To Publicize or Not to Publicize: Evaluating the Options for Cross-Border Fundraising in the U.S. and Brazil

Since the introduction of the Brazilian Securities Commission (CVM) Resolution 160 in 2022, fund managers have benefited from additional flexibility in engaging with the media during an offering of securities in Brazil following the filing of the offering with CVM. As from such filing and the disclosure of the applicable documents, fund managers may engage with the media regarding a new product, provided that such communications remain consistent with the offering documents and comply with the general informational standards set forth under CVM Resolution 160.

However, when offering interests into the United States, many fund managers rely on Rule 506(b) of Regulation D under the Securities Act of 1933, as amended (Securities Act), which prohibits the use of general solicitation or general advertising in connection with the offering. What options are open to sponsors offering interests into both countries to take advantage of the increased flexibility under the Brazilian rules while not violating the U.S. securities laws?

An Overview of CVM Resolution 160

Over the past four years, CVM Resolution 160 has been amended a few times. Many of such amendments introduced additional flexibility for specific types of securities offerings, including offerings of debentures by frequent issuers, Brazilian depositary receipts (BDRs). and securitization instruments.

As mentioned, one notable change introduced under CVM Resolution 160 was the shortening of the mandatory quiet period for speaking with the media (“período de silêncio”), allowing fund managers and other market participants to engage with the media following the filing of the offering and the disclosure of the applicable notice to the market (“aviso ao mercado”) or commencement announcement (“anúncio de início”), as applicable. In all cases, such communications must remain consistent with the offering documents and comply with the general informational standards established under CVM Resolution 160, including standards relating to accuracy, transparency, the proper disclosure of risks, and the use of moderate and nonmisleading language.

The U.S.-Brazil Publicity Mismatch: Rule 506(b) and CVM Resolution 160

This evolving landscape has created a potential regulatory mismatch for managers conducting cross-border offerings into both the U.S. and Brazil. Traditionally, Rule 506(b) has been the principal safe harbor used by private fund sponsors to conduct U.S. private placements without SEC registration, but the safe harbor is available only if the offering satisfies specified conditions, including that it is not conducted through general solicitation or general advertising.

The types of public-facing communications now permitted by CVM Resolution 160 may jeopardize the availability of the Rule 506(b) safe harbor, even if the communication was with a non-U.S. media outlet primarily targeting investors outside the U.S. and written in a language other than English.

The consequences of a violation of the U.S. offering rules are significant. They may include investor rescission claims (requiring the return of invested capital), unavailability of the Rule 506(b) safe harbor, exposure to SEC enforcement, and potential litigation risk. These risks apply regardless of whether the relevant communications were permissible under Brazilian law, reinforcing the need for careful coordination across jurisdictions. The practical implication is that while Brazilian regulation now allows greater interaction with the press during an offering, engaging in such activity while offering in the U.S. may make the Rule 506(b) safe harbor unavailable.

Against this backdrop, fund managers accessing both U.S. and Brazilian investors generally face two paths. The first is to continue relying on Rule 506(b) and strictly avoid any form of general solicitation. This requires careful control over communications, including avoiding media engagement that references the fundraising, and limiting the manager’s redistribution of press coverage, such as reposts of third-party articles on social media. The second path is to rely instead on Rule 506(c).

Rule 506(c): A Potential Solution, With Conditions

For managers who wish to take advantage of the greater publicity flexibility available in Brazil, the best alternative may be to rely on Rule 506(c) of Regulation D under the Securities Act. This exemption permits general solicitation and general advertising, making it more compatible with the current Brazilian framework. However, this flexibility comes with additional regulatory requirements and operational considerations.

Rule 506(c) requires that all investors qualify as “accredited investors,” with no allowance for sophisticated but nonaccredited investors as in the Rule 506(b) safe harbor. In addition, issuers must take “reasonable steps to verify” each investor’s accredited status, a more stringent standard than the representation-based reasonable belief process typically used under Rule 506(b).This verification requirement can be satisfied through several nonexclusive methods. The traditional approach to verify accredited investor status involves reviewing documentation such as tax returns (for income-based tests), brokerage and bank statements (for net worth tests), and credit reports, or obtaining written confirmation from qualified third parties, such as broker-dealers, investment advisers, attorneys, or CPAs. This approach requires enhanced due diligence procedures on the part of the manager and has typically been viewed as overly intrusive by prospective investors, limiting the appetite for managers to rely on Rule 506(c).

In certain circumstances, recent SEC staff guidance may support a less burdensome approach to satisfying the Rule 506(c) verification requirement. In March 2025, the SEC staff issued a no-action letter¹ providing additional comfort that, based on specified facts and conditions, an issuer could reasonably conclude that it has taken reasonable steps to verify accredited investor status in a Rule 506(c) offering where purchasers satisfy high minimum investment requirements and provide appropriate written representations regarding accredited investor status and the absence of third-party financing for the specific purpose of making the investment. The staff response did not define a “high” minimum investment amount, but the incoming request described minimum investment amounts of at least $200,000 for natural persons and at least $1 million for legal entities, including amounts subject to binding capital commitments, together with specified investor representations and no actual knowledge by the issuer of facts indicating that a purchaser is not accredited or that the minimum investment amount is financed by a third party for the specific purpose of the investment. This approach may be more feasible than the traditional approach in practice for many private fund offerings because where the specified facts and representations are present, it removes the need for intrusive documentary verification.

Our Take

While CVM Resolution 160 and its subsequent amendments have modernized the Brazilian regulatory framework and relaxed certain communication constraints, U.S. Rule 506(b) remains unchanged. Fund managers must therefore determine whether to proceed under Rule 506(b) while maintaining appropriate restrictions on public communications or to structure the U.S. offering under Rule 506(c). Any intention to engage with the media during an offering that includes U.S. investors should prompt a deliberate assessment of whether to remain within the constraints of Rule 506(b) or transition to Rule 506(c). Each approach involves tradeoffs, and managers should make an informed decision at the commencement of an offering to avoid an inadvertent violation of U.S. securities laws.

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Sidley does not practice Brazilian law. This alert was produced with the support of Mattos Filho as to matters of Brazilian law.

Sidley regularly advises clients on structuring offerings under Rule 506(c), and on transitioning to Rule 506(c) where available, including preparing and filing Form D, updating offering documentation, and coordinating with placement agents, administrators, and compliance teams to implement a robust and defensible verification framework. Our team is available to assess the implications for your business and to provide further guidance on permissible communication strategies and accredited investor verification methods for both individual and institutional investors.
 

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¹SEC Division of Corporation Finance, No-Action Letter: Latham & Watkins (Mar. 12, 2025), available at https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/latham-watkins-503c-031225. As with any no-action letter, the position is limited to the facts and representations described in the request.