Private Placement

A is correct. Patricia qualifies as an accredited investor based on her income of $280,000, which exceeds the $200,000 individual income threshold (or $300,000 joint). She has earned this amount with reasonable expectation of the same in the current year, meeting the income test. The fact that the offering uses LinkedIn advertising indicates this is a Rule 506(c) offering (which permits general solicitation), requiring all investors to be verified accredited investors, which Patricia is.

B is incorrect in its calculation: Patricia's net worth for accredited investor purposes must exclude the primary residence entirely. Her qualifying net worth is $850,000 (investable assets only), which is below the $1 million threshold. The home value ($1.2M) and mortgage ($400K) are both excluded. C is incorrect because Patricia does qualify based on the income test - accredited investor status requires meeting either income OR net worth, not both. D is incorrect because the LinkedIn advertising indicates this is a Rule 506(c) offering, not 506(b), and Patricia qualifies as an accredited investor regardless.

A is correct. The fundamental distinction is that private placements conducted under Regulation D exemptions (primarily Rule 506(b) and 506(c)) are exempt from SEC registration requirements, while public offerings must register with the SEC by filing registration statements (typically Form S-1) and providing prospectuses to investors.

B is incorrect and represents a critical misconception: private placements are NOT exempt from anti-fraud provisions. Securities laws' anti-fraud rules apply to ALL securities transactions, whether registered or exempt. Issuers of private placements must still provide accurate, complete information and cannot make false or misleading statements. C is incorrect because private placements can be offered to accredited individual investors and sophisticated investors, not just institutions. D is backwards: private placement securities ARE restricted securities with resale limitations (typically 6-12 month holding periods and Rule 144 requirements), while registered public offerings generally allow immediate resale in the secondary market.

D is correct. Form D must be filed within 15 days of the FIRST sale. Calculate: January 15 (first sale) + 15 days = January 30, 2026 is the deadline. However, the offering VIOLATES Rule 506(b) requirements. Rule 506(b) permits unlimited accredited investors plus up to 35 NON-accredited investors, but those non-accredited investors must be "sophisticated" (possessing sufficient knowledge and experience in financial matters to evaluate the investment). The 28 sophisticated investors are acceptable, but the 8 investors who are neither accredited nor sophisticated cannot participate in a 506(b) offering. Only sophisticated non-accredited investors are allowed.

A incorrectly states the offering is compliant when it violates sophistication requirements. B has the correct filing date but incorrect reasoning - the limit is 35 sophisticated non-accredited investors, and the company has only 28 sophisticated investors (which is fine), but the problem is the 8 non-sophisticated investors. C has the wrong Form D filing date (should be 15 days from first sale, not closing date). The key violation in this offering is accepting non-sophisticated investors in a Rule 506(b) offering, which is prohibited regardless of the total count.

C is correct (the EXCEPT answer). This statement is FALSE and represents a dangerous misconception. While private placements are exempt from SEC registration requirements under Regulation D, they are absolutely NOT exempt from anti-fraud provisions. Federal securities laws' anti-fraud rules (including Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5) apply to ALL securities transactions, whether registered or unregistered. Issuers of private placements must provide accurate, truthful information and can face civil and criminal penalties for fraudulent statements or omissions.

A is accurate: Form D is an informational filing (not registration) required within 15 days of the first sale of securities in a Regulation D offering, filed electronically through the SEC's EDGAR system. B is accurate: Securities sold in private placements are "restricted securities" bearing a restrictive legend and subject to holding periods (typically 6-12 months) and Rule 144 volume limitations and conditions before resale. D is accurate: The JOBS Act created Rule 506(c) in 2013 specifically to permit general solicitation and advertising in private placements, provided all purchasers are accredited investors and the issuer takes reasonable steps to verify accredited status.

B is correct. Statements 1, 2, and 3 are accurate for Rule 506(c) offerings.

Statement 1 is TRUE: Rule 506(c), created by the JOBS Act in 2013, specifically permits general solicitation and advertising (including websites, social media, and online platforms) for private placements, which was previously prohibited under traditional Rule 506(b) offerings. This is the key feature distinguishing 506(c) from 506(b).

Statement 2 is TRUE: Rule 506(c) offerings can only sell securities to accredited investors - no sophisticated but non-accredited investors are permitted. This is the trade-off for allowing general solicitation: stricter investor qualifications. Rule 506(b) allows up to 35 sophisticated investors, but 506(c) does not.

Statement 3 is TRUE: When using general solicitation under Rule 506(c), issuers must take "reasonable steps" to verify that purchasers are accredited investors. Acceptable verification methods include reviewing IRS forms (W-2s, 1099s, tax returns), obtaining third-party verification letters from CPAs or attorneys, or reviewing bank/brokerage statements. The described practice of requiring tax returns and W-2s satisfies this verification requirement.

Statement 4 is FALSE: While Rule 506 offerings (both 506(b) and 506(c)) are "covered securities" under the National Securities Markets Improvement Act, meaning they are exempt from state registration requirements, states still retain jurisdiction over notice filings and fees. Issuers typically must file notice (often Form D) and pay fees in states where they offer or sell securities. Additionally, states retain anti-fraud enforcement authority over all securities offerings.