UpdateIn a previous article on General Solicitation under the JOBS Act, I discussed the groundbreaking changes mandated by Section 201 of the Jumpstart Our Business Startups (JOBS) Act, passed by Congress and signed by President Obama in April 2012.  Traditionally, a key requirement of private placements of securities was a prohibition on all forms of general advertising and general solicitation. Indeed, the definition of a private placement is an offering of securities by the issuer in a transaction not involving a public offering, and since 1935 the SEC has taken the position that general advertising and general solicitation is not consistent with an offering being a private placement.  Since then general solicitation of accredited investors has not been permitted in private placements under Rule 506.

General Solicitation of Accredited Investors in Rule 506 Private Placements

Section 201 of the JOBS Act directed the SEC to adopt rules permitting general solicitation and general advertising in private placements to accredited investors under Rule 506 of Regulation D.  In August 2102, the SEC proposed the changes to Rule 506 that were mandated by the JOBs Act.  On July 3, 2013 the SEC announced that it would be holding an open meeting on July 10 to consider whether to adopt these rules. Final rules were adopted on that date, and are discussed in detail in a separate article on general solicitation and general advertising in private placements to accredited investors under Rule 506 of Regulation D.   The new rules will become effective on September 23, 2013, 60 days after their publication in the Federal Register.

“Bad-Boy” restrictions under Rule 506: Dodd-Frank Amendments

In addition, at the open meeting the SEC will also consider certain other rule changes, including proposed regulations mandated by the Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required the SEC to adopt rules that disqualify securities offerings involving certain felons and other bad actors from reliance on Rule 506.  In Securities Act Release No. 33-9211 (May 25, 2011), the SEC proposed amendments to Rule 506 to implement these requirements, which previously were only applicable to offerings under Rule 505 and Regulation A.

Equity Crowdfunding Rules: Still waiting

Unfortunately, the SEC has yet to propose the highly anticipated rules under Title III of the JOBs Act, creating a private placement exemption for equity crowdfunding through broker-dealers and registered crowdfunding portals.