SEC Permits General Solicitation in Private Offerings

On July 24, 2013, the SEC adopted Final Rules (Release No. 33-9415; No. 34-69959; No. IA-3624; File No. S7-07-12). The set of Final Rules contain amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the JOBS Act, among other things.

The Rule 506 amendments, when effective on September 23, 2013, permit an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors.

However, purchasers are permitted to be unaccredited if an issuer reasonably believes that the purchaser is accredited based on haven taken reasonable steps to verify that accredited investor status. The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the accredited investor verification requirement with respect to purchasers who are natural persons.

A concurrent amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers.

The SEC also concurrently revised Form D to require issuers to indicate whether they are relying on general solicitation or general advertising in a Rule 506 offering.

In a separate by related release issued on July 24, 2013, to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC further amended Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if "felons and other `bad actors' " are participating in the Rule 506 offering.

The SEC, concurrently, in another separate release, publishing for comment a number of proposed amendments to Regulation D, Form D and Rule 156 under the Securities Act, and these are intended to enhance the SEC's ability to evaluate the development of market practices in Rule 506 offerings and address other concerns in connection with implementing Section 201(a)(1) of the Jumpstart Our Business Startups Act.