SEC Releases Proposed Rules Eliminating General Solicitation and Advertising Prohibitions in Rule 506 and 144A Offerings

(August 29, 2012) The SEC has published proposed amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 in order to implement the requirements of the JOBS Act.  The proposed amendments would eliminate the general solicitation and general advertising prohibitions in those Rules for offerings made solely to accredited investors.

The proposed amendments to Rule 506 would eliminate the prohibition against general solicitation for offers and sales of securities under Rule 506 in which all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify the purchaser’s accredited investor status.  Rather than specifying particular steps required to be taken by the issuer to verify accredited investor status, the determination as to whether steps are reasonable under the proposed rules would be determined on a case-by-case basis, based on the particular facts and circumstances.  Factors to be considered include (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be, (2) the amount and type of information that the issuer has about the purchaser; and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

With respect to Rule 144A offerings, the SEC has proposed an amendment to Rule 144A(d)(1) that would provide that securities may be offered other than to qualified institutional buyers (QIBs), provided that they are sold only to those persons that the seller and their agents reasonably believed to be QIBs.

The SEC has requested comments on the proposed rule amendments and related topics from the public. Comments on the proposals should be received on or before September 28, 2012.  Comments may be submitted by internet, email or paper and will be available for viewing and printing in the SEC’s Public Reference Room.

The text of the SEC’s proposal and request for comment is available at http://www.sec.gov/rules/proposed/2012/33-9354.pdf.

For more information regarding this Alert, other provisions of the JOBS Act including crowdfunding provisions, contact John McIlvery, Group Chair of SAM’s Public Securities practice area at jmcilvery@stubbsalderton.com.

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