SEC Issues Rules Lifting Ban on General Solicitation in Unregistered Fundraising

by DLA Piper

Ban on General Solicitation Lifted with Respect to Accredited Investors

Today, the Securities and Exchange Commission (SEC) adopted new rules to lift the ban on general solicitation of funds or general advertising for certain private offerings of securities.  Once the rules become effective (60 days after publication in the Federal Register), provided that certain requirements are met, startups, fund managers and other companies will be able to utilize general advertising to offer to sell stock to “accredited investors” as defined in Rule 501 of Regulation D of the Securities Act of 1933 (typically wealthy individuals with liquid net worth in excess of $1 million or investment funds; see our discussion of the recently revised accredited investor standards here as well as information on the SEC’s site 

The rules also impose new requirements on the issuing company to take steps to verify that the purchasers of such securities qualify as accredited investors.  Here are links to the SEC’s press release and Fact Sheet concerning the new general solicitation rules.  The final rules on general solicitation can be found here.  I will be posting a more detailed analysis of the new rules in the next couple of days. 

“Bad Actor” Disqualification

As we have described before, companies wanting to sell stock must either register the securities offering with the SEC or rely on an exemption from the registration requirements.  Rule 506 of Regulation D of the Securities Act of 1933 is the exemption relied upon by many private companies raising capital.  Today, the SEC also adopted rules that disqualify an issuer from selling securities in Rule 506 offerings if the issuer, its board members, and some officers, among others covered by the rule, have experienced a “disqualifying event.”  This is similar to existing “bad actor” rules, such as in the context of offerings exempt under Rule 505 of Regulation D.

Among other things, disqualifying events include criminal convictions in connection with sales of securities, making false filings with the SEC, final orders from federal banking agencies or state regulators prohibiting the issuer from engaging in the sale of securities, as well as certain SEC disciplinary orders and cease-and-desist orders.  If the issuer or one of the other covered persons is deemed a “bad actor” under this rule, the Rule 506 exemption will not be available to the company.  As a result, entrepreneurs and investors may want to be even more careful when recruiting executives and directors to join the company.  (See the SEC’s Fact Sheet regarding the “bad actor” disqualification and our prior discussion here.)  The final rules regarding the bad actor disqualification can be found here.

Additional Proposed Requirements

At the same time it issued the new rules lifting the ban on general solicitation or advertising, and the “bad actor” disqualification rules, the SEC published proposed rules that would impose additional safeguards/procedures on certain private securities offerings, including requiring an advance filing to be made with the SEC 15 days prior to beginning general solicitation of funds as well as a requirement that issuers provide the SEC with additional details about their offerings.  These proposed rules will be open to public comments for 60 days.  The SEC also issued this Fact Sheet concerning the proposed rules.

Contrary to what has been reported in a number of news outlets, the proposed rules concerning the 15 day advance filing, and the additional information that would be required to be filed with the SEC by issuers if the proposed rules were to be enacted, are not going into effect at the same time the ban on general solicitation is lifted.  Instead, the SEC has proposed these rule changes and the proposal is now subject to a 60-day public comment period.  Following this comment period, the SEC may issue final rules but the time frame for such issuance is not certain.

The proposed rules regarding additional filing requirements and other safeguards in connection with offerings conducted using general solicitation or advertising can be found here.  Those interested in providing the SEC with comments concerning the proposed rules may do so on the SEC’s web site here.

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.

© DLA Piper | Attorney Advertising

Written by:

DLA Piper

DLA Piper on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.