On July 10, 2013, the Securities and Exchange Commission voted to approve new amendments to Regulation D to implement Section 201(a) of the Jumpstart Our Business Startups (JOBS) Act removing the prohibition on general solicitation for offerings to accredited investors under Rule 506. The amendments will allow start-up and operating businesses as well as hedge funds and other private funds to raise money through general solicitation and advertising, neither of which are permitted currently.

The amendments to Rule 506 allow companies and funds to engage in general solicitation and advertising to offer and sell securities pursuant to Rule 506 as long as (i) all purchasers of the securities are "accredited investors" (as defined in Rule 501), (ii) the issuer takes reasonable steps to verify that all purchasers are accredited investors, and (iii) all other conditions to the Rule 506 exemption are met.

Under the new rules, the issuer will need to take reasonable steps to determine that each investor is accredited. Whether the steps taken are "reasonable" will be an objective determination by the issuer, in the context of the particular facts and circumstances of each purchaser and transaction. The SEC noted that the issuer should consider the nature of the purchaser and the amount and type of information that the issuer has about the purchaser; the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering; and the terms of the offering, such as a minimum investment amount. The amendment to Rule 506 includes a non-exclusive list of methods that issuers may use to verify that purchasers are accredited investors.

In connection with these changes, Form D is also being amended to require issuers to indicate whether they are relying on the provision that permits general solicitation and advertising in a Rule 506 offering.

While the SEC has approved the amendments, it has not yet released the final rule. Accordingly, we urge clients to refrain from utilizing general solicitation and advertising until the amendments become effective.