Regulation D Offerings: Issuers, Investors, and Intermediaries
By: Craig McCann, Chuan Qin and Mike Yan (Sep 2023)
The Reg D offering market is
similar to the public offering market in terms of total amount of
capital raised and has been growing rapidly over recent years. The
proceeds sold through Reg D offerings between 2021 and 2022 equal
$4.4 trillion, 13% more than the public offering proceeds during the
same period and a 46% increase over the Reg D offering proceeds
during 2019-2020. Reg D securities have been sold to increasingly
more investors per offering with less amount sold to each investor
over the past decade, suggesting an increasing participation in unregistered
offerings by retail investors. Broker-dealers and registered
investment advisers (RIA) play an important role in reaching
retail investors: Offerings sold by broker-dealers with a larger
retail clientele and offerings sponsored by RIAs with more highnet-
worth individual clients are sold to more investors and raise
less capital from each investor. Investors must be wary of potential
misconduct and conflicts of interest when hiring intermediaries for
investments in unregistered securities. Broker-dealers receiving a
higher rate of sales commissions and those specializing in Reg D
offerings tend to receive more customer complaints arising from
unregistered securities. RIAs advising non-fund clients are more
likely to disclose a conflict of interest in regulatory filings when
they sponsor Reg D offerings, indicating that these advisers invest
their own clients' funds in self-sponsored unregistered securities.
