The Jumpstart our Business Startups Act (JOBS Act) directed the Securities and Exchange Commission to (1) remove the prohibition under Rule 502(c) of Regulation D against general solicitation and general advertising in connection with offers and sales of securities made pursuant to Rule 506 (which provides an exemption from registration under the Securities Act of 1933 for private offerings) and (2) revise Rule 144A(d)(1) under the Securities Act to provide that securities sold pursuant to Rule 144A may be offered and advertised (but not sold) to persons other than qualified institutional buyers (QIBs). On August 29, the SEC issued a release that proposed amendments to Rules 506 and 144A (Proposing Release).
The proposed amendment to Rule 506 provides that the prohibition against general solicitation and general advertising contained in Rule 502(c) does not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are “accredited investors”. In this regard, the proposed amendment requires the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors. The proposed amendment does not specify the methods that the issuer must use to verify that purchasers are accredited investors; instead the Proposing Release indicates that the determination of whether the steps are reasonable would be an objective determination based on the particular facts and circumstances of each transaction. Additionally, the Proposing Release affirms the retention of existing Rule 506 provisions so that companies conducting Rule 506 offerings without the use of general solicitation and general advertising would not be subject to the new verification requirement.
With respect to Rule 144A(d)(1), the proposed amendment provides that securities may be offered and advertised to persons other than QIBs provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller “reasonably believe” are QIBs.
Furthermore, the Proposing Release indicates that Form D will be revised to include a check box for issuers to indicate whether they are using general solicitation or general advertising in connection with a Rule 506 offering.
The SEC is seeking public comment on the proposed rules, and the comment period ends on October 5.