registration provisions of the Securities Act for offers and sales of securities to “large accredited investors” pursuant to the general exemptive authority provided in section 28 of the Securities Act that would permit an issuer to publish a limited announcement of the offering. In addition, the proposals incorporated a definition of large accredited investor based on the accredited investor definition, but with higher and somewhat different dollar amount thresholds, and would have made changes such that legal entities considered accredited investors if their assets exceed $5 million would be required to have $10 million in investments to qualify as large accredited investors; that individuals generally would be required to own $2.5 million in investments or have an annual income of $400,000 ($600,000 with a spouse) in order to qualify as large accredited investors, compared to the current accredited investor standard of $1 million in net worth or an annual income of $200,000 ($300,000 with a spouse). Large accredited investors that participated in exempt offerings would be considered qualified purchasers under section 18(b)(3) of the Securities Act, thereby resulting in covered security status and the pre-emption of certain state securities regulation. The SEC proposal also included adding an alternative investments-owned standard for determining accredited investor and large accredited investor status. Ultimately, these provisions of the 2007 proposals were not adopted; however, there is reason to believe that consideration of the Rule 506 rulemaking may lead to re-evaluation of these measures.


Content standards and filing requirements The Rule 506 rule proposals also have led to suggestions from commentators that for Rule 506 offerings relying on general solicitation the SEC should consider the appropriateness of imposing content standards on the materials used in the sales process. Some commentators note that issuers and financial intermediaries should be required to include disclaimers or warning labels on the materials that are used to market Rule 506 offerings using general solicitation. Currently, there are no specified information requirements in connection with traditional Rule 506 offerings. There are, however, certain required disclosures contemplated in the context of crowdfunded offerings. Other commentators note that special requirements should be imposed in the context of Rule 506 offerings by private funds. The Investment Company Institute, for example, advocated in its letter that the SEC impose content restrictions on private fund advertising, prohibit performance advertising by private funds until regulations are promulgated that would standardise requirements for performance information, and require


76 JOBS Act Quick Start


Finra review of the materials used in connection with these offerings. Others have suggested that the SEC consider requiring issuers to file or submit the materials used in connection with their general solicitation so that the SEC can study the types of information used for this purpose.


Offering-related communications In the Introduction, we reviewed an exchange of correspondence in 2011 between Congressman Darrell Issa and SEC chairman Schapiro relating to, among other things, capital formation. In those 2011 letters, Issa questioned whether the SEC’s regulations relating to offering related communications had a chilling effect on capital formation. The SEC committed to review its rules relating to offering related communications. The Issa- Schapiro dialogue had a second act in mid-2012. In June, Issa wrote a letter to Schapiro inquiring about the regulatory structure applicable to IPOs.21


The letter


specifically address “barriers to communicating with investors” during the IPO process. Issa referenced public reports that noted that during the Facebook IPO certain of the underwriters may have provided institutional investors with information about revenue forecasts for Facebook, and questioned whether SEC regulations relating to offering communications had the effect of creating information disparities. Issa also questioned whether there were sufficient safe harbours for research reports such that research analysts would be encouraged to make reports available broadly, including to retail investors. This was not the first time that concerns had been raised regarding the dissemination of information in IPOs. Going as far back as 2003, a committee convened by the New York Stock Exchange and the NASD at the SEC’s request, referred to as the IPO Advisory Committee, published a report that made a number of recommendations that were designed to restore investor confidence in IPOs.22


The IPO Advisory


Committee report included a section on levelling the playing field that suggested that issuers be required to make a version of their IPO roadshow available publicly on an unrestricted basis; and that underwriters disclose final IPO allocations to issuers. In her response letter dated June 19 2012, Schapiro reiterated the SEC’s views that the statutory prospectus should be the primary source of information for investors, but referred to various communications reforms, including Securities Offering Reform in 2005, which had relaxed restrictions on communications.23


Schapiro also recognised the


importance of research reports and observed that the SEC had modernised the safe harbours for research reports. As we discuss in Chapter 8, the JOBS Act provides greater flexibility to publish research reports relating to EGCs. As


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