230 R.I. Code R. 230-RICR-50-05-3.14

Current through November 7, 2024

Section 230-RICR-50-05-3.14 - Exemption for Offers and Sales to Accredited Investors

A. Any offer or sale of a security by an issuer in a transaction that meets the requirements of § 3.14 of this Part is exempted from R.I. Gen. Laws §§ 7-11-301 and 7-11-404.

B. Sales of securities shall be made only to persons who are, or the issuer reasonably believes are, Accredited Investors. "Accredited investor" is defined as any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

1. Any bank as defined in Section 3(a)(5)(A) of the Securities Act of 1933, 15 U.S.C. § 77c(a)(5)(A), whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Securities Act of 1933, 15 U.S.C. § 77b(a)(13); any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of the Act, 15 U.S.C. §81 a-2(a)(48); any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958, 15 U.S.C. § 681(c) or (d); any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of the Act, 29 U.S.C. § 1002(21), such association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decision made solely by persons that are accredited investors;

2. Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-2(a)(22);

3. Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

4. Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

5. Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;

6. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

7. Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in 17 C.F.R. § 230.506(b)(2)(ii); and

8. Any entity in which all of the equity owners are accredited investors.

C. The exemption is not available to an issuer that is in the development stage that either has no specific business plan or purpose or has indicated that its business plan is to engage in a merger or acquisition with an unidentified company or companies, or other entity or person.

D. The issuer reasonably believes that all purchasers are purchasing for investment and not with the view to or for sale in connection with a distribution of the security. Any resale of a security sold in reliance on this exemption within 12 months of sales shall be presumed to be with a view to distribution and not for investment, except a resale pursuant to a registration statement effective under R.I. Gen. Laws §§ 7-11-301 through 7-11-305, and 7-11-307 or to an accredited investor pursuant to an exemption available under the RIUSA.

E. The exemption is not available to an issuer if the issuer, any of the issuer's predecessors, any affiliated issuer, any of the issuer's directors, officers, general partners, beneficial owners of 10% or more of any class of its equity securities, any of the issuer's promoters presently connected with the issuer in any capacity, any underwriter of the securities to be offered, are any partner, director or officer of such underwriter:

1. Within the last five (5) years, has filed a registration statement which is the subject of a currently effective registration stop order entered by any state securities administrator of the United States Securities and Exchange Commission;

2. Within the last five (5) years, has been convicted of any criminal offense in connection with the offer, purchase or sale of any security or involving fraud or deceit;

3. Is currently subject to any state or federal administrative enforcement order or judgment, entered within the last five (5) years, finding fraud or deceit in connection with the purchase or sale of any security; or

4. Is currently subject to any order, judgment or decree of any court of competent jurisdiction, entered within the last five (5) years, temporarily, preliminarily or permanently restraining or enjoining such party from engaging in or continuing to engage in deceit in connection with the purchase or sale of any security.

F. § 3.14(E) of this Part shall not apply if:

1. The party subject to the disqualification is licensed or registered to conduct securities related business in the state in which the order, judgment or decree creating the disqualification was entered against such party;

2. Before the first offer under this exemption, the state securities administrator, or the court or regulatory authority that entered the order, judgment or decree, waives the disqualification; or

3. The issuer establishes that it did not know and in the exercise of reasonable care, based on a factual inquiry, could not have known that a disqualification existed under this § 3.14(E) of this Part.

G. A general announcement of the proposed offering may be made by any means.

H. The general announcement shall include only the information, unless additional information is specifically permitted by the Director:

1. The name, address and telephone number of the issuer of the securities;

2. The name, a brief description and price (if known) of any security to be issued;

3. A brief description of the business of the issuer in 25 words or less;

4. The type, number and aggregate amount of securities being offered;

5. The name, address and telephone number of the person to contact for additional information; and

6. The name, address and telephone number of the person to contact for additional information; and

7. A statement that:

a. Sales will only be made to accredited investors;

b. No money or other consideration is being solicited or will be accepted by way of this general announcement; and

c. The securities have not been registered with or approved by any state securities agency or the U.S. Securities and Exchange Commission and are being offered and sold pursuant to an exemption from registration.

I. The issuer, in connection with an offer, any provide information in addition to the general announcement under § 3.14(G) of this Part, if such information:

1. Is delivered through an electronic database that is restricted to persons who have been prequalified as accredited investors; or

2. Is delivered after the issuer reasonably believes that the prospective purchaser is an accredited investor.

J. No telephone solicitation shall be permitted unless prior to placing the call, the issuer reasonably believes that the prospective purchaser to be solicited is an accredited investor.

K. Dissemination of the general announcement of the proposed offering to persons who are not accredited investors shall not disqualify the issuer from claiming the exemption under § 3.14 of this Part.

L. The issuer shall file with the Securities Division a notice of transaction, a consent to service of process, a copy of the general announcement, and a $300 fee within fifteen (15) days of the first sale in this state.

230 R.I. Code R. 230-RICR-50-05-3.14