We previously posted about Congress’s passage of the JOBS Act, which among other things, sought to relax certain rules on how hedge funds and other investment firms can advertise. After Congress passed the bill, the SEC was given time to draft the rule, which it released on August 29, 2012 (see the proposed rule here). The SEC will seek public comment on the proposed rule for 30 days (go here to submit comments). In an SEC press release, SEC Chairman Mary Schapiro remarked that she believed the proposed changes “fulfill Congress’s clear directive that issuers be given the ability to communicate freely to attract capital, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings.” Chairman Schapiro further stated that:
The rules we propose today would implement this statutory mandate by permitting issuers to use general solicitation in Rule 506 and Rule 144A offerings.
The proposed rules would require an issuer that uses general solicitation to “take reasonable steps to verify” that all of the purchasers are accredited investors. Whether the steps taken are reasonable would be an objective determination, based on the particular facts and circumstances of each offering and investor. The proposing release explains how this framework would operate. I hope that we will receive comment on this aspect of the proposal most particularly, as it is clear from the statute that taking reasonable steps to verify accredited investor status is part and parcel of permitting general solicitation. The comments we receive will enable the Commission to have the benefit of the views expressed by issuers, investors and other market participants on the proposal before the rules are finalized.
“Accredited investors” are those with a net worth of at least $1 million or an annual income of at least $200,000. CNBC reported that the rule “is the first rule that the SEC has proposed as part of the JOBS Act,” and that “[r]epresentatives of the $2 trillion hedge fund industry, which has been eager to advertise freely, praised the rule.”