The Securities and Exchange Commission (“SEC”) yesterday adopted new rules lifting the ban on general solicitation and/or advertising for funds for certain private offerings of securities. The SEC took this action in order to implement the federal JOBS Act, which was passed by Congress in April 2012.
The SEC’s new rules become final in 60 days, following a period of public comment. Once finalized, startups, entrepreneurs, fund managers, and others will be able to utilize general advertising (e.g., in a newspaper or on a website) in an exempt offering under Rule 506 of Regulation D so long as the sale is to an “accredited investor.” Federal securities laws generally define an “accredited investor” in Rule 501 of Regulation D to include:
- a bank, insurance company, registered investment company, business development company, or small business investment company;
- an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
- a charitable organization, corporation, or partnership with assets exceeding $5 million;
- a director, executive officer, or general partner of the company selling the securities;
- a business in which all the equity owners are accredited investors;
- a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
- a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
For more information, you can find the SEC’s July 10, 2013 press release along with links to the final rules here.