If General Solicitation Compromises the Private Placement Use of § 4(2)

Abstract

In the application of the Securities Act of 1933 (the '33 Act) on private placements, many are justifiably confused by the contradictions and inconsistencies currently fogging the rules that exempt so-called private offerings of securities in the United States from the necessity of registering the issuance under Section 5 of the '33 Act. Under certain circumstances, it is possible to suspend the offering process following the offending puffery—the “general solicitation”—for the duration of a “cooling-off period,” allowing the effects of the solicitation to dissipate and the placement process to resume after a time-out, so to speak. There are, however, placements that are not easily cooled off. Using a hypothetical example, this article discusses various facets of the problem, as well as potential solutions.