Removal Of General Solicitation Requirements Triggers Additional SEC Proposals

by Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact

The SEC has adopted final rules eliminating the ban on general solicitations in Rule 506 offerings.  As a result of the magnitude of the changes, the SEC has proposed a number of amendments in conjunction with the adoption of new Rule 506(c). These amendments:

  • are intended to enhance the SEC’s understanding of the Rule 506 market by improving compliance with Form D filing requirements;
  • expanding the information requirements of Form D, primarily with respect to Rule 506 offerings, and
  • requiring the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission. 

Form D and Regulation D

With respect to Form D and to Regulation D as it relates to Form D, the SEC has  proposed to:

  • amend Rule 503 of Regulation D to require:
    • the filing of a Form D no later than 15 calendar days in advance of the first use of general solicitation in a Rule 506(c) offering; and
    • the filing of a closing Form D amendment within 30 calendar days after the termination of a Rule 506 offering;
  • amend Form D to require additional information primarily in regard to offerings conducted in reliance on Rule 506; and
  • amend Rule 507 of Regulation D to disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with all of the Form D filing requirements in a Rule 506 offering.

Legends for General Solicitation Material

In addition, in light of the ability of issuers to publicly advertise Rule 506(c) offerings, the SEC is concerned that prospective investors may not be sufficiently informed as to whether they are qualified to participate in these offerings, the type of offerings being conducted and certain potential risks associated with such offerings. To address these concerns, the SEC has proposed a new Rule 509 of Regulation D, which would require issuers to include prescribed legends in any written communication that constitutes a general solicitation in any offering conducted in reliance on Rule 506(c).

The legends would include the following:

  • The securities may be sold only to accredited investors, which for natural persons, are investors who meet certain minimum annual income or net worth thresholds;
  • The securities are being offered in reliance on an exemption from the registration requirements of the Securities Act and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act;
  • The Commission has not passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials;
  • The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and
  • Investing in securities involves risk, and investors should be able to bear the loss of their investment.

Hedge Funds, Private Equity Funds and Venture Capital Funds

Legends

Private funds, such as hedge funds, private equity funds and venture capital funds, would also be required to include a legend disclosing certain information:

  • The securities offered are not subject to the protections of the Investment Company Act;
  • If performance data is included:
    • performance data represents past performance;
    • past performance does not guarantee future results;
    • current performance may be lower or higher than the performance data presented;
    • the private fund is not required by law to follow any standard methodology when calculating and representing performance data; and
    • the performance of the fund may not be directly comparable to the performance of other private or registered funds.

Fees, Expenses and Other Information

The proposed rule would also require the legend to identify either a telephone number or a website where an investor may obtain current performance data.  The SEC also proposed to require private funds that include performance data that does not reflect the deduction of fees and expenses in their written general solicitation materials to disclose that fees and expenses have not been deducted and that if such fees and expenses had been deducted, performance may be lower than presented.

Additional Antifraud provisions Apply

The SEC has also proposed to amend Rule 156 under the Securities Act, which interprets the antifraud provisions of the federal securities laws in connection with sales literature used by investment companies, to apply to the sales literature of private funds because it believes it is important for private funds to consider the SEC’s views on the applicability of the antifraud provisions to their sales literature.

Filing of General Solicitation Materials

As the SEC believes it will need to be aware of developments in the Rule 506 market after the effectiveness of Rule 506(c), the SEC proposed Rule 510T to require issuers, on a temporary basis, to submit any written general solicitation materials used in their Rule 506(c) offerings to the SEC no later than the date of the first use of these materials. The materials would be required to be submitted through an intake page on the SEC’s website. The SEC has not proposed, at this time, that these materials would be available to the public.  Compliance with proposed Rule 510T would not be a condition of Rule 506(c).  Rule 510T is proposed as a temporary rule that will expire two years after the effective date of proposed Rule 510T.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Stinson Leonard Street - Dodd-Frank and the Jobs Act | Attorney Advertising

Written by:

Stinson Leonard Street - Dodd-Frank and the Jobs Act
Contact
more
less

Stinson Leonard Street - Dodd-Frank and the Jobs Act on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.