On August 29, 2012, the SEC announced proposed rules to eliminate the prohibition against general solicitation and general advertising in certain securities offerings. Under the proposed rules, which are mandated by the JOBS Act, companies would be permitted to use general solicitation and general advertising to offer securities under Rule 506 of Regulation D of the Securities Act and Rule 144A of the Securities Act.
Currently, most registration exemptions, including Rules 506 and 144A, prohibit companies from engaging in general solicitation or general advertising in connection with securities offerings. In order to make it easier for companies to inform the public that they are seeking to raise capital through the sale of securities, the JOBS Act directs the SEC to amend Rule 506 to permit general solicitation or general advertising under certain circumstances. The JOBS Act also directs the SEC to amend Rule 144A so that offers of securities can be made to investors who are not qualified institutional buyers (QIBs) as long as the securities are sold only to persons whom the seller reasonably believes are QIBs.
Under the proposed rules, companies issuing securities would be permitted to use general solicitation and general advertising to offer securities under Rule 506, provided that: (i) the issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors; and (ii) all purchasers of securities are accredited investors because either (a) they are in one of the categories of persons who are accredited investors under existing Rule 501 of the Securities Act, or (b) the issuer reasonably believes that they meet one of the accredited investor categories at the time of the sale of the securities. In determining the reasonableness of the steps that an issuer has taken to verify that a purchaser is an accredited investor, issuers would be required to consider the facts and circumstances existing at the time of the transaction.
Under the proposed rules, securities sold pursuant to Rule 144A could be offered to persons other than QIBs, including by means of general solicitation, provided that the securities are sold only to persons whom the seller and any person acting on behalf of the seller reasonably believe are QIBs. The SEC will seek public comment on the proposed rules for 30 days. Shortly thereafter, the SEC will review the comments and determine whether to adopt the proposed rules.