In a rather sudden shift, the SEC ended a more than 12-month delay by formally voting on Wednesday, July 10, to adopt a final rule required pursuant to the JOBS Act to eliminate the decades-old ban on general solicitation and advertising in certain private offerings made under Rule 506 of Regulation D and under Rule 144A. At the same time, in connection with the adoption of this final rule, the SEC also adopted a final rule that will prevent "bad actors" from participating in Rule 506 offerings, and proposed rule amendments to Regulation D, Form D and Rule 156 to enhance the SEC's ability to collect information about the development of the private placement market. The two adopted final rules will become effective 60 days after their publication in the Federal Register, and the lone proposed rule will have a 60-day comment period following its publication in the Federal Register.
After missing the deadline of July 4, 2012 required by the JOBS Act to adopt rules to lift the ban on general solicitation, the SEC announced exactly one year later—on Thursday, July 4, 2013—that it would hold an open meeting less than one week later to consider the three agenda items. The most prominent among the items, the elimination of the ban on general solicitation, was passed by the SEC commissioners by a vote of 4-1. Commissioner Aguilar voiced a strong dissent due to insufficient investor protections.
The final rule adopted to eliminate the ban on general solicitation is substantially similar to the rule proposed by the SEC on August 29, 2012 . The final rule will create a new Rule 506(c) that will permit issuers to use general solicitation and advertising in a Rule 506 securities offering if, at the time of sale of the securities, all purchasers are accredited investors or the issuer reasonably believes them to be accredited investors, and if the issuer takes "reasonable steps" to verify the purchasers' accredited investor status. The adopted final rule also includes a non-exclusive list of methods issuers may use to satisfy the verification requirement as it applies to purchasers who are natural persons.
Similar to the changes to Rule 506, the adopted final rule will amend Rule 144A to provide that securities sold under Rule 144A may be offered to persons other than QIBs, including by means of general solicitation, so long as the purchasers are persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs.
In her remarks at the meeting, Chairwoman Mary Jo White explained that, in conjunction with its elimination of the ban on general solicitation, the SEC will continue to pursue additional investor safeguards if and where they become necessary. Chairwoman White said the SEC will immediately initiate a multi-division review of the private placement market in order to collect information and observe practices to determine whether and to what extent fraud is occurring and how to address it. She also noted that the SEC will continue a study to review the requirements for "accredited investor" status.