Today, September 23rd, is the one year anniversary of the effective date of the changes relaxing the prohibition against general solicitation in certain offerings made under Rule 506 and resales made pursuant to Rule 144A.
The SEC has not moved forward with the rules it proposed in 2013 that would make certain changes to Regulation D, Form D and Rule 156. The proposed rules seem every bit as controversial now as they were when first published. Today, Senators Levin, Reed, Markey, Warren published a letter that they sent to SEC Chair White (see here: http://www.levin.senate.gov/newsroom/press/release/levin-reed-markey-warren-urge-sec-to-protect-investors/?section=alltypes) urging adoption of “investor protections” in private offerings. Specifically, the Senators urge that the SEC adopt rules requiring the filing of general solicitation materials and the inclusion of certain risk disclosures in any general solicitation materials. The Senators also urge the SEC to require issuers to file a Form D prior to engaging in any general solicitation. Just days ago, we reported (in a post re-published from a Milken Institute blog), on Commissioner Gallagher’s call (see Gallagher’s full remarks here: http://www.sec.gov/News/Speech/Detail/Speech/1370542976550#.VCHw1aXD-nA) for the SEC to withdraw the Regulation D proposed rules.
If investor protection advocates are concerned about the lack of oversight that may accompany a generally solicited offering made pursuant to Rule 506(c), one would assume that they would support the proposed rules providing for Tier 2 Regulation A+ offerings. Tier 2 Regulation A+ offerings would permit issuers to raise up to $50 million in offerings that can use general solicitation but provide for robust oversight given the need to produce and have the SEC review an offering statement.
Might all the concern be premature? The market has not rushed to adopt general solicitation during this past year. The number of Rule 506 offerings made in reliance on 506(c) remains low. Even though matchmaking portals have begun to make a real impact in private financings, the majority of the offerings completed in reliance on funding portals rely on Rule 506(b) to offer to accredited investors. Many have speculated that the fact that the CFTC had not provided clarity regarding the ability of certain funds to use general solicitation affected adoption of Rule 506(c). Now that some limited guidance and no-action letter relief is available (as we blogged about earlier), perhaps we will see some change….