Series 79 practice questionmediumRegulation D
A company seeks to raise $10 million through a private placement under Rule 506(c) of Regulation D. They intend to market broadly to potential investors via online advertising. Which of the following statements is true regarding investor eligibility and verification in this context?
- AThe company may sell to up to 35 non-accredited investors, provided it gives them adequate disclosure.
- BThe company must take reasonable steps to verify that all purchasers are accredited investors, regardless of what the investors self-certify.✓ Correct answer
- CVerification of accredited investor status is optional if investors complete a questionnaire attesting to their income or net worth.
- DGeneral solicitation is prohibited under Rule 506(c), even if all investors are accredited.
Explanation
Why B — The company must take reasonable steps to verify that all purchasers are accredited investors, regardless of what the investors self-certify.
Rule 506(c) allows general solicitation but requires issuers to take reasonable steps to verify that every purchaser is an accredited investor—self-certification is not sufficient. This is stricter than Rule 506(b), where self-certification may be allowed without general solicitation. Confusing these requirements may cause an unintentional violation of federal securities law.
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