Wednesday, August 29, 2012

BILLBOARDS ON SUNSET BLVD: Private Film Financing About to Go, I mean Wide

Today the SEC issued its long-awaited proposed rules for removing the decades-old prohibition against the general solicitation of private securities offerings.

What does that mean for filmmakers?  A ton.

Once the final rules are in place (within 60 days or so), you can state openly and proudly that you have a private placement offering (PPM) of securities in your film, including details of the offering, etc.  Most importantly, your solicitation can go wide through all mediums, without regard to whether or not the recipients are accredited or non-accredited investors.  The only real condition?   Only reasonably verified accredited investors can actually make the purchases of the securities.  That's it, you ask?  Yep, that's it.

A moment of reflection:  The SEC's Rule 506 of Regulation D was put in place in 1982 as a 'safe harbor', where private offerings could be made for the sale of private securities, without the need to register those securities with the SEC.  Under 506, there is no limit to the total dollars sought, or the number of accredited investors.  But, the offeror could not openly solicit for those investments, and certainly not widely advertise.  Ix-nay, no way.

But today, the world shifted.  As part of the 2012 JOBS Act which authorized investment crowdfunding, the SEC has started the process of eliminating the ban on Rule 506 general advertising.   Once the final regs are in place, it will be perfectly acceptable to advertise your private investment offering across the Internet, in newspapers and magazines, over television and radio, and in seminars.  Arguably you can put up a investment offering on a Sunset Blvd. billboard.  (The above is a fake billboard.... but not for long.)

And these Reg D offerings are huge business.  In 2011, the estimated amount of capital raised via Rule 506 (and its cousin Rule 144A) offerings was $1.06 trillion, compared to $984 billion raised in public registered offerings.  One TRILLION dollars!  And that is while general solicitation was illegal!  All that changes now.  The brakes are removed.  With the lifting of advertising rules, the total raised could easily double in the next five years.  That means huge things for private financing of films.

(And we are not even adding in the effects of investment crowdfunding, which will go live in 2nd Q 2013, most likely.  See for more info on that.)

The only meaningful brake left on this PPM trolley is that all purchasers of the securities must be accredited investors and the issuer (offeror) must take reasonable steps to verify that the purchasers are accredited investors.  There will be some discussion and hand-wringing over exactly how to reasonably verify accredited investor status...but that's it.

Any filmmaker who has ever thought to seek financing has just been given a brand new tool.... a battle axe to be precise.

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August 29, 2012  
by David Marlett

1 comment:

  1. This is not quite of a good news for film makers. The sign company perth supports advertisement on billboards, and the prohibition's quite unfair.