1) How does the SEC regulate private offerings (506(b) vs. 506(c))?
Under Regulation D:
- Rule 506(b): Allows raising unlimited capital without general solicitation; investors can include an unlimited number of accredited and up to 35 non-accredited but sophisticated investors (with heightened disclosure). Issuers may rely on investor self-certification of accredited status.
- Rule 506(c): Permits general solicitation/advertising, but all purchasers must be accredited, and the issuer must take reasonable steps to verify accreditation (e.g., third-party verification).
Both require Form D filing; state laws (blue sky) may still apply via notice filings.
2) What’s required to be an accredited investor under Reg D?
Common individual tests include:
- Income: $200k+ (single) or $300k+ (joint) in each of the last two years with a reasonable expectation of the same this year.
- Net worth: $1 million+ excluding primary residence (individually or jointly).
- Professional credentials/roles: Certain FINRA license holders (e.g., Series 7/65/82), and knowledgeable employees of private funds may also qualify.
Entities qualify via assets, ownership by accredited investors, or registered status. Always confirm the current rule text and verification requirements.
3) How are Form ADV and Form CRS relevant to me?
- Form ADV: The adviser’s core disclosure.
- Part 1: Firm data (ownership, AUM, disciplinary history).
- Part 2A (“brochure”): Plain-English description of services, strategies, fees, risks, conflicts, and affiliations.
- Part 2B: Bios and qualifications of key personnel.
- Form CRS (Client Relationship Summary): A brief, standardized summary for retail clients outlining services, fees/costs, conflicts, disciplinary history, and how to ask “conversation-starter” questions.
Reading these helps you spot conflicts, fee structures, and custody/valuation practices before investing.