July 19, 2019

Private Equity: General Solicitation Under Rule 506(c)

Check out this Ropes & Gray podcast featuring former Corp Fin Director Keith Higgins addressing the use of Rule 506(c) in the context of PE fundraising. Here’s an excerpt from an exchange between Keith & his colleague Peter Laybourn on the ability of a sponsor to flip from relying on Rule 506(b) to Rule 506(c):

Peter Laybourn: I’m sure that every fund formation lawyer out there has had instances where a client calls them up with a particular general solicitation question. I certainly know that I have had that happen multiple times.

Keith Higgins: We’ve talked about it before.

Peter Laybourn: Exactly, many times. For example, one called me up very recently and said, “Hey, we’ve just been approached by a reporter and we’d like to respond to him or her and share the details about our fund. Can we do that?” And I then have to be the bad guy and say, “No, you can’t because you’re relying on 506(b).” So Keith, do you have any advice for sponsors that find themselves in that position and who want to talk to the press?

Keith Higgins: Sure. You want to talk to the press about that specific offering and about that fund, you can flip the offering to a 506(c). In fact, unless you’ve made your first sale, you haven’t filed your Form D anyway, so you haven’t had to check the box as to whether you’re doing it under B or C, you just decide you’re going to move forward on 506(c). And the Commission staff did provide guidance that said it’s okay to flip from a B to a C – that’s good to go.

The other piece of advice on that, if you want to talk to reporters, is you have to engage in that “fencing on an electronic tightrope” where you’re talking about the general strategies of the fund complex, etc., without trying to focus in on a specific offering that you’re doing – that’s what we’ve been doing all along and it sometimes works, sometimes doesn’t. So, the surefire way to do it is to decide you’re going to do a 506(c), and particularly, if you’re selling to institutions, I think the verification shouldn’t be a big problem.

In case you’re wondering – no, I didn’t sit down & transcribe this podcast for you. But somebody at Ropes & Gray did, and the transcript accompanies the podcast. I hope other law firm podcasters are paying attention, because that’s a smart move.

John Jenkins