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SEC Releases Proposed Rules Relaxing Ban on General Solicitation

Posted in SEC

Following this morning’s meeting, the Commission has published its proposed rules:

http://www.sec.gov/rules/proposed/2012/33-9354.pdf

Summary

The SEC published its guidance today as a proposed rule, with a comment period, and not as an interim final rule.

The SEC proposes to amend Rule 506 to provide that the prohibition against general solicitation contained in Rule 502(c) shall not apply to offers and sales of securities made pursuant to Rule 506 provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify their status.

Form D will be amended so that an issuer will be required to indicate whether it has used general solicitation.

The SEC is not proposing to amend the Section 4(a)(2) exemption.

Rule 506 offerings

Release implements a bifurcated approach—that is an issuer can conduct a Rule 506 offering without general solicitation, or a Rule 506(c) offering using general solicitation

A new Rule 506(c) is introduced, which would permit general solicitation provided:  issuer takes reasonable steps to verify investor status; purchasers are accredited investors; and other conditions of Rule 501 and 502(a) and 502(d) are satisfied.

The Staff is not prescribing a verification approach, but recognizing that the reasonableness of the steps taken to verify status will be based on particular facts and circumstances.  The Staff sets out a number of measures (in the form of a non-exclusive list) that could be used in order to assess investor status.

Rule 144A

Rule 144A will be amended to remove the reference to “offer” and “offeree” from Rule 144A(d)(1), requiring only that securities be sold only to a QIB or person reasonably believed to be a QIB.

Integration

Rule 144A/Rule 506 offerings will not be integrated with contemporaneous Regulation S offerings—however, the language used in the release may not be as clear as market participants would like.