Rule 506(b)

An investor who holds restricted securities acquired in a Rule 506(b) private placement makes a bona fide gift of some of those shares to her adult child, receiving nothing of value in return. Does this gift constitute a "sale" requiring its own registration or exemption analysis under the Securities Act?

1. A.Yes, any transfer of securities from one person to another, regardless of whether anything of value is exchanged, constitutes a sale requiring its own exemption analysis.Wrong. This ignores the Securities Act's value-based definition of sale.
2. B.No, and the gift also has the effect of removing the restricted status from the securities, since a gift is treated as a fresh, unrestricted acquisition.Wrong. A gift does not cleanse restricted status; the recipient generally steps into the donor's restricted position.
3. C.Yes, but only if the child is not accredited, since only a transfer to a non-accredited recipient requires a fresh sale analysis.Wrong. The sale-versus-gift distinction does not turn on the recipient's accreditation status.
4. D.No -- a bona fide gift with no consideration is not a sale, though the recipient generally takes the securities subject to the same restricted status.Correct. These are two separate questions with two separate answers.

Why: No. A bona fide gift, where the donor receives no consideration of value in return, generally does not constitute a "sale" under the Securities Act's value-based definition. The recipient, however, generally takes the securities subject to the same restricted status the donor held.

An investor who purchased restricted securities in a Rule 506(b) offering wants to resell them soon after to a different investor who happens to also be an accredited investor. Does the fact that the prospective buyer is accredited make this resale exempt from registration?

1. A.Yes, any resale to an accredited investor is automatically exempt from registration, since accredited investors are presumed capable of bearing the risk regardless of who is selling.Wrong. This assumes buyer accreditation alone provides a resale exemption.
2. B.No, because resales of restricted securities are permanently and completely prohibited under all circumstances, regardless of who originally purchased them.Wrong. Restricted securities are not permanently unresellable; resale exemptions like Rule 144 exist precisely to provide a path.
3. C.Yes, but only if the original Rule 506(b) offering itself also permitted general solicitation, since that combination unlocks a resale exemption based on buyer accreditation.Wrong. General solicitation in the original offering has no bearing on unlocking a resale exemption based on the new buyer's accreditation.
4. D.No -- the seller needs her own applicable resale exemption; the buyer's accreditation alone does not cure the securities' restricted status.Correct. Buyer accreditation is not, by itself, a resale exemption for the seller.

Why: No. The accredited status of the prospective buyer does not, by itself, provide an exemption for the seller's resale. The securities remain restricted based on how the seller originally acquired them, and the seller needs her own applicable resale exemption, such as Rule 144, rather than relying on the buyer's accreditation alone.

An issuer's placement agent hosts an investor conference to discuss a Rule 506(b) offering. Anyone may register for the conference through a public event listing. A second, otherwise identical conference restricts attendance to individuals with whom the agent has an existing substantive relationship. Which conference format is consistent with the general solicitation prohibition?

1. A.Both, because in-person conferences are never considered general solicitation.Wrong. An in-person event open to public registration is just as much a broad, unrestricted audience as an open online posting.
2. B.Neither, because any conference discussing a specific private offering requires prior SEC clearance.Wrong. No such SEC pre-clearance requirement exists for investor conferences discussing a Rule 506(b) offering.
3. C.Only the publicly listed conference, because reaching a broader audience improves investor protection.Wrong. This inverts the rule's purpose; broader public reach is exactly what disqualifies the format under Rule 502(c).
4. D.Only the invitation-only conference limited to people with a pre-existing substantive relationship.Correct. General solicitation turns on audience breadth, and the invitation-only format keeps the audience within the relationship-based limit Rule 506(b) requires.

Why: General solicitation is defined by how broadly the audience was assembled, not by the formality of the venue. An in-person conference open to public registration reaches an unrestricted audience just as an open online posting would, which is exactly what the rule prohibits. The invitation-only conference, limited to people with whom the agent has a pre-existing substantive relationship, is the format consistent with Rule 506(b).