United States: SEC Proposes Rules To Eliminate Ban On General Solicitation And Advertising In Certain Private Offerings

On April 5, 2012, the U.S. enacted the Jumpstart Our Business Startups Act (the "JOBS Act"), a series of regulatory reforms aimed at, among other things, easing the capital formation process in private offerings not requiring registration with the Securities and Exchange Commission (the "SEC"). Issuers privately placing securities in offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act of 1933 (the "Securities Act") and Rule 144A under the Securities Act have historically been prohibited from using general solicitation or general advertising to market their securities in offerings conducted under those rules.

Section 201(a) of the JOBS Act directed the SEC to amend its rules to remove the prohibition on general solicitation and general advertising in securities offerings conducted pursuant to Rule 506 and Rule 144A, provided that (a) in the case of offerings pursuant to Rule 506 all purchasers of the securities are accredited investors and the issuer has taken reasonable steps to verify that all purchasers of the securities are accredited investors and (b) in the case of offerings pursuant to Rule 144A all purchasers of the securities are persons reasonably believed to be qualified institutional buyers ("QIBs").

On August 29, 2012, as mandated by the JOBS Act, the SEC proposed amendments to Rule 506 and Rule 144A under which domestic and foreign issuers would be permitted to use general solicitation and general advertising to solicit U.S. investors for either type of offering. The SEC seeks public comments on the proposed rules for 30 days following the date of their publication in the Federal Register. Following the review of comments, the SEC will determine whether to adopt the proposed rules.

Until the proposed rules are adopted by the SEC, the current ban on general solicitation and general advertising in private offerings under the Securities Act remains in effect. Once the proposed rules are adopted as proposed, issuers seeking to raise capital will be permitted to communicate information regarding private securities offerings to a expanded pool of potential U.S. investors.

The proposed rules are available at: http://www.sec.gov/rules/proposed/2012/33-9354.pdf.

Proposed Amendments to Rule 506

Removal of the Ban on General Solicitation and Advertising

Existing Rule 506 provides a "safe harbor" exemption from the registration requirements under the Securities Act for private placements by an issuer. Rule 506 allows an issuer to raise an unlimited amount of capital from an unlimited number of accredited investors and up to 35 other sophisticated persons conditioned in part on neither the issuer nor any person acting on its behalf making offers or sales by any form of general solicitation or general advertising. Under Rule 506, an accredited investor includes a person reasonably believed to be an accredited investor. The proposed amendment to Rule 506 would add a new and separate exemption, Rule 506(c), which would be available to an issuer that wishes to use general solicitation and general advertising to offer securities solely to accredited investors.

Under proposed Rule 506(c), an issuer would be permitted to utilize general solicitation or advertising in connection with a Rule 506 offering, provided that:

  • the issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors;
  • at the time of the sale of the securities, all of the purchasers are, or the issuer reasonably believes them to be, accredited investors; and
  • all terms and conditions of existing Rules 501 (definitions), 502(a) (integration restriction), 502(d) (resale limitations) and 503 (notice of sales) of Regulation D must be satisfied.

Reasonable Steps to Verify Accredited Investor Status

The proposed rules do not specify the methods that an issuer must use to verify that a purchaser is an accredited investor. The SEC noted that a prescriptive rule that specifies required verification methods could be overly burdensome in some cases, by requiring issuers to follow the same steps, regardless of their particular circumstances, and ineffective in others, by requiring steps that, in the particular circumstances, would not actually verify accredited investor status. Instead, the proposed rules provide that the determination whether steps taken are reasonable would be based on a case-by-case objective determination of the facts and circumstances of each transaction. To that end, the SEC provided a nonexclusive list of factors that an issuer should consider, including:

  • the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
  • the amount and type of information that the issuer has about the purchaser; and
  • the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering and the terms of the offering, such as a minimum investment amount.

The proposed rules note that these factors interact with each other. Thus, the stronger the support is under one factor indicating that a purchaser is an accredited investor, the fewer steps would be needed by the issuer to conclude that it has taken reasonable steps to verify the purchaser's accredited investor status and vice versa. Possible verification techniques include (i) publicly available information with a local, state or federal regulatory body, (ii) third-party information, such as W-2s, that provides reasonably reliable evidence that a person is an accredited investor, or (iii) verification by a third-party, such as an accountant, attorney or broker-dealer, whom the issuer has a reasonable basis to rely upon.

As an example of application of these factors, the SEC noted that if an issuer solicits new investors through a website accessible to the general public or through a widely disseminated email or social media solicitation, the issuer would not have taken reasonable steps to verify accredited investor status if the issuer required only that a person check a box in a questionnaire or sign a form, absent other information about the purchaser indicating accredited investor status. In contrast, the SEC acknowledged that if a minimum investment amount requirement is so high such that only accredited investors could reasonably be expected to meet it, then it may be reasonable for the issuer to take no steps to verify accredited investor status other than to confirm that the purchaser's cash investment is not being financed by the issuer or by a third party.

No Changes to Reasonable Belief Standard

The SEC confirmed that, as part of its proposal, the "reasonable belief" standard incorporated in the current definition of accredited investor remains unchanged. Thus, in the event that an issuer sold securities in reliance on the new Rule 506(c) to a person who in fact was not an accredited investor, the issuer would not lose the ability to rely on the proposed Rule 506(c) exemption for that offering, so long as the issuer reasonably believed that all purchasers were accredited investors under the existing standard and had taken reasonable steps to verify their status as required under the proposed rules.

Proposed Amendment to Form D

The proposed rules also amend Form D, which issuers must file with the SEC when they rely upon the exemption provided by Regulation D. The revised form would add a separate box for issuers to check if they are claiming the new Rule 506 exemption that would permit general solicitation and general advertising.

Private Offerings Without General Solicitation

While an issuer could make a Rule 506 offering using general solicitation or general advertising if the proposed rules are adopted as proposed, the SEC confirmed that the existing safe harbor for offerings not using any general solicitation or general advertising remains unchanged and remains available as is without the need to comply with the new verification requirement.

Proposed Amendments to Rule 144A

Existing Rule 144A provides an exemption from the registration requirements under the Securities Act by permitting the offer or sale of an unlimited amount of securities to an unlimited number of QIBs or to any person whom the seller and any person acting on behalf of the seller reasonably believes is a QIB. While existing Rule 144A does not specifically include a specific prohibition on general solicitation or general advertising, the existing requirement that any "offer" or "sale" be limited to QIBs has had the same practical effect. The SEC is proposing to amend Rule 144A to no longer require that an "offer" be made only to QIBs or any person reasonably believed to be a QIB. Instead, the proposed amendment to Rule 144A will exempt offers and sales made pursuant to the terms of the exemption as long as the only "sales" made are to QIBs or any person reasonably believed to be a QIB. This change has the effect of allowing general solicitation under Rule 144A so long as actual sales are limited to QIBs and any person whom the seller and any person acting on behalf of the seller reasonably believe to be a QIB.

No Integration with Concurrent Regulation S Offering

Issuers that conduct an offering pursuant to Rule 506 or Rule 144A often conduct a simultaneous offshore offering of the issuer's securities in reliance on the exemption from registration provided by Regulation S, provided that the issuer has not engaged in any "directed selling efforts" in the United States. In the proposed rules, the SEC confirmed that, consistent with the historical treatment of concurrent Regulation S and Rule 506/Rule 144A offerings, concurrent offshore offerings that are conducted in compliance with Regulation S would not be integrated with domestic unregistered offerings that are conducted in compliance with amended Rules 506 or 144A.

Global Securities associate Richard Mo assisted in the preparation of this Client Alert.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.