On July 10, 2013, the U.S. Securities and Exchange Commission (SEC) issued a series of three releases—referred to in this White Paper as the General Solicitation Release, the Bad Actors Release, and the Proposing Release—that address the provisions of the Jumpstart Our Business Startups Act (JOBS Act) relating to general solicitation and general advertising in certain private offerings and provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the disqualification of bad actors from Rule 506 offerings. Rule changes were adopted that may facilitate private offerings, but the proposed rule changes, if adopted, will impose additional requirements on private offerings. This White Paper discusses the SEC's three releases, including their impact on the private funds industry, which relies heavily on the private offering rules under the U.S. federal securities laws.
In the General Solicitation Release, the SEC amended Rule 506, Form D, and Rule 144A under the Securities Act of 1933 (Securities Act) and made conforming amendments to Regulation M under the Securities Exchange Act of 1934 (Exchange Act) to implement the JOBS Act provisions. Section 201(a)(1) of the JOBS Act requires the SEC to amend Rule 506 of Regulation D under the Securities Act to permit general solicitation and general advertising in a new private offering exemption under Rule 506, as long as all of the purchasers of the offered securities are accredited investors and the issuer takes reasonable steps to verify each purchaser's accredited investor status. Section 201(a)(2) of the JOBS Act requires the SEC to expand the availability of Rule 144A under the Securities Act to permit resale offers to be made by means of general solicitation and general advertising, provided that sales are made only to persons that the seller reasonably believes are qualified institutional buyers.