Private Placements and the Internet: Verifying Accredited Investors
In his Real Estate Securities column, Peter M. Fass reviews recent SEC guidance on Rule 506(c) offerings, under which issuers may more broadly solicit investors and publicize their offerings, and how issuers may determine that a prospective purchaser is an accredited investor.
December 01, 2015 at 04:28 PM
9 minute read
Starting in mid-2009 through February 2010, this column discussed the securities law considerations in connection with the offer and sale of unregistered real estate securities using the Internet. In light of changes in Regulation D in July 20131 that eliminated the ban on general solicitation and general advertising of securities offerings conducted under Rule 506(c), the last column2 reviewed the relevant changes adopted by the Securities and Exchange Commission (SEC) as applicable to a private offering using the Internet. This column will review recent SEC guidance on Rule 506(c) offerings.
Overview of Rule 506(c)
The SEC amendment to Rule 506 of Regulation D that eliminated the ban on general solicitation and general advertising (General Solicitation) of securities offerings conducted under Rule 506(c) significantly liberalized the restrictions on publicity in connection with offers of securities made in reliance on Rule 506(c). It permits issuers to more broadly solicit investors and publicize their offerings.3 In addition, the SEC adopted rules prohibiting certain felons and other bad actors from utilizing Rule 506.4
Elimination of Prohibition on General Solicitation. Rule 506(c) permits the use of General Solicitation in connection with the offer and sale of securities pursuant to Rule 506, provided that (i) all purchasers of securities are accredited investors, (ii) the issuer takes “reasonable steps” to verify that purchasers are accredited investors, and (iii) the offering complies with the other applicable requirements of Regulation D. Under Rule 501, the definition of “accredited investor” includes persons whom the issuer reasonably believes come within any of the enumerated categories of accredited investor at the time of the sale of the securities to that person.
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