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“Are We There Yet”: Permitting General Solicitation or General Advertising in Rule 506 Private Placements to Accredited Investors

05.22.13

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the “JOBS Act”). Section 201(a)(1) of the JOBS Act provides that the Securities and Exchange Commission amend Rule 506 of Regulation D of the Securities Act of 1933, as amended, to make the prohibition against general solicitation or general advertising contained in Rule 502(c) inapplicable to offers and sales under Rule 506, provided that all purchasers are accredited investors. More on the JOBS Act may be viewed here (PDF). Less than five months later, on Aug. 29, 2012, the SEC issued a proposed rule (subject to comments) that included proposed amendments to Rule 506 to implement Section 201(a)(1) of the JOBS Act. As directed by the JOBS Act, the proposed amendment to Rule 506 provides that the prohibition against general solicitation and general advertising contained in Rule 502(c) of Regulation D not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors. The proposed amendment to Rule 506 also required that, in Rule 506 offerings that use general solicitaiton or general advertising, the issuer take reasonable steps to verify that purchasers of the securities are accredited investors. The full text of the proposed amendments may be accessed here (PDF).

OUR TAKE: The SEC’s prohibition against general solicitation or general advertising in Rule 506 Private Placements to accredited investors appears to be fading away.

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