Regulation D is a safe harbor that allows ContentImage-SECSealissuers of securities to lawfully sell unregistered securities.  Under Regulation D the SEC has set forth Rules 504, 505 and 506, which establish different exemptions from Securities Act registration.  These rules allow issuers to raise capital with reduced regulatory costs and filing requirements.  For example, in a private placement issuers must file a notice on Form D within 15 days after the first sale of securities in the offering with the SEC, as opposed to the full registration statement required for a public offering of securities (e.g. an IPO)

Below is a chart detailing rule 504, 505, and 506, including the amount of capital that can be raised, the number and type of investors, and whether the issuer can solicit the general public.

Reg D Safe Harbor

Maximum

deal size

Number of accredited investors

Number of

non-accredited

investors

General Public
Solicitations

Rule 504

$1 million

Unlimited

Unlimited

Prohibited

Rule 505*

$5 million

Unlimited

35

Prohibited

Rule 506(b)*

Unlimited

Unlimited

35

Prohibited

Rule 506(c)*

Unlimited

Unlimited

Zero

Permitted

* Issuers may not use Rule 505, 506(b), and 506(c) if the issuer or any of its principals are “bad actors” meaning they have a relevant criminal conviction or other disqualifying event.

Knopman Notes
Test takers should be aware of the ways issuers can raise capital by selling securities and avoid the costs of a full-blown registration.  In addition, understanding the limitations on these types of offerings, including the capital-raising thresholds, number and type of permitted investors, and the nature of allowable solicitations are all part of the required knowledge for a securities professional.

Relevant Exams
Series 7, Series 9, Series 10, Series 24, Series 65, Series 66, Series 79

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Written by Dave Meshkov
Dave's mission (and job: Managing Director of Course Design) is to make FINRA exam training engaging, approachable, and dare he even say, enjoyable. Having trained and coached over ten thousand students to exam success he knows how to present complex subjects in memorable and understandable ways. Prior to joining Knopman Marks in 2011, Dave practiced bankruptcy law at Weil, Gotshal & Manages and served as a law clerk in a the Southern District of New York Bankruptcy Court working on the General Motors and Lehman Brothers bankruptcies. Building on his legal expertise and training allows him to keep all our courses updated with the latest legislative and rule-making changes. Dave currently trains for the Securities Industry Essentials (SIE) exam and the Top-Off Series 6, 7, 24, 57, 63, 65, 66, 79, 86, 87, and 99 exams. He also delivers executive one-on-one training and shares his passion for learning outside of work as a ski instructor and yoga teacher. Dave graduated magna cum laude from Fordham Law School, and cum laude with a BA from the University of Pennsylvania.