On July 10, 2013, the SEC adopted final rules to remove the ban on general solicitation in offerings pursuant to Rules 506 and 144A. The SEC also proposed rules that would impose additional requirements on issuers conducting Rule 506 offerings. These rules open new opportunities for companies to attract investors while blocking certain “bad actors” from making use of the rules. Anyone conducting private placement offerings in reliance upon Rule 506 needs to have a firm understanding of these new rules.
This webcast helped attendees apply the new rules to future securities offerings. Takeaways included:
- The Legislative history behind the JOBS Act and its mandate for SEC rulemaking provide insight into the SEC’s rules.
- Issuers are now allowed to use general solicitation in Rule 506 private placement offerings but there are important conditions to using general solicitation.
- One important condition on Rule 506 offerings that use general solicitation is that issuers take reasonable steps to verify that the purchasers are accredited investors. The SEC has provided important guidance as to what constitutes “reasonable steps.”
- Offerings that are ongoing at the time the rules take effect (September 23, 2013) may choose to take advantage of the new rules without jeopardizing prior sales.
- Private funds may use general solicitation in Rule 506 offerings without losing important exclusions under the Investment Company Act of 1940.
- Proposed rules would further complicate private offerings under Rule 506.
- Issuers and practitioners should take note of Congressional response to the SEC’s final and proposed rules.