On April 5, 2012, the Jumpstart Our Business Startups Act (the "JOBS Act") was enacted. The stated objective for the JOBS Act is to improve access to the public capital markets for startup and emerging companies and thus increase job creation and economic growth in the United States.
Title II of the JOBS Act ("Title II") mandated the Securities and Exchange Commission (the "Commission") to amend applicable rules within 90 days of its enactment (i.e., July 5, 2012) in order to eliminate the prohibitions against general solicitation or general advertising (collectively, "General Solicitation") in Rule 506 of Regulation D ("Rule 506") under the Securities Act of 1933, as amended (the "Securities Act"), and under Rule 144A under the Securities Act ("Rule 144A"). These changes are intended to allow issuers to advertise broadly when conducting private placements and thus enable them directly to reach a greater number of potential investors at lower costs without an intermediary, subject to certain requirements.
Adopted Rules
In August 2012, the Commission proposed a new Rule 506(c) and an amendment to Rule 144A to implement Title II. During an open meeting on July 10, 2013, the Commission issued two releases (33-9414 (bad actor) and 33-9415 (Rule 506, Rule 144A and Form D)) which adopted new rules (collectively, the "Adopted Rules") that:
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create new Rule 506(c) which does not prohibit General Solicitation for offers and sales of securities that otherwise comply with Rule 506, provided that all purchasers of the securities are "accredited investors" and the issuer takes "reasonable steps to verify" that the purchasers are "accredited investors";
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provide a list of four non-exclusive methods that are deemed to satisfy the verification requirement in Rule 506(c) for investors that are natural persons;
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amend Form D to add a check box to indicate whether an offering is being conducted pursuant to new Rule 506(c);
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amend Rule 144A to allow securities resold pursuant to Rule 144A to be offered to persons other than "qualified institutional buyers" ("QIBs"), including by way of General Solicitation, provided that the securities are sold only to persons that the seller (or any person acting on behalf of the seller) "reasonably believes" are QIBs; and
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create new Rule 506(d) which makes unavailable any Rule 506 exemption for a sale of securities if certain entities or persons related to the issuer and other offering participants meet the "bad actor" definition set forth in new Rule 506(d) – such definition including certain criminal convictions, court injunctions, regulatory bars and restraining orders.
For an overview of the new rules, click here.
