Overview - On August 29, 2012, the Securities and Exchange Commission (SEC) proposed rules to eliminate the prohibition against general solicitation and general advertising for private offerings of securities that are conducted pursuant to Rule 506 of Regulation D of the Securities Act of 1933, as amended (Securities Act) and Rule 144A of the Securities Act, provided the securities are sold to accredited investors in the case of a Rule 506 offering, and qualified institutional buyers (QIBs) in the case of a Rule 144A offering. The proposed amendments to Rule 506 and Rule 144A were mandated by Section 201 of the Jumpstart Our Business Startups Act (JOBS Act), which was signed into law on April 5, 2012.
Rule 506 of Regulation D is one of the most often used safe harbor exemptions from the registration requirements of Section 5 of the Securities Act that issuers rely upon to conduct a private offering of their securities. Under the current Rule 506, securities may be sold to an unlimited number of accredited investors, as well as up to 35 nonaccredited, but sophisticated, investors. Issuers that rely on the Rule 506 safe harbor for their private offering of securities are not currently permitted to use any form of general solicitation or general advertising when conducting such offering. This restriction is interpreted broadly and prohibits, among other things, advertisements published in newspapers and magazines, the use of publicly available websites, communications broadcast over radio and television, mass email campaigns, unrestricted websites and/or public seminars or meetings as part of an issuer’s capital raising activities.
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