On September 23, 2013, the final rules eliminating the prohibition on general solicitation and advertising for certain offerings under Rule 506 went into effect.
Last Monday, the 80-year ban on the use of general solicitation in certain exempt securities offerings was relaxed. General solicitation can now be used in private offerings conducted under Rule 506(c) of Regulation D and Rule 144A under the Securities Act.
Beginning in 1999 and continuing into 2000, media reports about selective disclosure of material nonpublic information by issuers raised concerns that select market professionals who were privy to this information profited at the expense of others.
The new SEC rules lifting the ban on general solicitation and general advertising in certain private offerings go into effect today, September 23, 2013.
Today is a big day for issuers seeking to raise capital in private placements. For 80 years, issuers have been constrained in their private capital raising efforts: allowed only to reach out to those potential investors with whom the issuer or the broker dealer engaged to assist with the offering have a pre-existing relationship.
Earlier this summer, together with some of my partners within DLA Piper (Christopher Paci, Jason Harmon, Darryl Steinhause and Wesley Nissen), I wrote an article about new SEC regulations concerning private offerings. The final rules issued in July 2013 by the SEC go into effect on September 23, 2013. Below is a summary of the changes with respect to general solicitation in such rules.
Privately held operating company issuers (as distinguished from private funds) should plan ahead if they intend to use general solicitation for Rule 506(c) offerings after September 23, 2013.
SEC Clarifies That Issuers May Generally Solicit Under New Rule 506(c) Without Complying with Pending Regulation D Rules
In Latham’s FAQs on the SEC’s general solicitation rules we asked whether issuers would be willing to take advantage of new Rule 506(c) after it takes effect on September 23, given the additional Regulation D requirements that the SEC has proposed but not yet adopted.
On September 23, 2013, the JOBS Act rules that roll back the 80 year old ban on the use of general advertising and public solicitation by issuers of unregistered securities will be a reality. At least it will be a reality for fund managers that do not rely on an exemption from the Commodity Futures Trading Commission.
On July 10, 2013, the U.S. Securities and Exchange Commission adopted significant amendments (PDF) to the private placement rules which will permit general solicitation and advertising in private placements under Rule 506, provided that issuers are not disqualified as “bad actors” and all the purchasers are accredited investors.