# Advertising Rules — General Solicitation Restrictions

## What It Is

The rules around fund marketing depend primarily on which Regulation D exemption you use (506(b) vs 506(c)) and whether you are a registered investment adviser or exempt reporting adviser. These rules govern how you can communicate about the fund to potential and existing investors.

## 506(b) — No General Solicitation

Under Rule 506(b), you **cannot** engage in general solicitation or general advertising. This means:

**Prohibited:**
- Public websites describing the fund or its performance
- Social media posts about the fund's returns or investment opportunity
- Mass emails or mailings to people you do not have a pre-existing substantive relationship with
- Seminars or meetings whose attendees were invited by general solicitation
- Advertisements in newspapers, magazines, TV, radio
- Cold calls to potential investors
- Posting on investor matching platforms (AngelList, etc.) without a pre-existing relationship

**Permitted:**
- One-on-one conversations with people you have a pre-existing substantive relationship with
- Communications with existing fund investors
- A basic website that describes you and your background without mentioning fund terms, performance, or that you are raising capital
- Speaking at conferences about market views (without pitching the fund)
- Providing materials to someone after establishing the substantive relationship, and only in a non-public setting

### What Is a "Pre-Existing Substantive Relationship"?

The SEC has provided guidance:
- **Pre-existing**: The relationship was established before any fund offering discussion. Meeting someone at a conference and immediately pitching the fund does NOT qualify.
- **Substantive**: You have enough information about the person's financial situation to reasonably believe they are an accredited investor, OR the relationship is such that you are aware of their sophistication. A LinkedIn connection alone is not sufficient.
- Registered broker-dealers can establish pre-existing relationships through their client onboarding process.

## 506(c) — General Solicitation Permitted

Under Rule 506(c), general solicitation IS allowed, but:

- **All purchasers must be accredited investors.**
- **You must take reasonable steps to verify accredited status.** Self-certification alone is not sufficient (unlike 506(b)).
- You can advertise the fund on your website, social media, and at conferences.
- Performance advertising is permitted but must not be misleading.

## Investment Adviser Advertising Rules

If you are a registered investment adviser, the SEC's **Marketing Rule (Rule 206(4)-1)** applies to all advertisements and communications. Key requirements:

- **No misleading statements.** All advertising must be fair, balanced, and not misleading.
- **Performance advertising**: Must present net-of-fees performance alongside any gross performance. Must include relevant time periods. Must not cherry-pick.
- **Testimonials and endorsements**: Permitted with disclosures about compensation and material conflicts.
- **Third-party ratings**: Can be used with specific disclosures.
- **Hypothetical performance**: Only to investors who have access to resources and information to evaluate the hypothetical. Cannot be used in mass advertising.

**For ERAs**: The Marketing Rule technically applies only to registered advisers. However, the antifraud provisions (Section 206) apply to all advisers, including ERAs. Practically, your communications should not be misleading regardless of registration status.

## Korean Investor Considerations

- Communications with Korean investors in Korea about a US fund may implicate Korean advertising and solicitation rules under the FSCMA.
- Even under 506(c), advertising in Korea to Korean residents may require compliance with Korean law.
- Under 506(b), if Korean investors are part of your pre-existing personal/professional network, private communications with them are fine.

## Action Items for Palace Fund

1. **If using 506(b)** (recommended for a small fund raising from known contacts):
   - Do NOT create a public-facing fund website with terms, performance, or offering details.
   - Do NOT post about the fund on social media.
   - Maintain records of how each investor relationship was established and when.
   - Only discuss the fund privately with people in your existing network.
2. **If using 506(c)**:
   - You may advertise but must verify accredited status.
   - Implement a verification process before accepting subscriptions.
3. **All communications should be accurate and not misleading.** Whether or not the Marketing Rule formally applies, keep all investor materials honest and balanced.
4. **Performance reporting**: If you share performance with existing investors, present net returns, disclose the methodology, and do not cherry-pick periods.
5. **Retain copies of all investor communications** — emails, presentations, letters. These are your evidence of compliance.
6. **Brief any team members** on what they can and cannot say publicly about the fund.