Jumpstart Our Business Startups Act: Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings

The Jumpstart Our Business Startups Act (the “JOBS Act”) was enacted on April 5, 2012. Section 201(a)(1) of the JOBS Act directs Securities and Exchange Commission (the Commission), not later than 90 days after the date of enactment, to amend Rule 506 of Regulation D under the Securities Act of 1933 (the “Securities Act”) to permit general solicitation or general advertising in offerings made under Rule 506, provided that all purchasers of the securities are accredited investors. Section 201(a)(1) also states that “[s]uch rules shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.” Section 201(a)(2) of the JOBS Act directs the Commission, not later than 90 days after the date of enactment, to revise Rule 144A(d)(1) under the Securities Act to permit offers of securities pursuant to Rule 144A to persons other than qualified institutional buyers (“QIBs”), including by means of general solicitation or general advertising, provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs.

It is later than 90 days, however the Commission has finally come around to proposing amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the JOBS Act. The proposed amendment to Rule 506 would provide that the prohibition against general solicitation and general advertising contained in Rule 502(c) of Regulation D would not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors. The proposed amendment to Rule 506 would also require that, in Rule 506 offerings that use general solicitation or general advertising, the issuer take reasonable steps to verify that purchasers of the securities are accredited investors. The proposed amendment to Rule 144A(d)(1) would provide 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 proposing to revise Form D to add a separate check box for issuers to indicate whether they are using general solicitation or general advertising in a Rule 506 offering. The comment period ends on October 5, 2012.

The Commission is adopting revisions to the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) Filer Manual and related rules to reflect updates to the EDGAR system. The revisions are being made primarily to support submission of Confidential Registration Statements; require Form ID authentication documents in PDF format; automate LTID generation for Large Trader registrations; support minor updates to Form D; remove superseded XBRL Taxonomies; remove the OMB expiration date from Form TA-1, TA-2, TA-W, 25-NSE; and request of unused funds. The EDGAR system is scheduled to be upgraded to support this functionality on July 2, 2012.

Link to proposed rule under the JOBS Act: https://federalregister.gov/a/2012-21681

Link to final revisions to EDGAR Filer Manual: https://federalregister.gov/a/2012-21805

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