Question

Jones Knight is a small copper mining company with operations in Arizona, South America, and Montana.  It is listed on NASDAQ and is preparing to do a public offering for $50,000,000.  Which of the following exemptions could Jones Knight use in order to avoid registration?​

	a.	​intrastate exemption
	b.	​Regulation D – Section 506
	c.	​because Jones Knight is publicly traded, the Reg D exemptions are not available to it
	d.	​Section 11 registration

Answer 1

The correct answer to this question is C.

Jones Knight is a public company listed on NASDAQ and hence the Reg D exemptions are not available to it.

Following are the reasons why other options are not correct in this case:

a) Jones Knight operates in Arizona, South America and Montana hence it does not qualify for intrastate exemption.

According to Section 3(a)(11) of the Securities Act, to qualify for the intrastate offering exemption, a company must:

• be organized in the state where it is offering the securities
• carry out a significant amount of its business in that state and
• make offers and sales only to residents of that state

b) A public offering does not qualify for exemption under Rule 506 - Regulation D as public offering involves advertising to market the securities and also involves non-accredited investors (general public) who do not necessarily have knowledge and experience in financial and business matters.

Under Rule 506, a company can be assured it is within the Section 4(a)(2) exemption by satisfying certain requirements, including the following:

• The company cannot use general solicitation or advertising to market the securities.
• The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers. All non-accredited investors, either alone or with a purchaser representative, must be sophisticated—that is, they must have sufficient knowledge and experience in financial and business matters to make them capable of evaluating the merits and risks of the prospective investment.

d) Jones Knight is a copper mining company and not a REIT (Real Estate Investment Trust) hence exemption under Section 11 is not applicable to her.

DEFINITION of SEC Form S-11

SEC Form S-11 is a filing with the Securities and Exchange Commission (SEC) that is used to register securities for real estate investment trusts (REITs). The business of REITs is to acquire, hold, and often manage real estate for the purpose of investment.