SEC Announces Proposed Amendments to Rule 506

Rule 506 in Regulation D
allows companies to raise unlimited amounts of new capital provided that sales
are limited to “accredited investors” and to no more than 35 non-accredited
investors, provided that each of the non-accredited investors, either alone or
with his or her purchasing representative, has the knowledge and experience in
financial and business matters that he or she is capable of evaluating the merits
and risks of the prospective investment, or the issuer reasonably believes
immediately prior to making any sale that such purchaser comes within this
description.  The Jumpstart Our Business
Startups Act, or JOBS Act, provides that the long-standing prohibition against
“general solicitation” or “general advertising” in Rule 502(c) of Regulation D
does not apply to offers and sales of securities made pursuant to Rule 506,
provided that all purchasers of the securities are accredited investors. On August 29, 2012, the SEC proposed amendments to
Rule 506 that included a proposed new Rule 506(c) that provides that the
prohibition against general solicitation and general advertising contained in
Rule 502(c) does not apply to offerings of securities made pursuant to Rule
506(c), subject to the following conditions: the issuer takes reasonable steps
to verify that the purchasers of the securities are accredited investors; all
purchasers of securities are accredited investors either because they come
within one of the enumerated categories of persons that qualify as accredited
investors or the issuer reasonably believes so at the time of sale; and the
issuer meets all terms and conditions of Rule 501 (the definitional part of
Regulation D), Rule 502(a) (the Regulation D integration rules), and Rule
502(d) (which provides that securities sold under Regulation D are restricted
securities under the Securities Act and thus cannot be resold without
registration under the Securities Act or the availability of an exemption from
the registration requirements).  

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