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News & Press: National News

SEC Approves Significant Changes to Private Offering Rules

Thursday, July 25, 2013  
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"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.

 The 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.

 

The 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 accredited status.
  • 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 year.

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. ”


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