with non-accredited investors receiving disclosure documents that are generally the same as those used in registered offerings, and if the issuer provides information to accredited investors, it must make this information available to non-accredited investors as well;
• The company must be available to answer questions from prospective purchasers;
• Financial statement requirements are the same as for Rule 505; and
• Purchasers receive “restricted securities.” Issuers making use of the Rule 506 exemption do not
have to file a registration statement with the SEC, but they must file a Form D after they first sell their securities. Form D is a brief notice that includes the names and addresses of the issuer’s owners and promoters and information concerning the offering. For the purposes of Regulation D, an “accredited
investor” includes: • a bank, insurance company, registered investment company, business development company, or small business investment company;
• an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
• a charitable organisation, corporation, or partnership with assets exceeding $5 million;
• a director, executive officer, or general partner of the company selling the securities;
• a business in which all the equity owners are accredited investors;
• a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
• a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
• a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
Rule 506 does not include any bad actor limitations
with respect to the issuer, its affiliates and offering participants; however the SEC must adopt such limitation pursuant to section 926 of the Dodd-Frank Act. The SEC proposed rules implementing this mandate in May 2011, but has not yet adopted any final rules.1
40 JOBS Act Quick Start
Rule 144A Rule 144A is a safe harbour exemption from the registration requirements of section 5 of the Securities Act for certain offers and sales of qualifying securities by certain persons other than the issuer of the securities. The exemption applies to re-sales of securities to QIBs. The securities eligible for resale under Rule 144A are securities of US and foreign issuers that are not listed on a US securities exchange or quoted on a US automated inter- dealer quotation system. Rule 144A provides that re-offers and re-sales in compliance with the rule are not distributions and that the reseller is therefore not an underwriter within the meaning of section 2(a)(11) of the Securities Act. A reseller that is not the issuer, an underwriter, or a dealer can rely on the exemption provided by section 4(a)(1) of the Securities Act. Resellers that are dealers can rely on the exemption provided by section 4(a)(3).
Deregulating offers in private placements Discussion related to relaxing the ban on general solicitation has been going on since the early 1990s. Speeches and statements by SEC staff members over the years have commented on, and acknowledged, the need to revisit private placement exemptions in light of changes in communications patterns. The legal community also has given close consideration to these questions, going as far back as the late 1990s and early 2000s. In 2001, the American Bar Association’s Committee on the Federal Regulation of Securities submitted a comment letter to the SEC that suggested relaxation of the ban on general solicitation. At around the same time, the American Bar Association’s Task Force for the Review of the Federal Securities Laws also proposed that a private offering would qualify for an exemption from registration based on the eligibility of the purchasers of the securities and the restrictions on re-sales, and not on the number of offerees. The Advisory Committee on Smaller Public Companies, formed in 2004, advocated a relaxation of the ban on general solicitation. In 2007, the SEC proposed a relaxation of the ban on general solicitation in the context of private offerings to a new category of “large accredited investors.”2
SEC rulemaking under Title II On August 29 2012, the SEC proposed amendments to Rule 506 of Regulation D and Rule 144A under the Securities Act to implement section 201(a) of the JOBS Act.3
The proposed amendment to Rule 506 would
eliminate the prohibition against general solicitation and general advertising contained in Rule 502(c) of Regulation
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