Earlier this month the SEC formally adopted rules which removed the ban on advertising – or general solicitation – on private placements. With the publishing of the final rules in the Federal Register the regulations take effect 60 days from the date of publishing, being September 23, 2013.
Private Placements or equity offerings to “accredited investors” are predicted to boom by some as the number of potential accredited investors in the United States, far outweighs actual active high net worth investors. While estimates vary, the range of accredited investors go from 5 Million up to 10 Million individuals with only a small percentage participating in private placements. Crowdfunding platforms may now leverage the efficiency of technology to post investments and then promote these offerings via various advertising vehicles.
Accredited investors are individuals with a net worth in excess of $1 Million outside their primary residence or alternatively an annual income of $200,000 ($300,000 if a married couple).
The rules were signed into law with the Jumpstart Our Business Startups Act of 2012, or Jobs Act, which was signed by President Obama in April of last year. The SEC has been deliberating regarding final implementation up until July 10th.
Title II of the Jobs Act deals specifically with General Solicitation which may impact the efficacy of crowdfunding for Private Placements. The SEC has still not finalized regulations regarding Title III which addresses popular crowdfunding or crowdfunding for the masses.
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 230, 239 and 242
[Release No. 33–9415; No. 34–69959; No.
IA–3624; File No. S7–07–12]
Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
SUMMARY: We are adopting amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act. The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors. The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the verification requirement for purchasers who are natural persons. The amendment to Rule 144A provides that securities may be offered pursuant to
Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers. We are also revising Form D to require issuers to indicate whether they are relying on the provision that permits general solicitation or general advertising in a Rule 506 offering. Also today, in a separate release, to implement Section 926 of the Dodd-
Frank Wall Street Reform and Consumer Protection Act, we are adopting amendments to Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if ‘‘felons and other ‘bad actors’ ’’ are participating in the Rule 506 offering. We are also today, in a separate release, publishing for comment a number of proposed amendments to Regulation D, Form D and Rule 156 under the Securities Act that are intended to enhance the Commission’s ability to evaluate the development of market practices in Rule 506 offerings and address certain comments made in connection with implementing Section 201(a)(1) of the Jumpstart Our Business Startups Act.
VerDate Mar<15>2010 17:22 Jul 23, 2013 Jkt 229001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 E:\FR\FM\24JYR4.SGM 24JYR4 emcdonald on DSK67QTVN1PROD with RULES444772 Federal Register/ Vol. 78, No. 142 / Wednesday, July 24, 2013 / Rules and Regulations
1 17 CFR 230.144A.
2 17 CFR 239.500.
3 17 CFR 230.500.
4 17 CFR 230.501.
5 17 CFR 230.502.
6 17 CFR 230.506.
7 17 CFR 230.500 through 230.508.
8 15 U.S.C. 77a et seq.
9 17 CFR 242.101.
10 17 CFR 242.102.
11 17 CFR 242.104.
12 17 CFR 242.100 through 242.105.
13 15 U.S.C. 78a et seq.
14See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33–
9354 (Aug. 29, 2012) [77 FR 54464 (Sept. 5, 2012)] (the ‘‘Proposing Release’’).
15Public Law 112–106, sec. 201(a), 126 Stat. 306, 313 (Apr. 5, 2012).
16The Commission adopted Regulation D in 1982 as a result of the Commission’s evaluation of the impact of its rules on the ability of small businesses to raise capital. See Revision of Certain Exemptions From Registration for Transactions Involving Limited Offers and Sales, Release No. 33–6389 (Mar. 8, 1982) [47 FR 11251 (Mar. 16, 1982)]. Over the years, the Commission has revised various
provisions of Regulation D in order to address, among other things, specific concerns relating to facilitating capital-raising as well as abuses that have arisen under Regulation D. See, e.g., Additional Small Business Initiatives, Release No.
33–6996 (Apr. 28, 1993) [58 FR 26509 (May 4, 1993)] and Revision of Rule 504 of Regulation D, the ‘‘Seed Capital’’ Exemption, Release No. 33–7644 (Feb. 25, 1999) [64 FR 11090 (Mar. 8, 1999)].
17The definition of the term ‘‘accredited investor’’ that is applicable to Rule 506 is set forth in Rule 501(a) of Regulation D [17 CFR 230.501(a)] and includes any person who comes within one of the definition’s enumerated categories of persons, or whom the issuer ‘‘reasonably believes’’ comes within any of the enumerated categories, at the time of the sale of the securities to that person. For
natural persons, Rule 502(a) defines an accredited investor as a person: (1) Whose individual net worth, or joint net worth with that person’s spouse,
exceeds $1 million, excluding the value of the person’s primary residence (the ‘‘net worth test’’); or (2) who had an individual income in excess of
$200,000 in each of the two most recent years, or joint income with that person’s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year (the ‘‘income test’’). Although the Dodd-Frank Act did not change the amount of the $1 million net worth test, it did change how that amount is calculated—by excluding the value of a person’s primary residence. This change took effect upon the enactment of the Dodd-Frank Act. In December 2011, we amended Rule 501 to incorporate this change into the definition of accredited investor. See Net Worth
Standard for Accredited Investors, Release No. 33– 9287 (Dec. 21, 2011) [76 FR 81793 (Dec. 29, 2011)]. 18 17 CFR 230.144A(d)(1). 19The term ‘‘qualified institutional buyer’’ is defined in Rule 144A(a)(1) [17 CFR 230.144A(a)(1)] and includes specified institutions that, in the aggregate, own and invest on a discretionary basis at least $100 million in securities of issuers that are not affiliated with such institutions. Banks and other specified financial institutions must also have a net worth of at least $25 million. A registered broker-dealer qualifies as a QIB if it, in the aggregate, owns and invests on a discretionary basis
at least $10 million in securities of issuers that are not affiliated with the broker-dealer.
20 15 U.S.C. 77d(a)(2).
21 15 U.S.C. 77e.
DATES: The final rule and form amendments are effective on September 23, 2013.