During the American Bar Association’s Business Law Section Fall Meeting, the Federal Regulation of Securities Committee hosted a dialogue with the Director of the SEC’s Division of Corporation Finance, Keith Higgins. Mr. Higgins noted that the SEC Staff is tracking Rule 506 offerings, and thus far, there have been slightly over 300 offerings made using general solicitation (based on Form D data). Mr. Higgins also noted, however, that there may be some reluctance to rely on the new rules relaxing the prohibition on general solicitation.
As previously reported, the SEC Staff intends to provide guidance in the form of Compliance and Disclosure Interpretations (CDIs) on various bad actor interpretative matters, such as the scope of the term “affiliated issuer.” Looking ahead, Mr. Higgins noted that the SEC Staff is working on guidance regarding amended Exchange Act Section 12(g)(5) required under Title V of the JOBS Act, which provides a safe harbor for securities issued under employee compensation plans. Mr. Higgins also noted that he understands that the ability to use general solicitation poses interesting interpretative issues relating to integration, and the SEC Staff understands that guidance on integration issues would be useful. Mr. Higgins also indicated that the SEC Staff is aware of and thinking about some of the concerns raised by market participants regarding the definition of “general solicitation” (such as whether business plan competitions and “demo” days would constitute general solicitations) and whether communication safe harbors might be appropriate. Finally, Mr. Higgins mentioned that the SEC’s Office of Compliance Inspections and Examinations (OCIE) will be making inquiries during broker-dealer exams regarding the use of general solicitation and investor verification procedures.
In a separate session, Joseph Price, Senior Vice President, Corporate Financing/Advertising Regulation at FINRA, noted that in almost one year since the effective date of FIRNA Rule 5123 relating to private offerings, FINRA has received over 3,000 private placement filings. Mr. Price also noted that FINRA has approximately 20 ongoing enforcement actions related to private offerings. Mr. Price also indicated that many private offerings that are structured as “contingency” offerings fail to use an escrow agent as required by Exchange Act Rule 15c2-4.