Seemingly forgotten while hoards of people get ready to start posting adds selling securities on the internet is Section 926 of the Dodd-Frank Act. Section 926 of the Dodd-Frank Act directs the SEC to issue rules which would prevent the use of Regulation D Rule 506 offerings by certain “bad actors.” The Dodd-Frank Act directs the SEC to adopt rules similar to the current disqualifiers in Regulation A. The SEC rules must also prohibit Rule 506 offerings by persons subject to final orders which bar them from association with entities regulated by certain authorities, such as state securities commissions, or that have been convicted of any felony or misdemeanor in connection with the purchase or sale of any security. We have discussed some of the problems with Section 926 here.
Section 201 of the JOBS Act requires issuers to take “reasonable steps to verify that purchasers of securities are accredited investors.” However, an issuer would violate securities law by an inadvertent sale to one non-accredited investor even if the issuer took such reasonable steps under a literal reading of the JOBS Act. Hopefully, this will be fixed in the rulemaking. Otherwise, a general solicitation could be a fairly risky proposition.
And if the SEC wants to make a general solicitation difficult, they can. For instance, they could require all solicitation material be attached to Form D filed with the SEC. Let’s hope they don’t go there.