The SEC, by a margin of 4-1, recently voted to propose rule amendments to implement Section 201 of the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). The proposed rules have the potential to alter substantially the private placement market.
The amendments to Rule 506 of Regulation D would remove the prohibition against general solicitation and general advertising, provided that the issuer had taken reasonable steps to verify that all purchasers of the securities are accredited investors and the issuer reasonably believed all of those purchasers to be accredited investors. The amendments to Rule 144A would permit securities to be offered to persons other than qualified institutional buyers (QIBs), including by means of general solicitation or general advertising, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believes is a QIB. Unlike other provisions of the JOBS Act, which benefit only the newly created category of issuers called “emerging growth companies,” the amendments to Rule 506 and Rule 144A generally will benefit all issuers.
In choosing to propose rule amendments, the SEC declined to pursue so called “interim final” rules as had been expected. Interim final rules would have been effective immediately (but subject to potential further revision). Notwithstanding the delay that will accompany the public comment process, it is expected that the SEC will attempt to move quickly to adopt final rules.
During the interim period, the current versions of Rule 506 and Rule 144A remain in effect. Accordingly, issuers and their advisers should continue to follow the guidance in the “14 Law Firm Consensus Report.”
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