SEC Approves Significant Changes to Private Offering Rules
Thursday, July 25, 2013
"On July 10 the SEC approved a final rule modifying Rule 506 of
Regulation D to permit issuers to use general solicitation and general
advertising to offer their securities provided that:
- The issuer takes reasonable steps to verify that the investors are accredited investors.
- All purchasers of the securities fall within one of the categories of
persons who are accredited investors under an existing rule (Rule 501 of
Regulation D) or the issuer reasonably believes that the investors fall
within one of the categories at the time of the sale of the securities.
SEC acted pursuant to direction from Congress in the Jumpstart Our
Business Startups Act (JOBS Act) in order to make it easier for a
company to find investors and thereby raise capital.
determination of the reasonableness of the steps taken to verify an
accredited investor is an objective assessment by an issuer. An issuer
is required to consider the facts and circumstances of each purchaser
and the transaction. The final rule provides a non-exclusive list of
methods that issuers may use to satisfy the verification requirement for
individual investors, including:
- Reviewing copies of any IRS form
that reports the income of the purchaser and obtaining a written
representation that the purchaser will likely continue to earn the
necessary income in the current year.
- Receiving a written
confirmation from a registered broker-dealer, SEC-registered investment
adviser, licensed attorney, or certified public accountant that such
entity or person has taken reasonable steps to verify the purchaser's
- Under existing Rule 501, a person qualifies as an accredited investor if he or she has either:
An individual net worth or joint net worth with a spouse that exceeds
$1 million at the time of the purchase, excluding the value (and any
related indebtedness) of a primary residence.
- An individual annual
income that exceeded $200,000 in each of the two most recent years or a
joint annual income with a spouse exceeding $300,000 for those years,
and a reasonable expectation of the same income level in the current
The existing provisions of Rule 506 as a separate exemption
are not affected by the final rule. Issuers conducting Rule 506
offerings without the use of general solicitation or general advertising
can continue to conduct securities offerings in the same manner and
aren't subject to the new verification rule.
For more information,
see the SEC Fact Sheet: Eliminating the Prohibition on General
Solicitation and General Advertising in Certain Offerings SEC Open
Meeting, July 10, 2013, http://www.sec.gov/news/press/2013/2013-124-item1.htm, or the 116 page final rule www.sec.gov/rules/final/2013/33-9415.pdf. ”