Private Securities Offerings Representative Exam
The Series 82 exam qualifies individuals to sell private placement securities, including those offered under Regulation D, Regulation S, and Regulation A+. It covers the knowledge required to prospect clients, verify accredited investor status, assess suitability, communicate offering details, and process subscriptions. This exam is required for representatives at FINRA member firms who participate in private securities offerings and requires both the SIE exam and firm sponsorship.
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Content Outline
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Key Concepts
Under Rule 506(b), issuers cannot use general solicitation or general advertising to market the offering. Securities may be sold to an unlimited number of accredited investors and up to 35 non-accredited but sophisticated investors. The issuer must have a pre-existing substantive relationship with investors before offering securities.
Under Rule 506(c), introduced by the JOBS Act in 2013, issuers are permitted to use general solicitation and advertising to market the offering. However, all purchasers must be accredited investors, and the issuer must take reasonable steps to verify accredited investor status -- self-certification alone is not sufficient.
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Key Concepts
An accredited investor is an individual or entity that meets specific financial thresholds defined by the SEC under Regulation D. For individuals, this means annual income exceeding $200,000 (or $300,000 jointly with a spouse) in each of the prior two years with a reasonable expectation of the same, or a net worth exceeding $1 million (excluding the primary residence).
The SEC expanded the definition to include individuals holding certain professional certifications (such as Series 7, Series 65, or Series 82 licenses), knowledgeable employees of private funds, and entities with investments exceeding $5 million. Institutional investors, banks, insurance companies, and registered investment companies also qualify. Proper verification is essential -- especially under 506(c) where reasonable steps must be taken beyond mere self-certification.
Private securities are inherently illiquid -- there is no public market for resale, and investors may be locked in for years. Suitability analysis for private placements must go beyond standard assessments. Representatives must consider whether the investor can afford to lose the entire investment, whether they have sufficient liquid assets to meet other needs, and whether their time horizon aligns with the expected holding period.
Concentration risk is another key concern. A private placement may represent a disproportionately large portion of an investor's portfolio. Under FINRA's suitability rules and Regulation Best Interest (Reg BI), representatives must ensure that the recommendation is in the customer's best interest, considering both the specific investment and the customer's overall portfolio.
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Rule 504 permits offerings up to $10 million in a 12-month period. It does not restrict the number or type of investors and may allow general solicitation and freely tradeable securities if the offering is registered at the state level or sold exclusively to accredited investors.
Rule 506(b) has no dollar limit but prohibits general solicitation. It allows unlimited accredited investors and up to 35 non-accredited sophisticated investors. Under Rule 506(c), general solicitation is permitted, but all purchasers must be accredited investors whose status has been verified through reasonable steps. Both 506(b) and 506(c) provide federal preemption of state registration requirements, though Form D notice filings are still required.
Rule 144 provides a safe harbor for the resale of restricted and control securities. Restricted securities acquired in a private placement must be held for a minimum holding period of six months (for SEC reporting companies) or one year (for non-reporting companies) before they can be resold in the public market.
Additional conditions for affiliates (control persons) include volume limitations (the greater of 1% of outstanding shares or average weekly trading volume over the prior four weeks), the requirement to file Form 144 with the SEC, and the availability of current public information about the issuer. Non-affiliates who have held restricted securities for more than one year (reporting companies) are exempt from volume and filing requirements.
Subtopics
Key Concepts
A subscription agreement is the legal contract between an investor and the issuer in a private placement. The investor completes and signs the agreement, making representations about accredited investor status, investment experience, understanding of risks, and the ability to bear a complete loss. The investor also specifies the investment amount and provides payment.
The issuer (or its general partner/manager) retains the right to accept or reject subscriptions in whole or in part. Investor funds are typically held in escrow until the minimum offering amount is reached and the issuer accepts the subscription. If the offering is cancelled or a subscription is rejected, funds must be returned promptly to the investor.
Study Tips for the Series 82 Exam
- Master Regulation D inside and out. The differences between Rule 504, 506(b), and 506(c) are the backbone of this exam. Know the dollar limits, investor requirements, solicitation rules, and verification obligations for each.
- Know the accredited investor definition cold. You will see multiple questions on who qualifies as an accredited investor, what income and net worth thresholds apply, and how verification differs between 506(b) and 506(c).
- Understand Rule 144 thoroughly. Holding periods, volume limitations, and the distinction between restricted and control securities are heavily tested. Know when Form 144 must be filed and when conditions no longer apply.
- Focus on Section 3. At 40% of the exam, the communications, recommendations, and recordkeeping section is the largest. Pay special attention to offering document requirements and regulatory exemptions.
- Do not neglect suitability. Private placements have unique suitability considerations due to illiquidity, concentration risk, and long holding periods. Understand how these factors impact recommendations.
- Practice with timed conditions. With 55 questions in 90 minutes, you have about 1.6 minutes per question. Practice under time pressure to ensure you can work through all questions comfortably.
Practice Questions
Test your knowledge with these Series 82-style questions. Click an answer to check if you are correct.
1. Under Rule 506(c) of Regulation D, which of the following is true?
Correct: C. Rule 506(c) permits general solicitation but requires that all purchasers be accredited investors and that the issuer take reasonable steps to verify their status. There is no dollar limit on 506 offerings. Non-accredited investors are permitted under 506(b) but not 506(c).
2. An individual investor qualifies as an accredited investor if they have a net worth exceeding:
Correct: B. An individual qualifies as an accredited investor with a net worth exceeding $1 million, excluding the value of their primary residence. This exclusion was added by the Dodd-Frank Act to prevent homeowners from qualifying solely based on home equity.
3. Under Rule 144, the minimum holding period for restricted securities of an SEC reporting company is:
Correct: B. For SEC reporting companies, the Rule 144 holding period is six months. For non-reporting companies, the holding period is one year. After the holding period, non-affiliates of reporting companies may sell freely, while affiliates remain subject to volume and filing requirements.
4. Which of the following is the most important suitability concern unique to private placements?
Correct: B. Illiquidity is the primary suitability concern for private placements because there is no public market for the securities. Investors may be unable to sell their position for years, making it critical that they have sufficient liquidity from other sources and can afford a potential total loss.
5. A Regulation A+ Tier 2 offering allows an issuer to raise up to:
Correct: C. Regulation A+ Tier 2 permits offerings up to $75 million in a 12-month period. Tier 2 issuers are subject to ongoing SEC reporting requirements but benefit from preemption of state registration. Tier 1 allows up to $20 million but does not preempt state blue sky laws.
Related Exams
These exams are commonly pursued alongside or after the Series 82.
Securities Industry Essentials
The prerequisite for the Series 82. Covers fundamental concepts of securities products, markets, regulatory agencies, and prohibited practices.
Investment Banking Representative
Covers investment banking activities including underwriting, M&A advisory, and financial restructuring. Broader in scope than the Series 82.