Corporate & Securities Law Alert July 2013 - SEC Final Rule Eliminates Advertising Ban in Rule 506 Offerings


On July 10, 2013, the Securities and Exchange Commission (“SEC”) released its long-awaited rules ending an 80-year ban on “general solicitation” by issuers conducting private placements. The rules, contained in an amendment to Rule 506 under Regulation D (“Amendment”), were enacted to implement Section 201(a) of the Jumpstart Our Business Startups Act. Issuers are now free to raise unlimited amounts of capital by advertising their securities offerings anywhere, including newspapers, Twitter and Facebook, so long as all investors are accredited and so long as issuers follow new SEC requirements by confirming the accredited investor status of all investors participating in the offering.

Issuers must confirm accredited investor status by taking “reasonable steps to verify” this status either by applying a “principles-based approach” or through a non-exclusive list of methods established by the Amendment. Issuers relying on the principles-based approach need to consider various factors to help them determine the reasonableness of the steps they can take to verify the investor’s accredited status. These factors include the following...

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