The SEC has amended Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 (Securities Act) to (1) permit, in certain circumstances, an issuer to engage in general solicitation and general advertising in connection with Rule 506 and Rule 144A offerings (General Solicitation Rules) and (2) disqualify securities offerings involving certain “felons” and other “bad actors” from relying on Rule 506 of Regulation D (Bad Actor Rules), whether or not the issuer is relying on the new General Solicitation Rules. These rules will take effect on September 23, 2013 – 60 days after their publication in the Federal Register. The SEC also has proposed rules that are intended to enhance the SEC’s ability to monitor how the General Solicitation Rules will affect the private offering market and to provide additional investor protection safeguards (Proposed Rules). The new General Solicitation Rules and the Bad Actor Rules are discussed below. The Proposed Rules will be addressed in a separate OnPoint.
Permitting General Solicitation and General Advertising in Rule 506 Offerings -
Background: The Pre-Existing Rule 506(b) Safe Harbor Remains Available -
Many U.S. private placements rely on Rule 506(b), a non-exclusive safe harbor under Section 4(a)(2) of the Securities Act, which exempts transactions by an issuer “not involving any public offering” from the registration requirements of Section 5 of the Securities Act. The SEC has retained, in its current form, the existing Rule 506(b) safe harbor as a separate exemption that continues to prohibit general solicitation or general advertising. Rule 506(c) represents a separate, but related, safe harbor under Rule 506 that permits an issuer to engage in general solicitation and general advertising (such as mass mailings, emails, public websites, social media, print media and broadcast media), subject to the conditions described further below.
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