Key takeaways:

  • The SEC proposed amendments to Rules 506 of Regulation D and Rule 144A under the Securities Act of 1933 that would eliminate the ban on “general solicitation” and “general advertising” of private securities offerings conducted under those rules.
  • Under new Rule 506(c), an issuer could make a general solicitation in a private offering if, among other things, it makes “reasonable steps” to verify that each purchaser is an “accredited investor” (as defined in Rule 501(a) of Regulation D).
  • The determination whether the steps taken are “reasonable” would be based on the particular facts and circumstances of each transaction, including (i) the nature of the purchaser and the type of accredited investor that the purchaser claims to be; (ii) the amount and type of information that the issuer has about the purchaser; (iii) the nature of the offering (such as the manner in which the purchaser was solicited to participate in the offering); and (iv) the terms of the offering (such as a minimum investment amount).
  • If Rule 506(c) is adopted as proposed, issuers (such as privately-owned businesses and private equity and hedge funds) would be able to make private placements of their securities, while, among other things, publicly disseminating information about the offering and marketing to persons without worrying about the traditional requirement that there be a substantive, pre-existing relationship.