Is due diligence going to get a whole lot more complicated for angel financings and fund offerings?

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In recent rule-making, the SEC, at Congress's behest, has proposed a rule that will increase due diligence requirements for Rule 506 offerings, which are is type of securities offerings most frequently used by startups for their seed and angel rounds of financing and by hedge funds and VCs. The new rule is made pursuant to Section 926 of the Dodd-Frank Act, and prohibits securities issuers from relying on Rule 506 if anyone associated with the issuer or the offering has engaged in certain "bad acts" enumerated in the rule.

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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.

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