Bradley & Riley PC

This article is an update of an earlier post that can be found here.

As of September 23, 2013, the amendments to Rule 506 of Regulation D, promulgated by the Securities and Exchange Commission in response to the JOBS Act, became effective. This means that, provided issuers are willing to make sales only to "accredited investors," and provided they are prepared to meet the heightened diligence standards of new Rule 506(c), they can now use "general solicitation" to attract investors, without incurring the substantial costs and delays required to register their offerings with the SEC. "General solicitation" includes the use of media, the Internet and mass-mail. Broadly, an individual is an "accredited investor" if she has an income of more than $200,000 per year (or $300,000 with a spouse), or a net worth, exclusive of home equity, of $1,000,000 or more. (There are several other bases on which an investor may qualify, but this is the most commonly used). The early guidance of SEC staff concerning the heightened diligence requirements suggests that issuers may need to insist that investors submit copies of tax filings or provide a verification letter from an attorney, accountant, stockbroker or investment adviser. Historically, an issuer was allowed to largely rely on an investor's self-certification regarding accredited investor status, unless it had notice of a reason to question the investor's self-certification. Overall, these changes create significant opportunities for companies to reach a broader audience of prospective investors. However, they will also likely create some uncomfortable moments for companies who must now examine the financial condition of their prospective investors in greater detail.

If you have any questions regarding the amendments to Rule 506 or another aspect of the JOBS Act, please contact Bill McCartan.

Categories: Business Law

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