This morning, the SEC adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to implement Section 201(a) of the JOBS Act.  The SEC adopted new paragraph (c) in Rule 506, which would permit the use of general solicitation and general advertising, subject to the following conditions:

  • the issuer must take reasonable steps to verify that the purchasers of the securities are accredited investors;
  • all purchasers of securities must be accredited investors, either because they come within one of the enumerated categories of persons that qualify as accredited investors or the issuer reasonably believes that they qualify as accredited investors, at the time of the sale of the securities; and
  • the conditions of Rule 501 and Rules 502(a) and 502(d) are satisfied.

The Staff indicated that "reasonable efforts" to verify investor status will be an objective determination by the issuer based on the SEC's principles-based guidance.  In its proposed rules, the SEC had noted that "reasonable efforts" to verify investor status should consider the nature of the purchaser; the nature and amount of information about the purchaser; and the nature of the offering.  In a departure from the proposed rules, the final rule will provide a non-exclusive list of factors to consider in verifying the accredited investor status of natural persons.  Following the initial proposal, many commenters had advocated that a "safe harbor" be established to establish legal certainty that the verification process had been sufficiently robust.  Including this illustrative list as part of the rule will likely prove helpful, even if it does not go as far as some commenters had requested.

In addition to the changes adopted to Rule 506, the SEC amended Rule 144A to eliminate references to "offer" and "offeree," and as a result Rule 144A will require only that the securities are sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB.  Under this amendment, resales of securities pursuant to Rule 144A could be conducted using general solicitation, so long as the purchasers are limited in this manner.

Commissioner Luis Aguilar strongly opposed the new rules, saying he was "saddened and disappointed" that the new rules did not do more to protect investors.

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 situations.

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