SEC Proposes JOBS Act Rules to Allow Advertising in Private Offerings
August 29, 2012 § 1 Comment
At its Open Meeting today, the SEC proposed rules to allow general solicitation and advertising in connection with Rule 506 private placement offerings. Rule 506 is typically relied on by hedge funds and other private pooled investment vehicles when selling interests to investors. The rules were ordered by the JOBS Act and had been delayed by the SEC a number of times.
Issuers, intending to advertise will need to take reasonable steps to verify that their investors are accredited. In determining the reasonableness of the verification steps, issuers should generally consider the facts and circumstances of the transation. This includes, among other things:
- The type of investor and type of accredited investor that the investor claims to be;
- The amount and type of information that the issuer has about the investor; and
- The nature of the issuer’s offering–i.e., the manner in which the investor was solicited and the terms of the offering, such as the minimum investment amount.
The SEC has declined to propose any specific verification methods for accredited investor status for fear that doing so “would be impractical and potentially ineffective” as well as overly burdensome on issuers.
Issuers who do not advertise will not be subject to the new verification procedures and may continue to rely on the Rule 506 exemption currently in place.
The SEC will be accepting comments on the proposal for 30 days. After the comment period, the SEC will determine whether to adopt the rules as proposed or issue a revised proposal.
- SEC Proposes Rules to Implement Jobs Act Provision About General Solicitation and Advertising in Securities Offerings (SEC Press Release August 29, 2012)
- Text of Proposed Rule (SEC Release 33-9354)
Jack G. Martel is the author of Investment Adviser Law Blog which is devoted to providing information and discussion of interest to investment advisers, private fund managers and others in the financial management industry. Jack is a partner in Ragghianti | Freitas LLP. He has over fifteen years experience in general business and securities transactions with a focus on assisting investment advisers, fund sponsors and managers in all manner of legal, regulatory and compliance issues. Jack can be reached at 415.453.9433.