Congress, through the Securities and Exchange Commission (SEC), has repealed a ban on general advertising of securities promoted by issuers who rely on a exemption to the rule requiring them to seek SEC review of their offering disclosures. “I’m certain that it is only a matter of time before Wall Street and Madison Avenue unit to promote these private deals through impressive advertising campaigns directed at average investors who meet the net worth requirement of $1,000,000 and/or other arbitrary notions of wealth. The problem is that these investors are generally not sophisticated in the investment or securities field and have no idea how to ensure that the promoters of these private securities are not swindling them. Moreover, the promoters of these offerings may ignore their duty to fully disclose material items relating to these securities offerings, including a duty to conduct due diligence, ” stated Jeffery Wittenberg, Founder of Wittenberg Law, a law firm focused on protecting investors from negligent and unscrupulous investment promoters.
The details of the SEC rule amendment is summarized below. Call Wittenberg Law (310) 295-2010 to ensure that you are being treated fairly regarding your investment and retirement savings.
The Securities and Exchange Commission adopted amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act. The amendment to Rule 506 permits an issuer to engage in general solicitation or general advertising in offering and selling securities pursuant to Rule 506, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors. The amendment to Rule 506 also includes a non-exclusive list of methods that issuers may use to satisfy the verification requirement for purchasers who are natural persons. The amendment to Rule 144A provides that securities may be offered pursuant to Rule 144A to persons other than qualified institutional buyers, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are qualified institutional buyers. We are also revising Form D to require issuers to indicate whether they are relying on the provision that permits general solicitation or general advertising in a Rule 506 offering.
The SEC also implemented Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are adopting amendments to Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if “felons and other ‘bad actors’” are participating in the Rule 506 offering.