Rule 506 General Solicitation
The Securities and Exchange Commission has released proposed amendments to Regulation D of the Securities Act of 1933 that would allow for general solicitation (read: advertising) of private placements. The proposed rules, mandated under the Jumpstart Our Business Startups Act (JOBS Act), were published fifty-four days after the JOBS Act required.
Rule 506 does not currently permit the use of advertising of unregistered offerings of securities under the exemption. As defined for purposes of the Securities Act of 1933, this general advertising or solicitation includes print advertising, websites, radio and television broadcasts, e-mail campaigns, and seminars and meetings to promote the sale of the securities.
If adopted, the proposed amendments would permit the advertising of securities offerings if (a) the securities are only sold to accredited investors, as that term is defined in 17 Code of Federal Regulations § 203.501(a); (b) the issuer takes reasonable steps to verify that all investors are accredited; and (c) the provisions of 17 Code of Federal Regulations §§ 203.501, 203.502(a), and 203.502(d) are not violated.
Sales to Qualified Institutional Buyers
The JOBS Act also mandated the amendment of Rule 144A, a safe harbor exemption from registration under the Securities Act of 1933, providing for the resale of certain restricted securities if the securities are only offered and sold to qualified institutional buyers as defined in 17 Code of Federal Regulations § 203.144(a)(1). The proposed changes to Rule 144A would allow securities to be offered to persons other than qualified institutional buyers by means of general solicitation as long as the securities are only sold to persons reasonably believed to be qualified institutional investors.
Effective Dates of Amendments
It is important to note that, at the time of publication, the rule changes discussed herein are only proposed. Until final rules are adopted, issuers should not advertise a Rule 506 or Rule 144A offering using a general solicitation. While at least one SEC Commissioner has expressed the desire for the amendments to become effective before the end of 2012, an effective date has yet to be officially announced by the SEC.