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…

Dec052012

New FINRA Rule 5123 Takes Effect Requiring Notice of Private Placements by Member Firms

The Financial Industry Regulatory Authority has adopted new Rule 5123 requiring members to file notice of their participation in private placements.  The Rule took effect on December 3rd 2012.  The new rule does not contain a definition of “private placements” and accordingly is presumed to cover all private placements including those involving general solicitation and advertising under the new Rule 506(c) created by the JOBS Act.

Rule 5123 requires member firms to file a copy of the private placement memorandum, term sheet or other disclosure document with FINRA, for all offering in which they sell securities, within 15 calendar days of the first sale.

FINRA enacted the rule in an effort to further police the private placement market and to ensure that members participating in these private offerings conduct sufficient due diligence on the securities and its issuer

In filings with the SEC, FINRA expressed its position that Rule 5123 is consistent with the JOBS Act in

Oct182012

Proposed Rules Eliminating the Prohibition Against General Solicitation and Advertising in Rule 506 Offerings Meet With Opposition by NASAA

As required by Title II of the JOBS Act, on August 29, 2012, the SEC has published proposed rules eliminating the prohibition against general solicitation and advertising in Rules 506.  I previously wrote blogs outlining the content of the proposed rules.  The rules are currently in the public comment period.

As I previously noted, the SEC proposed simple modifications to Regulation D mirroring the JOBS Act requirement stating that it is “proposing only those rule and form amendments that are, in our view, necessary to implement the mandate” in the JOBS Act.  The entire text of the rule release is available on the SEC website.

Background

Title II of the JOBS Act, requires the SEC to amend Rule 506 of Regulation D to permit general solicitation and advertising in offerings under Rule 506, provided that all purchasers of the securities are accredited investors.  The JOBS Act requires that the rules require the issuer to take reasonable steps to verify

Sep052012

Proposed Rules Eliminating the Prohibition Against General Solicitation and Advertising in Rules 506 and 144A Offerings – Part II

As required by Title II of the JOBS Act, the SEC has published proposed rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings.  In a move that is widely supported by legal practitioners, including the Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association, the SEC has proposed simple modifications to Regulation D and Rule 144A mirroring the JOBS Act requirement.  The entire text of the rule release is available on the SEC website.

This Part II discussed the proposed amendments to Rule 144A.

Background

Title II of the JOBS Act, requires the SEC to amend Rule 144A to permit general solicitation and advertising in offerings under Rule 506, provided that all purchasers of the securities are qualified institutional buyers (QIB).  The JOBS Act requires that the rules require the issuer to take reasonable steps to verify that purchasers of the securities are QIB’s, using such

Sep042012

Proposed Rules Eliminating the Prohibition Against General Solicitation and Advertising in Rules 506 and 144A Offerings – Part I

As required by Title II of the JOBS Act, the SEC has published proposed rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings.  In a move that is widely supported by legal practitioners, including the Federal Regulation of Securities Committee of the Business Law Section of the American Bar Association, the SEC has proposed simple modifications to Regulation D and Rule 144A mirroring the JOBS Act requirement.  In fact, in the rule release the SEC states that it is “proposing only those rule and form amendments that are, in our view, necessary to implement the mandate” in the JOBS Act.  The entire text of the rule release is available on the SEC website.

This Part I discussed the proposed amendments to Rule 506, Regulation D offerings.

Background

Title II of the JOBS Act, requires the SEC to amend Rule 506 of Regulation D to permit general solicitation and advertising in offerings under Rule

Aug272012

House Subcommittee Demands Explanation of SEC’s Delayed JOBS Act Rulemaking

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. However, on June 27, 2012 Mary Schapiro, Securities and Exchange Commission chairman told the House Subcommittee on TARP, Financial Services and Bailouts of Public and Private Programs that the SEC would not meet the 90 day deadline.  At that time, Ms. Schapiro told the U.S. House committee that the SEC expected the rules to be implemented by late summer 2012.

The SEC scheduled a hearing on the general solicitation rules for August 22, 2012, but then rescheduled the hearing for August 29, 2012. The House is not happy with the delay.  In a

Jun142012

Crowdfunding Act – What about state securities laws?

On April 5, 2012 President Obama signed the JOBS Act into law. Part of the JOBS Act is the Crowdfunding Act, the full title of which is the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012”.  The SEC has been mandated with the task of drafting the crowdfunding rules and regulations by early 2013.

Introduction

In addition to federal securities laws, each state has its own securities laws and governing body which oversees and enforces such laws.  The individual state securities statutes are not uniform – every state is different.  However, many aspects of federal securities law pre-empt state securities laws.  This is a major advantage to issuers because abiding by the myriad of disclosure and pre and post-filing requirements of the federal statutes and individual state statutes concurrently is an arduous and expensive effort.

For instance federal law does not pre-empt state law for a Rule 505 offering, but it does for a Rule 506

Jun112012

American Bar Association Comments On Title II Of The JOBS Act

Summary of Title II

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors.  The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule 144A offering are qualified institutional buyers.  Neither a Rule 506 offering nor a Rule 144A offering will be considered a public offering (i.e. will lose its exemption) by virtue of a general solicitation or general advertising so long as the issuer has taken reasonable steps to verify that purchasers are either accredited investors or qualified institutional buyers, respectively.  Since it would be impossible to ensure that

Jun062012

Comments In Advance To Rule Making On Elimination On Advertising And Solicitation Ban For Certain Private Offerings

Summary of Title II

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors.  The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule 144A offering are qualified institutional buyers.  Neither a Rule 506 offering nor a Rule 144A offering will be considered a public offering (i.e. will lose its exemption) by virtue of a general solicitation or general advertising so long as the issuer has taken reasonable steps to verify that purchasers are either accredited investors or qualified institutional buyers, respectively.  Since it would be impossible to ensure that only accredited

May082012

THE JOBS ACT IMPACT ON HEDGE FUND MARKETING

On April 5, 2012 President Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law.  The other day I blogged about the changes to the general solicitation and advertising rules brought about by the JOBS Act.  Today I am focusing on the impact those rule changes will have on hedgefunds, and in particular, smaller hedgefunds.

Summary of JOBS Act Changes Effecting General Solicitation and Advertising of Private Offerings

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors.  The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule

May032012

JOBS Act Amendments to General Solicitation and Advertising of Private Offerings

Title II of the JOBS Act provides that, within 90 days of the passage of the JOBS Act (i.e. July 5, 2012), the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors.  The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule 144A offering are qualified institutional buyers.

Neither a Rule 506 offering nor a Rule 144A offering will be considered a public offering (i.e. will lose its exemption) by virtue of a general solicitation or general advertising so long as the issuer has taken reasonable steps to verify that purchasers are either accredited investors or qualified institutional buyers, respectively.  Since it would be impossible to ensure that only accredited investors, or qualified institutional