Today, the SEC adopted a long awaited, new rule to implement a JOBS Act requirement to lift the ban on general solicitation or general advertising for certain private securities offerings under Rules 506 and 144A.
The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors. The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the verification requirement for purchasers who are natural persons. The amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers.
The SEC also revised Form D to require issuers to indicate whether they are relying on the provision that permits general solicitation or general advertising in a Rule 506 offering.
In connection with this new rule, the Commission voted to issue a rule proposal requiring issuers to provide additional information about these securities offerings to better enable the SEC to monitor the market with that ban lifted. This proposal requires issuers to:
- file an advance notice of sale (Form D) 15 days before and 30 days after the conclusion of an offering;
- provide additional information about the issuer and the offering
The additional information would include:
- Identification of the issuer's website;
- Expanded information on the issuer;
- The offered securities;
- The types of investors in the offering;
- The use of proceeds from the offering;
- Information on the types of general solicitation used; and
- The methods used to verify the accredited investor status of investors.
- include legends and disclosures in written general solicitation materials; and
- submit written general solicitation materials to the SEC.
Further, the proposal disqualifies issuers from using the Rule 506 exemption in any new offering if the issuer or its affiliates did not comply with the Form D filing requirements in a Rule 506 offering, and the proposal extends guidance on when information in sales literature by an investment company registered with the SEC could be fraudulent or misleading for purposes of the federal securities laws to private funds.
The SEC also adopted rules that disqualify felons and other bad actors from participating in certain securities offerings as required by the Dodd-Frank Act.
The rule amendments become effective 60 days after publication in the Federal Register. The rule proposal will undergo a 60-day public comment period following its publication in the Federal Register.
For more information, see the complete rule amendments and proposed rule available at http://www.sec.gov/news/press/2013/2013-124.htm.