Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Monday, August 26, 2013

General Solicitation Countdown l Form D Proposals

Securities Lawyer 101 Blog
Rule 506(c) will become effective in less than a month, on September 23, 2013. The rule fundamentally changes how private placements will be conducted, by allowing issuers to engage in general solicitation and advertising if specific requirements are met. The SEC has issued proposals to increase the disclosures required by Form D and impose disqualification provisions for issuer’s that fail to comply with Rule 506. The SEC has confirmed that the Rule 506(c) exemption will not be forgiving for issuers who engage in general solicitation but fail to comply with its stringent requirements. The advantages offered by Rule 506(c) are significant for issuers who comply with its inflexible but adaptable rules for issuers who properly prepare for their offering by developing compliance strategies to ensure accredited investor status.
In the adopting release implementing Rule 506(c), the SEC made several proposals related to Rule 506(c), which remain in limbo. Rule 506(c) will go into effect on September 23, with or without final action on the SEC’s proposals to change Form D.   One pending proposal involves amending the requirements of Form D.
Rule 506(c) and Form D Generally
Both public and private companies can rely upon Rule 506. The exemption is commonly used in going public transactions to raise initial capital and obtain a shareholder base. Rule 506 allows issuers to raise an unlimited amount of capital and there are no limitations on the number of non-accredited investors who can invest. Rule 506(c) allows issuers to advertise their offerings so long as sales are made to accredited investors only.  As in effect, issuers are required to file a Form D within 15 calendar days of the first sale for offerings made under Rule 506.
The SEC’s Form D ProposalsThe SEC ‘s proposals include a requirement that issuers to file a Form D, sale 15 days before and at the conclusion of a Rule 506 Offering. The proposals also include that issuers which intend to engage in general solicitation and advertising in a Rule 506 offering be required to file Form D at least 15 calendar days before the general solicitation and/or advertisement commences.  These issuers would also be required to update their Form D within 30 days after completion of the offering.
The SEC’s proposals to modify Form D, include increased informational requirements. As proposed, issuers must provide additional information in their Form D which includes:
● The issuer’s website
● Information about the issuer and the securities being offered and sold
● Types of investors in the offering
● Use of proceeds
● Information about the specific type of advertisement and/or general solicitation used
● How the issuer verified accredited investor status
Disqualification For Non-Compliance With Form DThe SEC’s pending proposals also seek to disqualify issuers who fail to file a Form D. The disqualification would prevent non-complying issuers from relying upon using the Rule 506 exemption in any new offering for a period of one year, beginning when the required Form D filing is made.

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