SEC Extends Comment Period for Section 506 Reg D Advertising Rules

Washington, DC – The Securities and Exchange Commission extended the public comment period for proposed, new rules that would govern how businesses can advertise equity offerings to accredited investors under Rule 506 Regulation D.

SEC

SEC

On July 10, 2013, the SEC issued rules that would lift the ban against general solicitations for Rule 506 Regulation D offering as mandated by Title II of the Jumpstart Our Business Startups Act.  The new rules lifted the ban effective September 23, 2013; however, the SEC also proposed for public comment additional rules that would regulate general advertising for Rule 506 offerings.

The comment period for the new rules closed on September 23, 2013, but on September 27, 2013, the SEC said it will reopen the public comment period.

Rule 506 exempts business from registering their securities with the SEC if they are offering and selling their equity only to “accredited investors” under Rule 501 of Regulation D. On July 10, 2013, the SEC also proposed, newadditional rules for public comment that would add restrictions to general solicitations.  The SEC’s new proposals would:

1.   Require the filing of a Form D no later than 15 days in advance of a general solicitation followed by a closing Form D amendment 20 days after the Rule 506 offering. The Crowdfund Intermediary Regulatory Advocates (CFIRA) commented to the SEC that the proposal is  ”inconsistent with the principles of the JOBS Act for general solicitation and advertising.”

2.  Require the placement of  a legend — that is, a disclaimer that the advertising is offering a private placement of securities — with any advertising. CFIRA noted that such a proposal would make it impossible to use services such as Twitter to make an offering.

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Final Crowdfunding Rules Not Likely Until Late 2014

Seal of the U.S. Securities and Exchange Commi...
Seal of the U.S. Securities and Exchange Commission. (Photo credit: Wikipedia)

Final crowdfunding rules are not likely to be in place until late 2014 because the Financial Industry Regulatory Authority and the Securities and Exchange Commission need to take more action, according to a blog on corporate and securities regulation.

TheCorporateCounsel.net blog said today that Finra still needs to create a regulatory system for funding portals and the SEC is still developing rules.

“As a result, the ability to do exempt crowdfunding offerings remains limited, except that many are anticipating the ability to do more accredited investor-only crowdfunding offerings once general solicitation is permitted under Rule 506 after the September 23, 2013, effective date of those JOBS Act mandated rule changes,” the authors noted.

TheCorporateCounsel.net added the SEC’s proposed amendments to Regulation D and Form D to have investor safeguards when the general solicitation ban is lifted is drawing fire as not being faithful to the JOBS act’s goal of promoting capital formation.

The SEC’s crowdfunding rules will set the standards for exempt crowdfunding offerings to non-accredited investors, subject to a $1 million cap over a rolling 12-month period and dollar limits on an investor’s financial position.

TheCorporateCounsel.net is an educational service that provides guidance on legal issues involving corporate and securities regulation and corporate governance practices.

Source: fa-mag.com – Ted Knutson
Link: http://www.fa-mag.com/news/final-crowdfunding-rules-not-likely-until-late-2014-15305.html