As we’ve previously blogged, in July 2013 the SEC adopted rules that permit general solicitation and general advertising in connection with certain offerings of securities to accredited investors.  Yesterday, to help the markets understand some common interpretative questions associated with these new rules, the SEC issued several new Compliance and Disclosure Interpretations.  The new interpretations mainly address:

  • when and how companies may switch between “old” Rule 506(b) (no general solicitation) and new 506(c) (general solicitation permitted),
  • the need to amend Form D if such changes are made,
  • the


Continue Reading SEC Provides Interpretations on Rule 506(c)

CONTRIBUTED BY
Trent Dykes, Megan Muir and Kiran Lingam (guest contributor from SeedInvest)

I. Introduction / Background

With the passage of the JOBS Act, the regulation governing most private securities offerings is undergoing a dramatic makeover. Congress tasked the Securities and Exchange Commission (SEC) with developing new rules allowing companies to generally solicit funds, subject to restrictions as determined by the SEC. In July 2013, the SEC issued final rules on this topic and also proposed additional rules that are not yet final. Managers of incubators, accelerators, angel groups and others involved in startup capital raising have expressed great concern about how the revised regulations will affect them, particularly with respect to their public-facing events.

Whether presenting at a demo day event, angel group meetings or business plan competitions constitutes “general solicitation” is a question that has caused great concern among many angel groups, incubators and other event organizers around the country. This post is designed to provide practical tips to event organizers on how to structure their demo day, pitch event or angel group meeting event in light of new federal rules and the current regulatory landscape.

Starting today, September 23, 2013, the final rules published by the SEC in July go into effect and companies can use general solicitation (or advertising) in connection their securities offerings under the new Rule 506(c) of Regulation D of the Securities Act of 1933, adopted under Title II of the JOBS Act. However, the companies that choose to take advantage of general solicitation under the new rules will have to take steps they did not need to take in the past, including additional verification of accredited investor status. If the proposed rules go into effect, there are a further steps that would be imposed on companies choosing to generally solicit, including making advance filings of a Form D, filing with SEC the materials used in the general solicitation and including specific language (referred to as “legends”) in written solicitation materials.
Continue Reading Demo Days, Pitch Events and the New Reg D

Megan Muir.jpgCONTRIBUTED BY
Megan Muir

Earlier this summer, together with some of my partners within DLA Piper (Christopher Paci, Jason Harmon, Darryl Steinhause and Wesley Nissen), I wrote an article about new SEC regulations concerning private offerings. The final rules issued in July 2013 by the SEC go into effect on September 23, 2013. Below is a summary of the changes with respect to the disqualification of certain “bad actors” in connection with private offerings.  Also, attached is a sample Rule 506 Covered Person Questionnaire seeking information about potentially disqualified individuals and entities. The full article also contains a discussion of new rules allowing general solicitation in certain private fundraising as well as a discussion of certain proposed private offering rule changes that are not yet final. That piece may be found here.

The Dodd-Frank Act, enacted in 2010, required the SEC to adopt rules to prohibit use of the Rule 506 exemptions under Regulation D for securities offerings in which certain “bad actors” are involved, whether or not general solicitation or general advertising are used in the offering. Rule 506 is the exemption from registration requirements used in many private offerings, including most startup financings. To fulfill this Dodd-Frank requirement, the SEC has adopted rules that disqualify an issuer from selling securities in reliance upon the Rule 506 exemption if the issuer, its board members, certain of its officers and its large shareholders, among others covered by the rule, have experienced a “disqualifying event.” This is similar to existing bad actor rules, such as those found in Rule 505 of Regulation D, which relies on the disqualification provisions set forth in Rule 262 of Regulation A.

Disqualifying events include criminal convictions in connection with sales of securities, certain SEC civil and administrative actions and certain other orders from financial service industry regulatory authorities. If the issuer or other covered person is deemed a bad actor under this rule, the Rule 506 exemption will not be available to the issuer.


Continue Reading New SEC Rules Disqualifying “Bad Actors” in Private Fundraising

Megan Muir.jpgCONTRIBUTED BY
Megan Muir

Earlier this summer, together with some of my partners within DLA Piper (Christopher Paci, Jason Harmon, Darryl Steinhause and Wesley Nissen), I wrote an article about new SEC regulations concerning private offerings. The final rules issued in July 2013 by the SEC go into effect on September 23, 2013. Below is a summary of the changes with respect to general solicitation in such rules. The full article contains a discussion of other regulatory issues that should be considered and new “bad actor” rules, as well as a discussion of certain proposed private offering rule changes that are not yet final. That piece may be found here.

On July 10, 2013 the US Securities and Exchange Commission adopted much-anticipated amendments to its regulations on private offerings under Rule 506 of Regulation D of the Securities Act of 1933, as amended, that lift the more than 80-year ban on general solicitation and advertising for certain purchasers, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act (popularly called the JOBS Act).

Beginning September 23, 2013, these changes will permit issuers to use advertising and other forms of mass communication to sell securities solely to “accredited investors” under Rule 506 of Regulation D. However, these amendments also include several new requirements and procedures. You will want to be aware of these changes before you launch a general solicitation campaign.


Continue Reading New SEC General Solicitation Rules Go Into Effect

Ban on General Solicitation Lifted with Respect to Accredited Investors

Today, the Securities and Exchange Commission (SEC) adopted new rules to lift the ban on general solicitation of funds or general advertising for certain private offerings of securities.  Once the rules become effective (60 days after publication in the Federal Register), provided that certain requirements are met, startups, fund managers and other companies will be able to utilize general advertising to offer to sell stock to “accredited investors” as defined in Rule 501 of Regulation D of the Securities Act of 1933 (typically wealthy individuals with liquid net worth in excess of $1 million or investment funds; see our discussion of the recently revised accredited investor standards here as well as information on the SEC’s site http://www.sec.gov/answers/accred.htm). 

Continue Reading SEC Issues Rules Lifting Ban on General Solicitation in Unregistered Fundraising

The SEC yesterday proposed rules to permit general solicitation and general advertising in Rule 506 and Rule 144A offerings. A main requirement is that the issuer “takes reasonable steps to verify” that the purchasers are accredited investors. The model the SEC has proposed would neither mandate specific verification steps nor assure issuers and investors that adequate steps have been taken. The model will likely require issuers to obtain reliable third party information most of the time, rather than relying on questionnaires, contractual representations, or similar confirmations from a purchaser.

Continue Reading SEC Proposes General Solicitation Rules

Megan Muir.jpgCONTRIBUTED BY
Megan Muir
@megan_muir

The SEC has made official what we blogged about yesterday:  Late yesterday it removed from its agenda for today’s meeting the consideration of general solicitation in Rule 506 and Rule 144A offerings.  The SEC also released a separate meeting notice for August 29, 2012, which states it will consider whether to propose rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 and Rule 144A.

Since the SEC’s action would be to propose rules, it will
Continue Reading General Solicitation of Accredited Investors in 2013?

Earlier this month, the SEC announced that at its meeting tomorrow it would be considering rules to eliminate the prohibition against general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act. However, in response to a flurry of comments, the SEC has clarified it will not be adopting interim final rules at the meeting tomorrow and, instead, would follow the usual rulemaking process of proposing revisions to the rules, receiving public comment on the proposals, considering those comments, and then adopting final rules. This rulemaking process generally takes several month to complete.

Continue Reading SEC Rules to Permit General Solicitation Likely to Slip Further…

A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

In addition to legislative initiatives we’ve previously discussed, we continue to see efforts to relax the general solicitation prohibition in private offerings.  For example, the SEC’s Advisory Committee on Small and Emerging Companies recently made a formal recommendation that the SEC take immediate action to permit general solicitation and advertising in private offerings under Rule 506 where the securities are only sold to accredited investors.  In addition, the Managed Funds Association, an organization of investment professionals in hedge funds, funds of funds, and managed futures funds, has used the somewhat uncommon process of submitting a petition for rulemaking to the SEC, asking the SEC to eliminate the ban on general solicitation and advertising for offerings or sales of securities by “private funds.”


Continue Reading More Calls to Relax General Solicitation Rules in Private Offerings

A_Ledbetter_LR.jpgCONTRIBUTED BY
Andrew Ledbetter
andrew.ledbetter@dlapiper.com

Amid the recent flurry of House bills intended to facilitate capital formation, which we’ve discussed here and here, is the Access to Capital for Job Creators Act, H.R. 2940.  H.R. 2940 would amend Section 4(2) of the Securities Act of 1933, as amended, to exempt from SEC securities registration:

transactions by an issuer not involving any public offering, whether or not such transactions involve general solicitation or general advertising.

The bill would also require the SEC to amend Rule 506 of Regulation D to:

  • Permit general solicitation or general advertising in offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors; and
  • Require the issuer to take “reasonable steps” to verify that purchasers of the securities are accredited investors.


Continue Reading House Overwhelmingly Approves General Solicitation of Accredited Investors