The JOBS Act (the “Act”), signed into law on April 5, 2012, promises to have a significant impact on the sales of securities under federal securities laws. Currently, any issuer intending to rely on the Rule 506 exemption in an offering of securities cannot engage in general solicitation or advertising in order to attract potential investors.
The Act directs the SEC to remove this prohibition. The SEC has 90 days or until July 5, 2012 to amend Regulation D. Like other parts of the Act, the SEC has been soliciting comments from the public, in advance of the final rule making.
However, the Act does direct the SEC, at a minimum, to amend Rule 506 to allow an issuer to offer the securities through general solicitation or general advertising so long as the issuer takes “reasonable steps” to verify that all the purchasers are accredited investors.
The Act does not define this new “reasonable steps” standard or indentify what steps the issuer needs to take to “reasonably believe” that a purchaser is accredited. This will be included in the final rule on July 5, 2012. Current 506 offerings require the purchaser to attest and make the representation that they are accredited, and it is not clear if the “reasonable steps” that will need to be taken by the issuer will be more burdensome or will require additional documentation.
Until the final rules and amendments are released by the SEC, an issuer relying on Rule 506 must refrain from general solicitation or advertising, and should continue to conduct any 506 offering in the same manner as before.
Author: Jennifer Trowbridge, Stoecklein Law Group, LLP