SEC Proposes Rules to Eliminate the Prohibition Against General Solicitation and Advertising in Certain Private Securities Offerings – Private Investment Funds Perspective
On August 29, 2012, the SEC proposed rules to implement provisions of the JOBS Act that directed the SEC to amend its rules to permit general solicitation or general advertising in connection with private offerings of securities under Rule 506 of Regulation D under the Securities Act of 1933 if all purchasers of the securities are accredited investors and the issuer had taken reasonable steps to verify that all purchasers of the securities are accredited investors. Since private investment funds typically rely on Rule 506 in connection with their fundraisings in the United States, we anticipate that the final rules, assuming that they are substantially similar to the proposed rules, will allow for greater flexibility in the United States fundraising process by relaxing existing regulatory requirements on publicity. This memorandum focuses on the aspects of the proposed changes to Rule 506 that are relevant for private investment funds.