SEC Proposes Amendments to Permit General Solicitation and General Advertising in Private Placements Under Rule 506 of Regulation D and Rule 144A

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The Jumpstart Our Business Startups Act (JOBS Act) enacted on April 5, 2012, directed the Securities and Exchange Commission (SEC) to eliminate the prohibition against general solicitation and general advertising in securi ties offerings conducted pursuant to Rule 506 of Regulation D or Rule 144A promulgated under the Securities Act of 1933 (Securities Act). On August 29, 2012, the SEC proposed amendments to its rules to implement that mandate. As intended by the JOBS Act, these proposed amendments would make it easier for issuers to raise capital for potential offerings and sales of securities made under Rule 506 and Rule 144A.

The proposed amendments would create a new Rule 506(c) permitting an issuer to conduct an offering using general solicitation and general advertising, provided that all purchasers of the securities in that offering are “accredited investors,” and the issuer of the securities takes reasonable steps to verify that all purchasers of the securities are accredited investors. Under the proposed amendments to Rule 144A, offers made pursuant to Rule 144A by the financial intermediaries who buy securities from an issuer and, in turn, sell such securities under Rule 144A to qualified institutional buyers (QIBs) by means of general solicitation and general advertising, would fall within the exception from registration found in Section 4(a)(1), provided that the actual purchasers were QIBs or persons reasonably believed to be QIBs.

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