On April 5, 2012, the Jumpstart Our Business Startups Act (“JOBS Act”) became effective. The JOBS Act mandated, among other things, that the Securities and Exchange Commission (“SEC”) amend Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933, as amended (“Securities Act”) to permit general solicitation and general advertising (collectively “general solicitation”) in connection with certain “private” offerings of securities. The JOBS Act also mandated that the amendments to Rule 506 require issuers to take reasonable steps to verify that purchasers of the securities are accredited investors, using methods determined by the SEC. The SEC proposed such amendments on August 29, 2012 (“Proposing Release”).
Specifically, if adopted, the proposed amendments would:
- permit general solicitation in securities offerings under new Rule 506(c) of Regulation D provided that all purchasers are “accredited investors” as defined in Rule 501(a) of Regulation D;
- provide that issuers must take “reasonable steps” to verify the accredited status of investors as a condition of the exemption in Rule 506(c) offerings in which general solicitation is used. The verification requirement would be in addition to the requirement that purchasers be accredited investors: it is a condition to the Rule 506(c) safe harbor even if all the purchasers in fact meet the standards of one or more of the enumerated categories in the Rule 501 definition of accredited investor, or the issuer reasonably believes that they meet them, unless the issuer has actual knowledge that an investor meets such requirements...
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