Today is a big day for issuers seeking to raise capital in private placements. For 80 years, issuers have been constrained in their private capital raising efforts: allowed only to reach out to those potential investors with whom the issuer or the broker dealer engaged to assist with the offering have a pre-existing relationship. Today, thanks to the JOBS Act, all that changes, as the SEC’s rules allowing issuers to generally solicit go into effect. The implication of choosing to generally solicit under new Rule 506(c) is that issuers must take reasonable steps to verify the accredited investor status of potential investors. The new rules include a non-exclusive list of steps that an issuer can take that will be deemed to be reasonable, including reviewing documentation evidencing net income or net worth itself or engaging a regulated entity (registered broker dealer, registered investment adviser, lawyer, or CPA) to do the review on its behalf. As a result, SecondMarket (a registered broker-dealer) is offering a general solicitation solution that allows an issuer to offload much of the administration burden involved in closing a Rule 506(c) private placement – on-boarding potential investors, verifying their accredited investor status by through manual review of documents uploaded onto our platform, electronic transaction document execution, and funds transfer. More details and a cool presentation showing our product are available here: https://www.secondmarket.com/education/avp. At the end of the verification process, we will provide the issuer with a report for their files that certifies which investors were determined to be accredited. We will also maintain all materials provided by investors for three years in accordance with FINRA’s books and records requirements. As the day progresses, I am seeing a growing range of funds and startups taking advantage of the ability to publicly discuss the fact that they are raising capital. It is so exciting to see these issuers take the first steps into previously forbidden territory! The private placement market will never be the same.
Annemarie Tierney is General Counsel at SecondMarket Holdings, Inc.