Eliminating the Prohibition against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings; Proposed Amendments (SEC - Pre Fed. Reg. Version)
The SEC is proposing amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act. These amendments are intended to implement Section 201(a) of the JOBS Act.
The proposed amendment to Rule 506 would provide that the prohibition against general solicitation and general advertising contained in Rule 502(c) of Regulation D would not apply to offers and sales of securities made pursuant to Rule 506, provided that the issuer "take reasonable steps to verify" that all purchasers of the securities are accredited investors. The SEC did not, however, specify particular methods an issuer would have to employ in order to verify an investor's accredited investor status. The release also confirms that Rule 506 offerings entailing general solicitor advertising will not run afoul of the prohibition on "public offerings" for purposes of the Section 3(c)(1) and (7) exceptions in the Investment Company Act. The proposed amendment to Rule 144A(d)(1) would provide 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 is also proposing to revise Form D to add a separate checkbox for issuers to select to indicate whether they are using general solicitation or general advertising in a Rule 506 offering.
Comments Due: Comments should be received on or before [30 days after publication in the 2 Federal Register].
Cross-Reference(s): Rule 144A (Private Resales of Securities to Institutions) and Rule 506 of Regulation D (Exemption for Limited Offers and Sales without Regard to Dollar Amount of Offering) under the Securities Act; JOBS Act Section 201(a) JOBS Act Section Summaries; Securities Act Blacklines (showing JOBS Act statutory amendments).
Lofchie Comment: As is the case for money market fund regulation, the deregulation mandated by the JOBS Act is controversial among the regulatory community, with NASAA in particular urging that the SEC go slowly. (Do a 30-day search on "JOBS Act" by checkmarking the box on the left.) Chairman Schapiro's remarks reflected acknowledgement of the benefits and risks of deregulation – though, of course, the fact of deregulation is mandated.
View rule release here (links externally to SEC website). Additional Materials: Text of Commissioner Luis A. Aguilar's Remarks; SEC Fact Sheet; Submit Comments to SEC.