In addition to the proposed changes to Rule 506, the
SEC proposed to amend the rule to eliminate references to offer and offeree, and thus require only that the securities are sold to a QIB or to a purchaser that the seller and any person acting on behalf of the seller reasonably believe is a QIB. Under this proposed amendment, re-sales of securities pursuant to Rule 144A could be conducted using general solicitation, so long as the purchasers are limited in this manner. The deadline for public comments on the proposal was
October 5 2012. Some of the comments submitted to date call on the SEC to, among other things, adopt the Dodd- Frank Act-mandated bad actor rules (discussed above) at the same time the changes to Rule 506 are adopted, impose restrictions on the form and content of general solicitation materials, and establish a non-exclusive safe harbour with respect to the reasonable steps to verify requirement. Despite continuing pressure coming from Congress and others, the SEC has not yet adopted final rules.
Matching services Title II of the JOBS Act clarifies that persons who maintain certain online or other platforms to conduct Rule 506 offerings that will use general advertising or general solicitation will not, by virtue of this activity, be required to register as a broker or a dealer pursuant to section 15 of the Exchange Act, provided that certain specified conditions are satisfied. For example, in order not to be subject to registration as a broker-dealer, these matching services or platforms must not receive transaction-based compensation. The platform also cannot take possession of customer funds or securities. The conditions specified in this provision are generally consistent with the guidance that the SEC staff has provided in various no-action letters relating to matching and other online platforms.4 On February 5 2013, the SEC’s Division of Trading and
Markets published a series of Frequently Asked Questions addressing the exemption from broker-dealer registration in Title II of the JOBS Act.5 These FAQs clarify that Section 201 of the JOBS Act
does not require further rulemaking, but notes that a platform cannot permit an issuer to conduct a general solicitation in a Rule 506 offering until the SEC promulgates its final rules. The FAQs note that the exemption from broker-dealer registration in this section is applicable only when securities are offered and sold pursuant to Rule 506. The FAQs also address compensation and note that: Congress conditioned the exemption on a person and its associated persons not receiving any ‘compensation’ in
42 JOBS Act Quick Start
connection with the purchase or sale of such security.’ Congress did not limit the condition to transaction-based compensation. The staff interprets the term ‘compensation’ broadly, to include any direct or indirect economic benefit to the person or any of its associated persons. At the same time, we recognize that Congress expressly permitted co-investment in the securities offered on the platform or mechanism. We do not believe that profits associated with these investments would be impermissible compensation for purposes of Securities Act Section 4(b). To this end, the FAQs note that a venture fund may
operate a matchmaking site. The FAQs also note that the availability of the
exemption from broker-dealer registration should not be construed as suggesting that the entity is not otherwise a “broker” or a “dealer” and refers to the guidance provided by the Division of Trading and Markets on the types of activities typically associated with broker-dealer status. The FAQs also note that the JOBS Act exemption does not address state registration requirements.
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