SEC Lifts Rule 506 Solicitation and Advertising Ban pursuant to JOBS Act

The Securities and Exchange Commission (SEC) adopted a new rules today implementing Title II of the JOBS Act.  In essence, these new rules lift the ban on general solicitation or general advertising for certain private securities offerings for business startups, while also adopting rules to discourage fraudsters from touting the investments and to add new protections for investors.

The new rules become effective 60 days after publication in the Federal Register. During this 60 day period the rules will be subject to public comment.

Ordinarily, the offer and sale of securities require registration with the SEC.  A number of exemptions from registration exist but most of these exemptions prohibited general solicitation advertising.  Rule 506 of Regulation D for example allowed a company (issuer) to raise an unlimited amount of capital from an unlimited number of “accredited investors” and up to 35 non-accredited investors. [1]

SEC To Hold Open Meeting to Consider the Elimination of the Prohibition Against General Solicitation and Advertising For Rule 506 and Rule 144A Offerings

The Securities and Exchange Commission will hold an Open Meeting on Wednesday, July 10, 2013 at 10:00 a.m., in the Auditorium, Room L-002. (SEC’s main offices, 100 F Street, NE, Washington, DC.)

The Commission will consider whether to adopt amendments to eliminate the prohibition against general solicitation and general advertising in certain securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by Section 201(a) of the Jumpstart Our Business Startups Act.

The Commission will also consider whether to propose amendments to Regulation D, Form D and Rule 156 under the Securities Act. The proposed amendments are intended to enhance the Commission’s ability to evaluate changes in the market and to address the development of practices in Rule 506 offerings.

Finally, the Commission will consider whether to adopt amendments to disqualify securities offerings involving certain “felons and other ‘bad actors’” from reliance on the exemption from Securities Act registration pursuant to Rule 506 as mandated by Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.