Federal Securities Laws: Regulation D: Information Delivery

Extensive information about the issuer of the securities, usually in the form of a private placement memorandum or PPM, is required under Regulation D only with respect to sales of securities to non-accredited investors, if any.  Since the information requirements of Regulation D apply only to the sales to non-accredited investors, then, with respect to accredited investors, the SEC lets the investment market itself dictate the type and amount of information provided to accredited investors in Regulation D offerings. As a result, most often Regulation D offerings are made solely to accredited investors, and therefore the information delivered to investors would only be as stipulated in the investment contract.

In fact, the average number of non-accredited investors in the Regulation D offerings is calculated, according to a 2010 SEC study to be 0.1, out of a potential maximum of 35 non-accredited investors per offering, while the median number is 0. Obviously, in approximately 90% of the offerings there are only accredited investors and no non-accredited ones at all. Although this data originates with, and is subject to the same reporting errors as, the Forms D themselves, it is convincing proof that the information delivery requirements themselves were overly difficult to satisfy and, if satisfied, left the issuers feeling overly exposed.

In an important sense, information delivered is information promised, and issuers are not entirely comfortable making extensive warranties to non-accredited investors.

Another inevitable consequences of mandatory information delivery requirements was that non-accredited investors sometimes were discouraged from investing by the PPM. Accredited investors are not actually required to receive a PPM, even though all of the non-accredited investors are required to receive a PPM, and therefore issuers tend to prefer not to provide a PPM. And if investors need to see a PPM, issuers tend to prefer to write a PPM to address the investor's interests and will tend to stay away from the forms of PPM that would comply with the information delivery requirements of Regulation D, which are found in Rule 502, which also describes the type of information that an issuer must provide to prospective investors. No information needs be furnished under Regulation D for any sales to accredited investors under Rule 504, 505 or 506 or to non-accredited investors under Rule 504.

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