The SEC's Investment Advisory Committee has recommended that
the SEC should require issuers relying on the exemption from the
ban on general solicitation and advertising to file a form as a
precondition for claiming the exemption, and also file with the SEC
general solicitation and general advertising material they use in
private offerings that rely on the exemption.
The committee published its recommendations on October 15, 2012 in its
report, "Recommendations of the Investment Advisory Committee
Regarding SEC Rulemaking to Lift the Ban on General Solicitation
and Advertising in Rule 506 Offerings:Efficiency Balancing Investor
Protection, Capital Formation and Market Integrity."
The committee's recommendations follow the SEC's action
on August 29, 2012 to propose rules implementing the JOBS Act mandate
to eliminate the ban on general solicitation and general
advertising in Rule 506 private placements.Lifting the ban, the
committee said, can and should be done "in a manner that
simultaneously promotes investor protection, facilitates efficient
capital formation, and provides regulators with the tools they need
to police the market effectively."
The committee suggested that the SEC "give strong
consideration" to its recommendations, including:
Require issuers intending to rely on the new JOBS Act general
solicitation exemption to file either a new "Form GS" or
a revised version of Form D as a precondition for claiming the
Require that issuers file with the SEC all solicitation
material prepared or disseminated on its behalf in a general
solicitation or advertising campaign in reliance on theexemption
through an online electronic "drop box."
Adopt a safe harbor that "provides clear and enforceable
standards" for verification, as opposed to reasonable belief,
of accredited investor standards to promote reliance on reliable
third parties, including broker-dealers, banks and licensed
Make the filing of Form D a condition for relying on the
Regulation D exemption (currently, the filing is not a condition
for relying on the Regulation D exemption).
The SEC should take steps to ensure that performance claims in
general solicitation materials "are based on appropriate
performance reporting standards."
Amend the definition of "accredited investor" to
better reflect the financial sophistication of "natural
The SEC should promptly adopt a "bad actors" rule to
disqualify felons, as required by Section 926 of the Dodd-Frank
Section 911 of the Dodd-Frank Act established the Investment Advisory Committee to advise the
SEC on regulatory priorities, the regulation of securities
products, trading strategies, fee structures, and the effectiveness
of disclosure and the integrity of the securities marketplace.The
Dodd-Frank Act authorizes the committee to submit its findings and
recommendations for review and consideration by the SEC.
Senator Carl Levin of Michigan also weighed in on the SEC's
proposed rule. In a letter dated October 5, 2012 to the SEC, he
cited two "significant flaws."The first is that the
proposed rule fails to adequately outline "reasonable
steps" necessary to be taken by the issuer to ensure that all
investors are accredited.The second is that the proposed rule fails
to meaningfully regulate permissible solicitation and advertising
so as to protect investors from deceptive advertising,
inappropriate or unfair sales tactics and investment fraud.
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
Recent statements by securities regulators emphasize that financial firms need to move beyond a "culture of compliance" to ensure that investors have a better understanding of risk and the investments they are purchasing.
A recent FINRA disciplinary action sends a strong message to broker-dealers that the development of their compliance systems—particularly with respect to email review and retention—must keep pace with the growth of their businesses.
At its Twenty-Ninth Meeting to consider rulemaking under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2012 (Dodd-Frank) on May 16, 2013, the U.S. Commodities Futures Trading Commission (CFTC) adopted three final rules that make significant progress towards completing its rulemaking agenda.