Jobs Act Relaxes Rules for Advertising and Solicitation
The Jump Start Our Business Startups Act (“JOBS Act”) contains a significant change in the rules pertaining to securities regulation. While most attention has been directed to the crowdfunding legislation, we believe that the most significant change is to the solicitation and advertising rule for Regulation D offerings to accredited investors.
The JOBS Act directs the Securities and Exchange Commission (“SEC”) to adopt rules within 90 days to provide that the prohibition against general solicitation or general advertising shall not apply to offers and sales of securities to accredited investors. This change does not relax the prohibition on advertising for sales to non-accredited investors.
However, the JOBS Act invites the SEC to adopt rules that will require issuers to take reasonable steps to verify that purchasers of securities are accredited investors. We believe that the SEC will use this invitation to significantly tighten the due diligence requirements for issuers to verify accredited investor status.
Clients are cautioned to refrain from acting on these significant developments until the SEC adopts the new regulations. We will provide further updates when the SEC issues these new rules.
We expect an explosion of advertising by issuers using all sorts of communications methods to seek and attract accredited investors. Issuers adopting advertising methods to attract accredited investors will need to become familiar with rules regulating advertising. Those rules generally prohibit false, misleading and deceptive advertising. In addition, rules also regulate unsolicited emails and other forms of unsolicited communication. Once the SEC has adopted its rules, issuers should proceed carefully to avoid liability for breach of rules on advertising in addition to compliance with new SEC requirements expected with respect to verification of accredited investors.