Category: Rule 506

Rule 506: On December 4, 2013, the SEC updated its Compliance and Disclosure Interpretations (“C&DI’s”) including new guidance on the rules disqualifying bad actors from participating in Rule 506 offerings…

Jan312017

SEC Issues New C&DI On Abbreviated Debt Tender And Debt Exchange Offers

ABA Journal’s 10th Annual Blawg 100

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The SEC has been issuing a slew of new Compliance and Disclosure Interpretations (“C&DI”) on numerous topics in the past few months. On November 18, 2016, the SEC issued seven new C&DI providing guidance on tender offers in general as well as on abbreviated debt tender and debt exchange offers, known as the Five-Day Tender Offer. The guidance related to the Five-Day Tender Offer clarifies a previously issued January 2015 no-action letter on the subject. As I have not written on the subject of tender offers previously, I include a very high-level summary of tender offers in general and together with specific discussion on the new C&DI.

What Is a Tender Offer?

A tender offer is not statutorily defined, but from a high level is a broad solicitation made by a company or a third party to purchase a substantial portion of the outstanding debt or equity of a company. A tender

Jan102017

SEC Issues Guidance On Integration With A 506(c) Offering

ABA Journal’s 10th Annual Blawg 100

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On November 17, 2016, the SEC Division of Corporation Finance issued a new Compliance and Disclosure Interpretations (C&DI) related to the integration of a completed 506(b) offering with a new 506(c) offering. The new C&DI confirms that 506(c) offering will not integrate with a previously completed 506(b) offering.

Effective September, 2013, the SEC adopted final rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings as required by Title II of the JOBS Act. The enactment of new 506(c) resulting in the elimination of the prohibition against general solicitation and advertising in private offerings to accredited investors has been a slow but sure success. Trailblazers such as startenging.com, realtymogul.com, circleup.com, wefunder.com and seedinvest.com proved that the model can work, and the rest of the capital marketplace has taken notice.  Recently, more established broker-dealers have begun their foray into the 506(c) marketplace with accredited investor-only crowdfunding websites accompanied by

Oct042016

House Continues To Push For Reduced Securities Regulation

ABA Journal’s 10th Annual Blawg 100

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House Appropriations Bill

The House continues its busy activity of passing legislation designed to reduce securities and market regulations. In early July, the House passed H.R. 2995, an appropriations bill for the federal budget for the fiscal year beginning October 1st. No further action has been taken.  The 259-page bill, which is described as “making appropriations for financing services and general government for the fiscal year ending September 30, 2017, and for other purposes” (“House Appropriation Bill”), contains numerous provisions reducing or eliminating funding for key aspects of SEC enforcement and regulatory provisions.

Earlier this year, I wrote this BLOG about three House bills that will likely never be passed into law. The 3 bills include: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within

Jul192016

Testing The Waters; Regulation A+ And S-1 Public Offerings – Part 1

ABA Journal’s 10th Annual Blawg 100

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The JOBS Act enacted in 2012 made the most dramatic changes to the landscape for the marketing and selling of both private and public offerings since the enactment of the Securities Act of 1933.  These significant changes include: (i) the creation of Rule 506(c), which came into effect on September 23, 2013 and allows for general solicitation and advertising in private offerings where the purchasers are limited to accredited investors; (ii) the overhaul of Regulation A creating two tiers of offerings, which came into effect on June 19, 2015 and allows for both pre-filing and post-filing marketing of an offering, called “testing the waters”; (iii) the addition of Section 5(d) of the Securities Act, which came into effect in April 2012, permitting emerging growth companies to test the waters by engaging in pre- and post-filing communications with qualified institutional buyers or institutions that are accredited investors; and (iv) Title III crowdfunding, which came

Jan122016

SEC Issues Report On Accredited Investor Definition

On December 18, 2015, the SEC issued a 118-page report on the definition of “Accredited Investor” (the “Report”). The report follows the March 2015 SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) recommendations related to the definition. The SEC is reviewing the definition of “accredited investor” as directed by the Dodd-Frank Act, which requires that the SEC review the definition as relates to “natural persons” every four years to determine if it should be modified or adjusted.

The definition of “accredited investor” has not been comprehensively re-examined by regulators since its adoption in 1982; however, in 2011 the Dodd-Frank Act amended the definition to exclude a person’s primary residence from the net worth test of accreditation.

Although the Report contains detailed discussions on the various aspects of the definition of an accredited investor, the history of the different aspects of the definition, a discussion of different approaches taken in other U.S. regulations and in foreign

Dec012015

SEC Proposes Amendments Related To Intrastate And Regional Securities Offerings- Part II- Rules 504 And 505

ABA Journal’s 10th Annual Blawg 100

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On October 30, 2015, the SEC published proposed rule amendments to facilitate intrastate and regional securities offerings. The SEC has proposed amendments to Rule 147 to modernize the rule and accommodate adopted state intrastate crowdfunding provisions. In addition, the SEC has proposed amendments to Rule 504 of Regulation D to increase the aggregate offering amount from $1 million to $5 million and to add bad actor disqualifications from reliance on the rule. The SEC has also made technical amendments to Rule 505 of Regulation D.

In Part I of the blog, I discussed the Rule 147 amendment, and in this Part II will discuss the changes to Rules 504 and 505. I have never really written about either Rules 504 or 505 in the past, the simple reason being that they are rarely used exemptions. Perhaps with the current proposed changes, Rule 504 will have a new life. I do not think Rule

Sep012015

SEC Issues Guidance On General Solicitation And Advertising In Regulation D Offerings

ABA Journal’s 10th Annual Blawg 100

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Effective September, 2013, the SEC adopted final rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings as required by Title II of the JOBS Act.  The enactment of new 506(c) resulting in the elimination of the prohibition against general solicitation and advertising in private offerings to accredited investors has been a slow but sure success.  Trailblazers such as realtymogul.com, circleup.com, wefunder.com and seedinvest.com proved that the model can work, and the rest of the capital marketplace has taken notice.  Recently, more established broker-dealers have begun their foray into the 506(c) marketplace with accredited investor-only crowdfunding websites accompanied by marketing and solicitation to draw investors.

The historical Rule 506 was renumbered to Rule 506(b) and issuers have the option of completing offerings under either Rule 506(b) or 506(c).  Rule 506(b) allows offers and sales to an unlimited number of accredited investors and up to 35 unaccredited investors,

Jul212015

SEC Issues Guidance On “Voting Power” For Purposes Of Bad Actor Rules

 ABA Journal’s 10th Annual Blawg 100

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The SEC has published clarifying guidance and information on defining “voting equity securities” for purposes of the application of the bad actor rules under Rule 506 of Regulation D of the Securities Act of 1933, as amended (“Securities Act”).  The clarifying language was contained within the SEC’s March 25, 2015 release of the final rules amending and adopting Regulation A+.

Rules 262 and 505 of the Securities Act disqualify the use of offerings under Regulation A and Rule 505 of Regulation D if an issuer, its predecessor, or an affiliate of the issuer is considered a “bad actor” as defined by such rules.  In particular, the rules disqualify the issuer if the specified covered person is subject to certain administrative orders, industry bars, an injunction involving certain securities law violations or certain specified criminal convictions.  “Covered persons” under the rules extends to the issuer, predecessor, affiliate, directors, officers, general partners, 20%

Dec022014

Private Offering Rule Changes Since JOBS Act

ABA Journal’s 10th Annual Blawg 100

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As the end of 2014 approaches, I find myself reflecting on the significant successes and failures in the private offering arena since the enactment of the Jumpstart our Business Startups Act (“JOBS Act”) on April 5, 2012.  Some provisions under the JOBS Act became law without further rule-making action on the part of the SEC; others took time to pass; and significantly, Title III Crowdfunding, the most anticipated change in capital market access, has completely stalled.  This blog is a summary of the in-depth detailed blogs I’ve previously written on each of these topics with some added commentary.

506(c) – The Elimination of the Prohibition Against General Solicitation and Advertising in Private Offerings to Accredited Investors; Broker-Dealer Exemption for 506(c) Funding Websites

The enactment of new 506(c) resulting in the elimination of the prohibition against general solicitation and advertising in private offerings to accredited investors has been a slow but sure success.  Trailblazers

Aug192014

NASAA and US Senate Oppose State Law Pre-Emption in Proposed Regulation A+

On December 18, 2013, the SEC published proposed rules to implement Title IV of the JOBS Act, commonly referred to as Regulation A+.  Since that time there has been very little activity towards the advancement of a final rule.  The comment period closed March 24, 2014, and presumably the SEC is analyzing the information and deciding on the next reiteration.

NASAA

The North American Securities Administrators Association (NASAA), a group whose members are comprised of state securities regulators, while supportive of the Regulation A+ concept as a whole, has been vocal of its opposition of the proposed state law pre-emption provisions.

Notably, on April 8, 2014, Commissioner Luis A. Aguilar, the NASAA liaison, gave a speech at the North American Securities Administrators Association commenting on the NASAA’s position.  In the speech Mr. Aguilar praised the concept of the rule itself, including the two-tier structure, offering amount limits and importantly ongoing reporting requirements.  He expressed agreement with many of the same