In July 2013 the Commission finally approved amendments to its rules to allow general solicitations in Rule 506 and 144A offerings, as contemplated by the JOBS Act. The effective date of the amendments is September 23, 2013. The vote was 4-1 with Commissioner Aguilar dissenting on grounds that the amendments as formulated compromised investor protection. The Commission adopted the rule amendments substantially as proposed, except that, as requested by many commenters, it added a non-exclusive list of methods that issuers may use to satisfy the requirement of the amended rules that the issuer take reasonable steps to verify that purchasers are accredited investors. Simultaneously, the Commission adopted previously proposed rules (called for by the Dodd-Frank Act) disqualifying securities offerings involving “bad actors” from relying on Rule 506 of Regulation D. In addition, the SEC concurrently proposed rules it says are designed to augment investor protection in Regulation D offerings and enhance the Commission’s ability to evaluate development of market practices in Rule 506 offerings. The effective date of the “bad actor” provisions is September 23, 2013. The comment period on the proposals to augment investor protection expires September 23, 2013.
Under the 2013 amendments, issuers may make a general solicitation in connection with an offering under Rule 506 provided the issuer takes reasonable steps to verify that all purchasers in the offering are accredited investors, all of the actual purchasers are accredited investors or the issuer reasonably believes all of the investors are accredited investors, and the other terms of Rule 506(c) are satisfied.
Similar changes are made to Rule 144A so that securities may be offered under Rule 144A to non-QIBs, provided the securities are sold only to persons the seller reasonably believes are QIBs.
The general solicitation prohibition will remain in effect for offerings under revised Rule 506(b), most other offerings under Regulation D, as well as private placements under Section 4(a)(2) of the Securities Act, and resales under the so-called Section “4(1½)” exemption.
The amendments to Rule 506 represent a significant change to this Securities Act exemption. The proscription against general solicitation has been a feature of the exemption for many years. It is likely that if it had not been required by the JOBS Act, the Commission would not have eliminated the general solicitation ban in Rule 506 offerings, at least not anytime soon.
This excerpt appears from Mr. Wolff’s forthcoming book to be entitled Emerging Trends in Securities Law 2013-2014 (Thomas Reuters 2013).