Expert: Dr. Joseph de Beauchamp - 10/28/2005

Question
Hi,

My question asks how do you avoid being under the jurisdiction of the US Securities and Exchange Commission (SEC) that regulates public securities?

You probably don't know very much about SEC regulations. However, I know nothing about them other than what I read from the internet. So I would greatly appreciate hearing anything you do know and don't expect you to answer all my below questions.   

I want to be able to contact investors and use their money for a business idea I have without having to file with the SEC or be under their jurisdiction. My main reason for not wanting to be under SEC jurisdiction is because my business ideas are confidential and I really don't want my business ideas disclosed pubically. Another main reason is I don't like being entangled with the Federal government regulating my business. Anyway, I've read some SEC documents posted to the internet. However, I am somewhat confused by what they say.

Initially I thought the SEC only had jurisdication over things like publically traded stocks and bonds. I became confused when an SEC document defined public solicitations to also include mailings! So it sounded like any public solicitation whether through mail or email would also cause your investment to be considered public and would then fall under the jurisdiction of the SEC! That really shocked me!

In fact, it appeared the only way to avoid filing with the SEC is if you do one of the following:

1)   Private offerings confined to only one state because once you offer investments outside your home state it is considered interstate commerce and then the SEC has jurisdiction.
2)   Private offerings are limited to a limited number of people or institutions.
3)   Offerings of a limited size.
4)   Or the offering is from a government entity. Since I'm not a government entity, this doesn't apply to me.

Here are my questions:

1)   Is it true that I can't solicit investors throughout the world using advertisements or letters that I mail out without falling under SEC jurisdiction? Do I have to limit all my solicitation mailings and emails to only my home state of Texas?
2)   Am I safe in limiting all my investment efforts including advertisements and mailings to just Texas? Or are advertisements and mailings only in Texas also considered a public offering requiring SEC jurisdiction? What happens if my investor later moves outside of Texas? To keep it a private offering must I limit my investment solicitations to strictly a person to person level?    
3)   Are there any state restrictions besides the SEC that also regulate investments? What kinds of things do you think Texas would regulate related to investments, ie a license?


Answer
Do not sell stocks. Just bring in the money on a note or loan basis. You could make partnerships also, and both ideas would avoid the stock SEC issues.


1) Is it true that I can't solicit investors throughout the world using advertisements or letters that I mail out without falling under SEC jurisdiction? Do I have to limit all my solicitation mailings and emails to only my home state of Texas?

Private offerings of stock prohibit any form of advertisement anywhere and anytime.

2) Am I safe in limiting all my investment efforts including advertisements and mailings to just Texas? Or are advertisements and mailings only in Texas also considered a public offering requiring SEC jurisdiction? What happens if my investor later moves outside of Texas? To keep it a private offering must I limit my investment solicitations to strictly a person to person level?  

Sell no private stocks and you will not concern yourself with this area. Otherwise, you should create a placement documents with a lawyer  ---cost $350000 is standard.

 
3) Are there any state restrictions besides the SEC that also regulate investments? What kinds of things do you think Texas would regulate related to investments, ie a license?

Even private offering require registration using form D and filing this with each state of stock sales.

Easier to just borrow money from friends and family, and stay away from the equity side of the balance sheet.

Dr. Joseph de Beauchamp