SEC Ends Ban on General Solicitation
On July 10, 2013, the Securities and Exchange Commission (SEC) ended eight decades of a federal ban on general solicitation. On April 5, 2012, Congress enacted the “Jumpstart Our Business Startups Act” (the JOBS Act). Some parts of the JOBS Act were effective immediately while other parts, including the details involving the end on a ban on general solicitation, required SEC rulemaking. While the rulemaking process continues, the SEC has adopted final rules to end the ban on general solicitation.
The Securities Act of 1933 forbade general solicitation in connection with the sale of securities unless there is an effective registration statement covering the sale, or a valid exemption from registration. The new rules will permit general solicitation, essentially reaching out to the general public and publicizing the details of a private securities offering. However, issuers should be aware of an important caveat: the actual sale must still qualify for an exemption. That means that although issuers can now widely advertise an offering, they still need to meet requirements about the nature of the purchaser.
One popular exemption enables issuers to sell to accredited investors, individuals or entities that meet certain sophistication and financial criteria. When relying on the exemption, the purchasers must be accredited investors, or the issuer must reasonably believe that they are. The SEC has provided additional guidelines regarding the means to verify accredited investor status.
The new rules provide that in determining accredited investor status, issuers may now rely on:
- Reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year.
- Receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser’s accredited status.
The new rules provide flexibility to issuers and enable them to better deploy new media such as social media and other internet-based media to market securities. However, issuers need to ensure that they comply with other applicable securities laws and to understand that although soliciting the general public will now be permissible, conditions remain concerning the actual sale of securities.
 The final rules are available at http://www.sec.gov/rules/final/2013/33-9415.pdf.