The text of S. 2498, introduced by Senator Murphy in late June, was finally released. The bill is titled the “HALOS Act”, or “Helping Angels Lead our Startups Act.” Angel investors have expressed concerns regarding the definition of the term “general solicitation” following the adoption of Rule 506(c), which permits issuers to use general solicitation in connection with certain offerings. Specifically, angel investors have noted that there is a lack of certainty regarding the types of communications that might be deemed to constitute a general solicitation and, if an issuer uses general solicitation, it must undertake certain additional investor verification procedures to ensure that purchasers in Rule 506 offerings are “accredited investors.”
The proposed bill would exclude certain presentations from constituting a general solicitation if such presentations are made by or on behalf of an issuer at an “event (1) sponsored by (A) the United States or any territory thereof, by the District of Columbia, by any State, by a political subdivision of any State or territory, or by any agency or public instrumentality of any of the foregoing; (B) a college, university, or other institution of higher education; (C) a nonprofit organization; (D) an angel investor group; (E) a venture forum, venture capital association, or trade association; or (F) any other group, person or entity as the Securities and Exchange Commission may determine by rule; (2) where any advertising for the event does not reference any specific offering of securities by the issuer; (3) the sponsor of which—(A) does not make investment recommendations or provide investment advice to event attendees; (B) does not engage in an active role in any investment negotiations between the issuer and investors attending the event; and (C) does not charge event attendees any fees other than administrative fees; and (4) where no specific information regarding an offering of securities by the issuer is communicated or distributed by or on behalf of the issuer, other than–(A) that the issuer is in the process of offering securities or planning to offer securities; (B) the type and amount of securities being offered; (C) the amount of securities being offered that have already been subscribed for; and (D) the intended use of proceeds of the offering.
Historically, the SEC Staff has provided guidance in the form of no-action letters that address the types of communications that might be considered to constitute a “general solicitation” or “general advertising.” The focus in such letters generally has been on whether communications were bilateral or, in other words, addressed to a specific person or group of persons with which the issuer or the issuer’s financial intermediary had a pre-existing relationship, as compared to communications that were general, not targeted, communications.