United States: SEC Allows General Solicitation In Offerings Of Unregistered Securities Under Regulation D

Last Updated: October 8 2013
Article by Etahn M. Cohen

The SEC on July 10, 2013 amended Regulation D to allow the use of general solicitation in certain Rule 506 offerings of securities not registered under the Securities Act of 1933. This long awaited amendment to Regulation D required by the Jumpstart Our Business Startups Act (JOBS Act) becomes effective on September 23, 2013. Regulation D sets forth specific procedures which, if complied with, exempt the offer and sale of securities from the registration requirements of Section 5 of the Securities Act of 1933. Compliance with Regulations D requires compliance with the rules governing integration of offerings, information to be disclosed, manner of sale, number and type of purchasers and in some cases a limitation on the dollar amount of securities sold as well as the timely filing of a Form D. Regulation D offerings, although exempt from registration requirements, remain subject to the anti-fraud and civil liability provisions of the Securities Act of 1933.

Rule 506(c) Offerings

This amendment to Regulation D, by inserting Rule 506(c), created a special class of Regulation D offerings where the use of general solicitation and general advertising in the offer and sale of securities is allowed. The additional requirements that distinguish these offerings from the traditional Rule 506 offerings are that:

(1) all the purchasers must be accredited investors, as defined in Regulations D, and

(2) the issuer has to have taken reasonable steps to verify that all the purchasers are accredited investors.

The SEC left intact existing Rule 506(b) providing for the private offering and sale of securities without general solicitation which offering could include up to 35 non-accredited investors. Other than the lifting of the prohibition on general solicitation, the provisions of Regulation D applicable to Rule 506 offerings in general remain in effect for Rule 506(c) offerings.


This monumental change in the allowable marketing practices for unregistered securities will permit start-ups, small businesses, private equity funds, hedge funds and other issuers of unregistered securities to use the internet, email, social media, radio, television, mass mailings or even billboards to advertise the sale of securities if the issuers are willing to limit their offering to accredited investors. The only requirements on these offering will be the usual restrictions of Rule 506 offerings and the additional requirements for Rule 506(c) offerings set forth above. However, given that general solicitation of unregistered securities was never allowed before, the ability to use advertising, while available commencing September 23, 2013, will require a learning process as issuers of securities find ways to use this new found freedom in a manner that meaningfully enhances the capital raising process.


Rule 506(c) offerings require the issuer take reasonable steps to verify that all the purchasers are accredited investors. The final rule amendment, in reaction to criticism of the initial proposed rule amendment, includes a non-exclusive list of methods that an issuer can use that will be deemed reasonable steps to verify that the purchasers who are natural persons are indeed accredited investors.

  • When accredited investor status is based on income, reviewing any Internal Revenue Service form that reports the purchaser's income for the two most recent years (including, but not limited to, Form W-2, Form 1099, Schedule K-1 to Form 1065, and Form 1040) and obtaining a written representation from the purchaser that he or she has a reasonable expectation of reaching the necessary income level for the current year;
  • When accredited investor status is based on net worth, reviewing one or more of the following types of documentation dated within the prior three months and obtaining a written representation from the purchaser that all liabilities necessary to make a determination of net worth have been disclosed:

(1) With respect to assets: bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments, and appraisal reports issued by independent third parties; and

(2) With respect to liabilities: a credit report from at least one of the nationwide consumer reporting agencies; or

  • Obtaining a written confirmation from one of the following entities that such entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor:

(1) A registered broker-dealer;

(2) An investment adviser registered with the SEC;

(3) A licensed attorney who is in good standing; or

(4) A certified public accountant who is duly registered and in good standing.

  • In regard to any person who purchased securities in an issuer's Rule 506(b) offering as an accredited investor prior to September 23, 2013 and continues to hold such securities, for the same issuer's Rule 506(c) offering, obtaining a certification by such person at the time of sale that he or she qualifies as an accredited investor.

Disqualification of Bad Actors

Section 926 of the Dodd-Frank Act required the SEC to promulgate rules to exclude issuers associated with certain bad actors from using Regulation D to sell securities. In a separate release also issued on July 10, 2013, the SEC adopted new Rule 506(d) which disqualifies issuers from using Rule 506 to sell securities when a covered person has been the subject of a disqualifying event. Such covered persons include the issuer; any director, executive officer, other officer participating in the offering; any general partner or managing member of the issuer; any beneficial owner of 20% or more of the issuer's outstanding voting equity securities; any promoter connected with the issuer in any capacity at the time of such sale; any investment manager of an issuer that is a pooled investment fund; any person that has been or will be paid for solicitation of purchasers; and certain others. Disqualifying events include, among others, being convicted of any felony or misdemeanor in connection with the sale of any security; being subject to any order of any court or state securities commission that restrains such person from engaging any conduct in connection with the sale of any security; or being subject to certain orders of the SEC.

Rule 506(c), while only applying to disqualifying events occurring on or after September 23, 2013, requires disclosure of events that would have disqualified the issuer from using Regulation D if they have occurred on or after September 23, 2013.

Practical Considerations

Exclusion of Non-Accredited Investors. With this change the offering of securities under Rule 506 becomes even less likely to include non-accredited investors. Currently, most issuers do not offer securities under Rule 506 to unaccredited investors to avoid the need to provide the more elaborate disclosure document required when the purchasers include non-accredited investors.

With this new amendment, the case for not selling securities under Rule 506 to non-accredited investors becomes even stronger.

Updated Subscription Documents and Procedures. Subscription documents will need to be updated to include the certifications and other documentation required for the safe harbor methods of verifying accredited investor status. Few issuers will be willing to use methods other than the safe harbors except with investors with which the issuer has a long history. The SEC has stated that it does not believe that an issuer will have taken reasonable steps to verify accredited investor status if it 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.

While the SEC did not indicate that there was any change in how accredited investors status in traditional Rule 506(b) offerings should be determined, it remains to be seen whether the increased verification requirements of Rule 506(c) offerings using general solicitation will cause traditional Rule 506(b) offerings without public solicitation to continue to rely on less due diligence to ascertain an investor's accredited investor status. Moreover, many Rule 506(b) offerings will require the additional information required by Rule 506(c) to allow them at a later date to use general solicitation if the market conditions seem appropriate.

Need to Verify No Bad Actors. The bad actor disqualification provisions of Rule 506(d) will require that issuers conduct due diligence on their officers, directors and any solicitors to determine that they do not disqualify the offering from using Regulation D. Accordingly, agreements with solicitors will need to be updated to cover the bad actor disqualifications of Rule 506(d).

The Need for Careful Recordkeeping. The documentation of an investor's accredited investor status will need to be retained to later prove that the offering was entitled to the Rule 506(c) exemption from registration. The issuer must show it took reasonable steps to verify accredited investor status and not just that the investor was in fact an accredited investor. Additionally, the due diligence to ascertain that no bad actors were involved in the offering will also need to be retained.

Advertisements Must be Carefully Reviewed. Advertising, even if allowed, will still be subject to various rules. In terms of securities law compliance, the advertising will need to be carefully scrutinized so that it is not deemed to be misleading or to fail to disclose material information. Additionally, telemarketing and email solicitations have other laws that govern their use for advertising generally such as the FTC's Telemarketing Sales Rule and the CAN-SPAM Act.

General Solicitation Limits the Use of Other Exemptions. None of the other exemptions from registration for the offer and sale of securities besides Rule 506(c) allow for general solicitation.

Consequently, a failure to strictly comply with the terms of the terms of Rule 506(c) will leave an offering where general solicitation was used with no other paths to asserting an exemption from the registration requirements of the Securities Act of 1933. Consequently, the use of Rule 506(c) requires heightened due diligence and compliance vigilance on the part of the issuer because there is no back-up position.

Proposed Additional Amendments to Regulation D

The third release SEC issued on July 10, 2013 was a set of additional proposed amendments to Regulation D. The stated purposes of these amendments are investor protection and to allow evaluation of the development of the market for unregistered securities offered through general advertisements or other types of general solicitations. First, the amendment would require a filing of a Form D report of the intent to use general solicitation 15 days prior to its use. Currently, a Form D is only required to be filed within 15 days of the first sale of securities in the offering. Second, the amendment would require substantial additional information about the offering be included in the Form D. Additionally, general solicitations taking advantage of Rule 506(c) would be required to place a prescribed legend on all such general solicitations. Additionally, as a temporary measure, advertising materials would need to be filed with the SEC. Many commentators have already reacted negatively to these proposed amendments because the additional requirements are seen by many as inhibiting capital formation by making Regulation D less user-friendly for small issuers.


While advertising may be used in Regulation D offerings come September 23, 2013, it must be used carefully. Recordkeeping and due diligence on the personnel connected with the issuer and the purchasers have become more important when using Regulation D.

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.

Similar Articles
Relevancy Powered by MondaqAI
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Lowndes, Drosdick, Doster, Kantor & Reed, P.A.
Related Articles
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions