On August 29, 2012, the SEC adopted a proposed rule to eliminate the current prohibition against general solicitation and general advertising in securities offerings effected under the Securities Act of 1933 pursuant to Rule 506 of Regulation D and Rule 144A. The proposed rule is directed under Section 201(a) of the Jumpstart Our Business Startups Act (the "JOBS Act").
Under current law, including Rule 506 and (through SEC interpretation) Rule 144A, private placement issuers may not use any form of general solicitation or general advertising in conducting an unregistered offering of their securities. This solicitation and advertising restriction generally includes, but is not limited to, the use of publicly available websites, media broadcasts (e.g. radio and television advertisements), mass email campaigns or public seminars. The proposed rule would eliminate these restrictions and arguably allow smaller businesses and start-up companies to gain easier access to capital.
The proposed amendments to Rule 506 and Rule 144A will allow private placement issuers to use forms of general solicitation and general advertising in unregistered offerings provided that (i) all purchasers of such offered securities are either accredited investors (in the case of Rule 506) or qualified institutional buyers ("QIBs") (in the case of Rule 144A) and (ii) the issuer takes reasonable steps to verify that such purchasers are accredited investors or QIBs, as applicable. The SEC has also proposed a revision to Form D to add a box for issuers to check to indicate that they are using general solicitation or general advertising in a Rule 506 offering.
Public comment on the proposed rule may be submitted within 30 days of the proposal. Until the rule is finalized, the current restrictions on general solicitation and general advertising will remain in effect.