After months of delay and some drama, the Securities and Exchange Commission voted today to propose for public comment rules establishing a new type of offering that is not required to be registered with the SEC. New Rule 506(c) would permit any size of offering to be made using any form of “general solicitation or general advertising” (TV, newspaper ads, online) providing that only accredited investors were permitted to invest.
This change was dictated by Title II of the JOBS Act, which directed the SEC to lift the prohibition on general solicitation in Rule 506, provided that all purchasers of the securities were accredited investors and the issuer took “reasonable steps to verify” that they were accredited, “using such methods as determined by the Commission.” The SEC declined to specify even a non-exclusive list of such methods, on the grounds that this would inhibit flexibility in the markets. Instead, the SEC is proposing that issuers be responsible for an objective determination of an investor’s accredited status based on a facts and circumstances analysis that would take into account factors such as the nature of the purchase, the type of accreditation that a purchaser claims, the manner of the offering and the terms of the offering (including minimum investment amount). The SEC Staff opined that this approach would give issuers the ability to use a variety of different approaches depending on their circumstances.
The text of the proposals will be published in the next few days and we will have further analysis at that time. The period for public comment will be 30 days.
We don’t think the progress of rulemaking under Title II of the JOBS Act necessarily reveals any information about the timing of crowdfunding rules under Title III of the JOBS Act.