Jereboah Company is a nonpublic company that wants to sell $2.7 million of preferred shares under Rule 506 of Regulation D of the Securities Act of 1933.Jereboah plans to sell to 42 investors,including 10 mutual funds.The other 32 investors are individual investors with various levels of experience in making securities investment decisions.Jereboah also hopes to attract additional investors using an advertisement in The Wall Street Journal.May Jereboah use Rule 506? Assuming it can,what disclosure must Jereboah make to the investors?

Rule 506 can be used by any issuer.Therefore,it can be used by Jereboah,a nonpublic issuer.There is no dollar limit on the amount of the issuance,so Jereboah can sell $2.7 million of preferred shares.Jereboah can sell to an unlimited number of accredited investors (the 10 mutual funds are permissible)and 35 unaccredited investors (the 32 individuals are permissible even if none are accredited).Each unaccredited investor must have such knowledge and experience in business and financial matters to be capable of evaluating the merits and risks of the investment,so the various levels of experience of the individuals is problematic,unless some qualify as accredited investors.Since Jereboah is a nonpublic company,and the amount of the issuance is more than $2 million but less than $7.5 million,Jereboah must provide the same nonfinancial information as for a 1933 Act registration and a single year's audited income statement,audited balance sheet,and audited statement of changes in financial position.Jereboah cannot make any general public selling effort,which therefore excludes the advertisement in The Wall Street Journal.However Jereboah may make one-on-one offers to individuals.Jereboah must take reasonable care to see that the purchasers do not resell the securities in a manner that makes the issuance a public distribution rather than a private one.The investors need to hold on to the securities for a minimum period of six months.