Under Rule 506, a single public solicitation taints the entire offering, not just affected investors. If a company posts an ad or email to a purchase list, all investors may gain rescission rights. The issuer must prove no general solicitation occurred.
One act of general solicitation in a Rule 506 offering and the entire offering is tainted. Not just the one investor, it can affect every investor in the deal. Under Rule 506, no general solicitation is a fundamental condition of the exemption. Once you've directed any public communication about your specific offering to people with whom you don't have a documented preexisting relationship, whether it's an ad, a social media post, an email to a purchase list, you've made a general solicitation. And the Rule 506 exemption for the entire offering is now at risk, not just for the investors who came through that channel, but for every investor in the deal. It works the same way as a tax deduction where the taxpayer has to prove that they were entitled to the deduction. Or they lose it. Securities exemptions are self-executing. You claim the exemption. If that claim is ever challenged, the burden is on you to prove that you followed every rule of the exemption. If you can't prove you stayed within the rules of the exemption, the exemption can be denied for the whole offering, not just the one investor who saw the ad and made the investment. This may give your investors the right to rescind. To demand their money back because the offering itself was legally flawed. Not just one investor, all of them. That's what tainted means. And it's why just switch to 506 going forward may only solve part of the problem. What switching to 506 mid-raise actually fixes and what it doesn't is in the long form. See the link in the bio.
