You Better Know What You Can and Can’t Do
When it comes to a private placement offering and the regulations concerning solicitation laws, you really must know what you are doing so that you don’t cross the line.
If you think for one moment a place you DON’T want to visit for several years, I think most reasonable people would agree it’s JAIL. Waking up next to convicted felons named Big Al and eating a cold breakfast doesn’t sound appealing to me.
You might say it sounds rather extreme, but one mistake during a conversation about private placement offering can lead to the infamous “knock on the door”. As with any other investment market, there are laws for brokering private placement, AND consequences for breaking the regulations and laws.
To better understand the laws that concerns solicitation, let’s define the word “solicitation” and how the term applies to private placement investments. Solicitation means approaching any individual with the intent to discuss and sale an idea, service, or opportunity. When it comes to a private placement offering, it is considered solicitation to promote or even talk about your business in regards to your memorandum, projections or earning claims before you have delivered your full compliance package. That means no advertising on Craigslist, Linkedin, Facebook or any of the many social business networking sites.
Before you send out a memorandum to a potential investor, you MUST have that individual request the offering. The moment the individual states, “I’d like to see your offering”, it is no longer solicitation. In speaking with a potential investor, NEVER guarantee any returns on the investment. Don’t sugarcoat the information you are providing to the potential investor. Always use disclaimer in communicating either verbally or by e-mail. A good disclaimer in an e-mail might be:
“You are NOT an investment advisor, and that NO information you provide should be considered a solicitation.”
Always avoid any misrepresentations of yourself to the potential investor. Other words, NEVER LIE. Be truthful and honest in all statement avoid any form of deception.
Though it may be easier to paint a rosy picture for investors, the truth is always uncovered as the transaction unfolds. No one appreciates the “bait and switch” technique, and as you know, ANYONE can file criminal complaints or sue you. Remember, having a private placement offering investor submit an application is great, but NOT if they are expecting something you can’t provide. Having applications that don’t close does nothing but degrade your reputation, and in such a fraud polluted business, that is all you really have.
In summary, if you have honest conversations outlining realistic expectations and worst case scenarios, you will ALWAYS be more productive in the end. Keep it truthful, legal, short, and sweet, and you will surround yourself with people of similar ethics in return.