SEC Releases Proposed Rules on General Solicitation

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After a 45 minute meeting yesterday, the SEC published its proposed rules, with a comment period, and not as an interim final rule:

Proposed Change: Rule 506  will provide that the prohibition against general solicitation contained in Rule 502(c) shall not apply to offers and sales of securities made pursuant to Rule 506 provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify their status.

Proposed Change:  Form D will be amended so that an issuer will be required to indicate whether it has used general solicitation.

Proposed Change: A new Rule 506(c) is introduced, to allow general solicitation, provided that the issuer takes reasonable steps to verify investor status; purchasers are accredited investors; and other conditions of Rule 501 and 502(a) and 502(d) are satisfied.

In the interim rule, the SEC sets out a number of measures (in the form of a non-exclusive list) that could be used in order to assess investor status.

The Commissioners provided some differing perspectives on the proposed rules.

Commissioner Walter wanted to require an upating of Form D used for general solicitations, and was very concerned about potential for fraudulent offerings.  She wanted to make sure that the SEC received information about general solicitation offerings.

Commissioner Aguilar spoke vehemently that he couldn’t support the rule proposal, and that he would be issuing a separate statement to encompass his concerns about investor protection.

Commissioner Paredes spoke in favor of the proposal and lamented that the SEC did not issue an interim final rule within the 90 day period that is included in the JOBS Act legislation.

Commissioner Gallagher also voiced his support for the proposal, and noted he was perplexed that in midstream SEC Chairman Schapiro had recast it as a proposal instead of voting on a rule.  Commissioner Gallagher predicted it would take another six months to issue a final rule.

SEC Commissioner Schapiro noted that none of the Commissioners had voiced disapproval when the SEC was unable to meet rule making deadlines on Dodd-Frank legislation that had been ordered by Congress, and said that many influential voices that had not included comments on the JOBS Act internet portal should be heard.  Significant concerns had been expressed by various groups, including state regulators, who have labeled crowdfunding as a serious concern for potential fraudulent activity.

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