On July 10, 2013, the SEC eliminated the longstanding prohibition against general solicitation in certain private offerings of securities in response to Congress's mandate under the Jumpstart Our Business Startups Act (the "JOBS Act"). The new SEC rules allow an issuer to engage in general solicitation in the private offer and sale of securities as long as (i) all purchasers of the securities are "accredited investors" and (ii) the issuer takes reasonable steps to verify each purchaser's status as such. The SEC provided a non-exclusive list of specific verification methods which an issuer may use to determine whether or not a purchaser qualifies as an accredited investor. If an issuer relies upon one of these methods, it will generally be deemed to have taken reasonable steps to verify a purchaser's accredited investor status. Notwithstanding these new rules, the SEC preserved the existing safe harbor for certain private offerings. Accordingly, issuers not wishing to engage in general solicitation may continue to rely on the Rule 506(b) safe harbor and will not be subject to the new requirements to take reasonable steps to verify a purchaser's accredited investor status.
The SEC also amended its rules concerning the resale of private securities to qualified institutional buyers ("QIBs"), permitting general solicitation by the seller as long as such securities are sold only to persons that the seller reasonably believes are QIBs. Unlike the SEC's amendments to Rule 506, this amendment (to Rule 144A) does not contain a separate requirement that the seller take reasonable steps to verify a person's status as a QIB. Concurrently, the SEC adopted rules which disqualify bad actors from relying on the private placement exemptions afforded by Regulation D under the Securities Act of 1933.
Finally, the SEC proposed amendments to the Form D information requirements applicable to private offerings under Regulation D. These proposed rules would also amend Form D to require additional information with respect to Rule 506 offerings, including additional information on the types of general solicitation and investor verification methods. In addition, the proposed rules would extend the SEC's antifraud guidance on investment company sales literature to private fund sales literature. The SEC's proposed rules are open for comment for 60 days from publication in the Federal Register.
The SEC's final rules and the corresponding amendments to Regulation D have a number of practical implications for issuers. For more information about how these rules affect private funds and public companies, click here and here, respectively.