Yesterday the SEC adopted two final rules amending Regulation D and implementing the JOBS Act. The final rules will become effective 60 days after publication in the Federal Register.

Elimination of the General Solicitation and General Advertising Ban

Companies that raise capital through the sale of securities must either register the offering with the SEC or rely on a registration exemption. Currently, Rule 506 is a Reg. D registration exemption that permits an issuer to raise an unlimited amount of capital from “accredited investors” but prohibits general solicitation and general advertising. The final rules adopted yesterday remove the general solicitation and general advertising prohibition.

Once the final rules become effective, issuers can engage in general solicitation and general advertising for Rule 506 offerings if (1) purchasers are limited to “accredited investors” or the issuer reasonably believes the purchasers to be “accredited investors” at the time of the sale, and (2) the issuer takes reasonable steps to verify that all purchasers are “accredited investors.” The final rules provide a non-exclusive list of methods that satisfy the verification requirement.

The pre-Federal Register version of the final rules addressing the elimination of the general solicitation and general advertising ban is available here.

Disqualification of “Bad Actors” and Felons

The SEC also adopted final rules disqualifying issuers from relying on the Rule 506 exemption if the issuer or certain other persons, including directors, certain officers, and compensated solicitors, have a “disqualifying event.” The “disqualifying events” consist primarily of various criminal convictions and regulatory violations or bars, including certain anti-fraud provision violations. Importantly, the disqualification applies only for disqualifying events occurring after the effective date of the final rule.

The pre-Federal Register version of the final rules addressing disqualification from Rule 506 offerings is available here.