On July 10, 2013, the Securities and Exchange Commission (“SEC”) adopted new rules to eliminate the prohibition against general solicitation and general advertising in certain securities offerings under Rule 506(c) of Regulation D and Rule 144A under the Securities Act of 1933, as amended, as mandated by the Jumpstart Our Business Startups Act. These new rules provide significant opportunities for start-ups and other private issuers to expand the scope of marketing activities in connection with private placements under Regulation D. However, with these expanded opportunities, the SEC increased the level of diligence that issuers must undertake to verify the status of purchasers as “accredited investors” within the meaning of Rule 501. These new obligations have raised privacy and compliance concerns among issuers and investors, which, in turn, have led to an unintended consequence of chilling investment activity in the angel investor community.

On June 19, 2014, Congressmen Brad Schneider (D-IL), Steve Chabot (R-OH), and Senators Chris Murphy (D-CT), John Thune (R-SD), Pat Toomey (R-PA), and Brian Schatz (D-HI) introduced a bill entitled the Helping Angels Lead our Startups (HALOS) Actin the House and Senate, which would alter the new general solicitation rules in connection with “demo days” and similar corporate showcase events. Co-sponsor Congressman Steve Chabot said: “The last thing we should do is place new roadblocks in the way of investors looking to provide much-needed capital to startups. Unfortunately, that is exactly what new rules from the SEC would do. The HALOS Act is a bipartisan, bicameral effort to clarify these rules and preserve important forums like ‘demo days,’ so that our startup community can continue to showcase their ideas to key investors.”

Specifically, the HALOS Act provides that the definition of general solicitation under Rule 506(c) shall not apply to a presentation, communication, or event:

• Sponsored by federal, state, or local government; a college or university; non-profit; established angel group; venture forum, venture capital association, or trade association; or any other group approved by the SEC
• Whose advertising does not make any specific investment offerings
• Whose sponsor does not make investment recommendations, provide investment advice to attendees, engage in investment negotiations, or charge any entrance fees other than what covers the cost of the administrative cost of the event
• Where no specific information regarding investments is communicated by the issuer other than that they are offering securities, the type and amount of securities being offered, the amount of securities still available, and the intended use of the securities