[Editor’s Note: The following update is authored by Ropes & Gray LLP]
On July 10, 2013, the Securities and Exchange Commission adopted an amendment to Rule 506 of Regulation D, promulgated under Section 4(a)(2) (previously Section 4(2)) of the Securities Act of 1933, to allow issuers to engage in “general solicitation” and “general advertising” in certain offerings made under Rule 506, so long as all purchasers of the securities in such offerings are accredited investors and certain other conditions are met (the “General Solicitation Amendment”). Congress directed the SEC to adopt the General Solicitation Amendment last year as part of the JOBS act. In a separate release, the SEC also adopted amendments to Rule 506 to disqualify issuers and other market participants from relying on Rule 506 if “felons” and other “bad actors” participate in the Rule 506 offering (the “Bad Actor Amendment”). The General Solicitation Amendment and the Bad Actor Amendment will go into effect 60 days from publication in the Federal Register, which is expected within the next few days. The SEC has also proposed new rules intended to enhance the SEC’s ability to evaluate and monitor the development of market practices in Rule 506 offerings and address concerns that may arise in connection with allowing issuers to engage in general solicitation and advertising under Rule 506.
This client alert summarizes the General Solicitation Amendment, the Bad Actor Amendment, and the proposed rules, and analyzes the potential impact of these rules on future offerings of private equity funds, hedge funds and other private funds. The alert also identifies considerations outside of Rule 506 that may continue to constrain funds and fund sponsors from taking full advantage of the General Solicitation Amendment.
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