Reference no: EM131995236

EMG, Corp., a public corporation, decides to enter the Internet marketing business by creating a subsid- iary corporation, GME, Inc., that will be 51 percent owned by EMG and 49 percent owned by other in- vestors. The plan is that GME will not be not a pub- lic corporation required to file periodic reports with the Securities and Exchange Commission under the Securities Exchange Act of 1934. GME plans to sell 100 million shares for $20 each to EMG and to the following investors:

• An investor who has annual income of $4,080,000 and a net worth of $12,200,000.
• GME's chief operations officer, whose annual income is $175,000 and net worth is $350,000.
• A pension fund established for EMG's employees. 14 mutual funds, each of which has assets exceeding $20 billion.

GME wants to sell its common shares to the above investors in an exemption from the registration re- quirements of the Securities Act of 1933 under Rule 506. Is the $2 billion amount of the offering too large for Rule 506? Is the number of purchasers a prob- lem under Rule 506? Are the listed investors quali- fied purchasers under Rule 506? Under Rule 506, for how long must GME restrict the purchasers' resales of the common shares? If GME is unsure whether the offering it proposes meets the requirements of Rule 506, what document should GME request from the staff of the SEC?