Finance: What is Regulation D?

Regulation D is a federal regulation that restricts a company issuing securities to only sell to qualified private investors.

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Transcript

00:28

securities to only sell to a qualified private investor set but what is

00:33

qualified well it generally means that those private investors are already [Private investor man appears]

00:38

wealthy net worth the you know in the millions of dollars may have continuing

00:42

income well into the hundreds of thousands or millions of dollars per

00:46

year they're educated yes broadly defined and [Man with degree certificate and graduation cap]

00:49

it doesn't just mean they've taken a fourteen dollars from of course and most

00:52

importantly they will have signed a big boy or a big girl letter which states [A big boy/girl letter]

00:56

that if this risky offering goes completely bust well then no tears or

01:01

lawsuits in a reg D filing there is usually an allocation for sales beyond

01:06

the above accredited private investors and some amount of the stock can be sold

01:10

to non-accredited investors and in current reg deal and that number is

01:15

limited to thirty five so why would the SEC allow a highly risky private

01:20

investment be able to be made to a meaningful number of non-accredited

01:24

investors like people who might not be millionaires they might be uneducated [Man emptying jean pockets]

01:28

are you not taking the shmoop course or any others or unsophisticated in the

01:33

wilds of the financial jungle well because in many early-stage startup [Lion attacks woman in jungle]

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companies the founders have a few dozen family members who are all anxious to [Girl biting nails]

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find the next Amazon and even though they are a plumber and a carpenter and a

01:47

cook they have five grand of savings with which they want to buy a lottery

01:51

ticket so the SEC makes accommodation for this investment in reg D and oh by

01:56

the way this is actually what happened when Jeff Bezos founded and started [Jeff Bezos with colleagues]

02:00

Amazon yeah family members bought in in yeah dreams really do come true