If the topic of "private placements" is confusing to you, you're in good company. Under the Securities Act of 1933, the maximum number for non-accredited investors is 35. For a private placement made in a particular state the maximum number is 10 under the Uniform Securities Act. In the real world there is a lot of controversy over these "Reg D offerings," and the state regulators often fight to control these things that the SEC does not require to be registered. However, don't be too quick in your understanding of a test question. For example, how would you answer this one:
Which of the following represents an accurate statement of private placements under the Reg D exemption to the Securities Act of 1933's registration requirements?
A. securities are subject to holding period requirements
B. underwriters may solicit a maximum of 35 non-accredited investors
C. suitability requirements do not apply to institutional investors
D. all choices listed
EXPLANATION: the "private placement" can not have it both ways--it can't be private if the underwriters are soliciting investors. There must be a pre-existing relationship between these investors and the underwriters. Also, broker-dealers do have suitability requirements, even when dealing with institutional investors. FINRA has sent notices to member firms reminding them that if an investment is too complex for an institutional investor, or the institution does not have the resources to do due diligence on, for example, a mortgage derivative, then the firm should not offer and sell it, no matter how "sophisticated" institutional investors might be in other areas.