Speedread
On August 29, 2012, the SEC proposed rules to permit general solicitation and general advertising in securities offerings under Rule 506 of Regulation D and Rule 144A of the Securities Act, as required by the JOBS Act?...show full speedreadOn August 29, 2012, the SEC proposed rules to permit general solicitation and general advertising in securities offerings under Rule 506 of Regulation D and Rule 144A of the Securities Act, as required by the JOBS Act. The SEC is accepting public comment on the proposed rules until 30 days after publication in the Federal Register.
Close speedreadOn August 29, 2012, the SEC proposed rules to permit general solicitation and general advertising in securities offerings under Rule 506 of Regulation D and Rule 144A of the Securities Act, as required by the JOBS Act?(www.practicallaw.com/2-518-7869).
?Rule 506
Under proposed rules, a new Rule 506(c) would be added, permitting general solicitation and general advertising to offer and sell securities if:
The issuer takes reasonable steps to verify that the purchasers are accredited investors?(www.practicallaw.com/0-382-3212).
All purchasers of the securities are accredited investors because:
they fall within one of the categories of accredited investors under Rule 501; or
the issuer reasonably believes that the purchasers fall within one of the categories of accredited investors at the time of sale.
Whether steps taken to verify accredited investor status are reasonable would be an objective determination, based on the particular facts and circumstances of each transaction. The SEC chose not to include in the rules uniform verification methods or a non-exhaustive list of methods on the theory that either would be impractical, inflexible and ineffective to apply to all situations.
Instead, the proposing release suggests several factors that may be considered, including the:
Type of purchaser and the type of accredited investor that the purchaser claims to be.
Amount and type of information that the issuer has about the purchaser.
Nature of the offering, including the manner of the solicitation and the terms of the offering.
The SEC suggested that factors should work together in increasing or mitigating verification steps. For example, a solicitation to registered broker-dealer purchasers would require fewer verification steps than a widely disseminated e-mail or social media solicitation with natural person purchasers. In the case of a widely disseminated solicitation accessible to the general public, the SEC does not believe that an issuer has taken reasonable verification steps if it required only that an investor check a box in a questionnaire or sign a form, absent other verifying information about the investor.
The SEC also viewed favorably suggestions by commentators relating to reliable third-party verification services and requiring a high minimum investment amount in a Rule 506(c) offering as examples of good verification steps. In any event, it would be important to retain adequate records that document the verification steps taken.
If an investor in a 506(c) offering does not actually qualify as an accredited investor, the issuer would not lose the ability to rely on the 506(c) exemption for that offering if the issuer took the reasonable verification steps and reasonably believed that investor was an accredited investor.
As now proposed, the rules would preserve the existing Rule 506 as a separate exemption so that companies conducting 506 offerings without the use of general solicitation and general advertising would be exempt from the new verification rule. The proposing release confirms that the reasonable belief standard for accredited investor status in Rule 501(a) remains unchanged by the JOBS Act.
The proposal does not amend the Section 4(a)(2) exemption.
?Form D
Form D?(www.practicallaw.com/2-382-3490) would be revised to add a separate field or check box requiring issuers to indicate whether they are claiming an exemption under Rule 506(c).
?Rule 144A
Rule 144A would be revised to permit securities to be offered under Rule 144A to persons other than qualified institutional buyers?(www.practicallaw.com/1-382-3730) (QIBs), including with the use of general solicitation or general advertising, if those securities are actually sold only to investors which the seller and any person acting on behalf of the seller reasonably believe is a QIB.
?Regulation S
The proposing release indicates that global securities offerings with a Rule 144A or Rule 506 component in the US and a concurrent offshore offering conducted in compliance with Regulation S?(www.practicallaw.com/3-382-3748) will not be integrated.
?Public Comments
The SEC is accepting public comments on the proposed rules until 30 days after publication in the Federal Register.
For more on the JOBS Act , see Road Map to the Jumpstart Our Business Startups (JOBS) Act of 2012?(www.practicallaw.com/6-518-6858).
?Source: http://us.practicallaw.com/5-520-9488?source=rss
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