Earlier this week the SEC voted 4-1 to implement rules required by the Jumpstart Our Business Startups (JOBS) Act to remove Regulation D's prohibition on general solicitation and general advertising in offers and sales made to accredited investors under Rule 506. The proposal comes well after the July 4, 2012, deadline imposed on the SEC by the JOBS Act.
The proposed rule permits the use of general solicitations in Rule 506 offerings if:
- Each purchaser is an accredited investor or the issuer reasonably believes the purchaser is an accredited investor;
- The issuer takes reasonable steps to verify that each purchaser is an accredited investor; and
- All other terms and conditions of Rule 501, 502(a) and 502(d) are satisfied.
Issuers waiting for final rules before moving forward with general solicitations should consider the steps they will take to ensure purchasers are accredited investors. The proposed rule does not require specific “reasonable steps” to satisfy the rule; however, the proposing release describes the factors issuers should consider when determining reasonable verification of accredited investor status:
- the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
- the amount and type of information that the issuer has about the purchaser; and
- the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
The release notes at least one instance where the issuer would not be considered to have taken reasonable steps to verify accredited investor status: An issuer that solicits new investors through a website accessible to the general public or through a widely disseminated email or social media solicitation must do more than simply require a person to check a box in a questionnaire or sign a form, absent other information about the purchaser indicating accredited investor status.