Regulation D

Regulation D is a short menu: definitions, general conditions, a filing rule and two exemptions.

Each piece answers a different question an investor might ask about a DST offering, from who counts as accredited to what happens if the issuer slips on a minor term.

• Rule 501 defines terms, including accredited investor.
• Rule 502 sets general conditions: integration, information for non-accredited buyers, the ban on general solicitation and the limits on resale.
• Rule 503 requires the Form D notice of sales.
• Rule 504 exempts offerings up to $10,000,000, less amounts sold in the prior 12 months.
• Rule 506 exempts offerings of any size under paragraph (b) or (c) and bars 'bad actor' issuers under paragraph (d).
• Rules 507 and 508 deal with disqualification for Form D injunctions and with insignificant deviations from a condition.

A DST's Form D tells you which exemption it claims, who is paid to sell it and how much.

Form D is public on EDGAR. Item 6 shows the exemption box checked, Rule 506(b) or 506(c); Item 11 gives the minimum investment; Item 12 lists each sales compensation recipient with its CRD number; Item 15 reports sales commissions and finders' fees; and Item 16 reports proceeds paid to executive officers, directors or promoters.

Hypothetical: a DST's Form D shows a $25,000,000 offering, Rule 506(b) checked and $1,250,000 of estimated sales commissions. That is 5% of the raise, before any dealer-manager, organization or acquisition costs, which appear in the PPM rather than on the form. Total costs are covered under offering load, and a field-by-field walkthrough is at reading a DST PPM and Form D.

The SEC counts the 15 days from the date the first investor is irrevocably contractually committed to invest, and charges no filing fee.

It bites on marketing, resale and state oversight, not on the tax treatment of the exchange.

Rule 502(c) bars general solicitation and general advertising, including newspaper or broadcast advertising and seminars whose attendees were invited by general solicitation, except where Rule 504(b)(1) or Rule 506(c) allows it. That is why a Rule 506(b) DST is shown to you privately by a broker-dealer or adviser rather than advertised. Rule 502(d) makes the securities restricted. Under Securities Act section 18 a Rule 506 security is a covered security that states cannot make the issuer register, though they keep notice filings, fees and anti-fraud authority.

Regulation D says nothing about whether the interest qualifies for section 1031. That question is answered by the tax rules in Rev. Rul. 2004-86, and the securities question of who may sell it is covered at is a DST a security and who can sell it.