RIA Compliance Blog
The Securities and Exchange Commission (“SEC”) recently adopted long-awaited rule changes required by the 2012 Dodd-Frank Act that will allow some offerings under Rule 506 to be offered using general solicitation. At the same time, the SEC proposed a set of additional changes that would further regulate this new type of offering.
Offerings under Rule 506, which provides one of the three operative safe harbor offering alternatives under Regulation D, have been prohibited from using any form of public solicitation since the rule’s inception in 1982. However, Congress responded to calls from industry seeking easier and less expensive ways to raise investment capital by creating the “crowdfunding” exemption and by loosening the public solicitation prohibition for Rule 506 offerings.
The rule amendment creates a new subsection 506(c), which provides that public solicitation is allowed if the offering is limited to accredited investors and the issuer takes reasonable steps to verify each investor’s accredited status. Although the rule does not enumerate specific verification procedures or even create a defined safe harbor, the issuing release describes a “principles-based” approach to verification and discusses a number of verification alternatives that may be considered adequate.
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