SEC Lifts Ban on Advertising for Certain Offerings
• On July 10, the SEC belatedly adopted a new rule allowing companies raising
money to use general advertising when offering and selling equity interests in the
• This new rule is a paradigm shift from prior laws regulating securities offerings.
• The new rule became effective on September 23, 2013; thus companies are now
permitted to use general advertising under the new rule.
• This new rule permits companies to advertise securities offerings and will also
allow companies (and their lawyers) to feel more comfortable using social media,
their website and speaking at conferences while the company is raising money.
• Companies relying on this rule can only permit “accredited investors” to purchase
equity interests and must take reasonable steps to verify that these investors are
INVESTORS MUST BE ACCREDITED
• Companies relying on the new rule may not take subscriptions from investors who
do not fall within the definition of an “Accredited Investor.”
• While there are several ways to qualify as an accredited investor, typically
accredited investors are individuals that meet minimum income or net worth
• You can find a more in depth discussion of accredited investors here
REASONABLE STEPS TO VERIFY
• The new rule does not mandate specific steps that issuers can use to satisfy the
requirement to take “reasonable steps” to verify that potential investors are
actually accredited investors.
• However, it is likely not sufficient to simply rely on a representation from the
investor that he or she is accredited.
• The new rule contemplates an objective determination based on the facts and
circumstances of the relationship between the issuer and the investor.
• While the new rule does contain a list of methods that an issuer may use to verify
someone is an accredited investor, this is a non-exclusive list.
GENERAL SOLICITATION MATERIALS
• The SEC has also proposed amendment that would require the general
advertising material to be disclosed to the SEC.
• If these proposed amendments are adopted, it may make the use of the new rule
• Companies thinking about raising money under the new rule should consider
whether the compliance burden is worth the hassle to make a general
advertisement instead of making the offering through the traditional private
placement channels to a defined group of people.