SEC Proposes Rule to Eliminate Ban on General Solicitation for Rule 506 Offerings
The SEC met on Wednesday, August 29, 2012 to consider rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act. Under the proposed rules, companies issuing securities would be permitted to use general solicitation and general advertising to offer securities, provided that:
- 1. The issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors.
- 2. All purchasers of securities are accredited investors, because either:
- They come within one of the categories of persons who are accredited investors under existing Rule 501.
- The issuer reasonably believes that they meet one of the categories at the time of the sale of the securities.
The proposed rules would preserve the existing portions of Rule 506 as a separate exemption so that companies conducting 506 offerings without the use of general solicitation and general advertising would not be subject to the new verification rule. The Commission will seek public comment on the proposed rules for 30 days. The Commission will review the comments and determine whether to adopt the proposed rules.
In short, the prohibition against general solicitation may continue through the end of the year. The alternative investment industry is strongly advised to continue to refrain from advertising.