Private issuers soon will be able to publicly discuss and
advertise investment opportunities (and publicize past
performance, which previously had been prohibited).
Issuers still may only sell such securities to accredited investors
Issuers do not need to solicit – issuers can rely on existing rule
(SEC Rule 506(b)).
Issuers can no longer rely on AI “checking the box”: issuers will
generally need to rely on “third party confirmation” or obtain
tax returns, bank statements, etc. to verify AI status.
Issuers must file Form D 15 days before first solicitation with
Failure to file could result in ban of securities issuances for 1
Rule is effective September 23, 2013!
For issuers that generally solicit, they would be required to take
“reasonable steps” to verify investor accreditation.
Issuer can no longer rely on investors checking the box that
they are an AI.
For individuals, accreditation requires net worth in excess of $1
million and/or annual income in excess of $200,000 ($300,000
for married couples).
For institutions like charitable organizations or family trust, the
asset threshold is $5 million.
Income Test: review federal tax returns for two most recent
years with representation that person has reasonable
expectation to have income level in current year.
Net Worth Test: review bank statements, brokerage statements,
etc. plus credit report showing liabilities.
Third Party Confirmation: written confirmation from a
registered broker-dealer, SEC-registered investment adviser,
licensed attorney, or certified public accountant that such
entity or person has taken reasonable steps to verify AI status.
High Investment Amount: If the offering terms require a high
minimum investment amount such that only an AI could meet
(e.g. $5M), it may be reasonable to rely on direct cash
investment (provided not debt financed).
Issuer must confirm that it has taken “reasonable steps” to
verify AI status.
It is likely that wealth management providers, registered
investment advisers, registered broker dealers and CPAs will
provide written confirmation
Their review of AI status must be within three months of
It is likely that standardized confirmation forms will develop.
All written solicitation materials must be filed with
the SEC before their use.
Must include certain legends
The securities may be sold only to “accredited
investors,” which for natural persons are investors who
meet certain minimum annual income or net worth
The securities are being offered in reliance on an
exemption from the registration requirements that
apply to registration under the Securities Act.
The SEC has not passed upon the merits of or given its
approval to the securities, the terms of the offering, or
the accuracy or completeness of any offering materials.
The securities are subject to legal restrictions on
transfer and resale and investors should not assume
they will be able to resell their securities.
Investing in securities involves risk, and investors
should be able to bear the loss of their investment.
Issuers utilizing general solicitation would be required to file a
Form D with the SEC:
a) at least 15 days prior to the beginning of general solicitation,
b) Within 15 days of first sale, and
c) file an amended Form D within 30 days after the offering is
Failure to do so could cause the SEC to ban issuers from
subsequent securities issuance for a year or more.
Three Potential SEC Filings
15 calendar days before
Within 15 calendar
days after first sale
Within 30 calendar days of
File Advance Form D File Amended Form D File amended “closing” Form D*Sale
*The filing of the closing Form D is not required if all required information has already been included in
an earlier Form D filing and the issuer checked the correct closing box.
Existing Rule 506(b)
Existing SEC Safe Harbor
New Rule 506(c)
New SEC Safe Harbor
Marketing General solicitation
General solicitation allowed.
Offerees Unlimited number of AIs; no
more than 35 non- AIs.
Anyone can be offeree. No
Purchaser Types AI; no more than 35 non-
Verification Reasonable belief that the
purchasers are AIs; non –
AIs must meet
Issuer has made
“reasonable steps” to verify
that the purchasers are AIs.
Reasonable belief that the
purchasers are AIs.
Consequences of Loss of
Issuer may be able to rely
on §4(a)(2) exemption for
offering “not involving any
¹ Each non - AI must meet Rule 506(b) sophistication requirements.
This allows SEC to collect data on how general
solicitation is being used.
Issuer is disqualified from relying on Rule506 for one
year if the issuer (or any predecessor/affiliate) does
not comply with all Form D filing requirements for
the last five years.
Disqualification applies to issuer and its directors,
executive officers, participating officers, controlling
entities, affiliated funds, 20% beneficial owners,
underwriters and placement agents, etc. if they (a)
have been convicted of, or (b) are subject to
sanction for securities fraud, other violations of
Events relating to a covered person that will disqualify
an offering from relying upon Rule 506 include:
Certain felony and misdemeanor convictions
involving the purchase or sale of a security, the
making of a false filing with the SEC, as well as
certain court injunctions and restraining orders.
Certain final orders from the CFTC, state securities
commissions, state and federal banking regulators,
state insurance commissions or the National Credit
Union Administration that bar a person from
Certain SEC disciplinary orders suspending or
revoking the person’s SEC registration or limiting the
Certain SEC cease-and-desist orders.
Certain suspensions or expulsions from membership in, or
suspensions or bars from association with a securities self-
Having filed (as a registrant or issuer), or being named an
underwriter in, a registration statement that was or is the
subject of certain SEC orders, investigations or proceedings.
United States Postal Service false representation orders,
preliminary injunctions, restraining orders relating to conduct
alleged to constitute a scheme for obtaining money through the
mail by false representations.
Winners – early stage companies and small to mid-size funds
seeking to attracting HNW investors.
Others – advisors to foregoing including lawyers, accountants
and consultants and broker-dealers; possibly later stage venture
Losers – existing online portals for funding which will have new
competitors (mixed results).
Issuers do not need to solicit – issuers can rely on existing rule.
The burden of proof has shifted on AI status – issuers will need
to rely on “third party confirmation” or obtain tax returns,
bank statements to verify AI status.
Issuers must file Form D 15 days before first solicitation with
Failure to file could result in 1 year or more ban from securities
Date effective is September 23, 2013!
This presentation has been prepared for general informational
purposes only. It does not constitute legal advice, and is presented
without any representation or warranty whatsoever as to the
accuracy or completeness of the information.
No one should, or is entitled to, rely in any manner on any of this
information. Parties seeking advice should consult with legal
counsel familiar with their particular circumstances.