On June 10, 2013, the SEC put into effect provisions of the JOBS Act intended to make it easier for companies and funds to conduct private placements by issuing final rules allowing for general solicitations and general advertisements in the sale of securities. The rules go into effect on or about September 23, 2013.
Before the rule change, no company or fund could advertise a sale of stock or other securities on the radio or television, in print advertisements, or on the internet. These were formerly thought of as public offerings, and the only type of public sales the SEC allowed were traditional public offerings, which are expensive and require a number of public filings with the SEC, audited financial statements, and a whole lot more. The new rules allow for general public advertisement so long as the company or fund takes “reasonable efforts” to make sure that they only actually sell the securities to “accredited investors” (individuals who meet the SEC rules intended to ensure that they have the money or experience to make, and possible lose, their investments).
The extent to which companies will need to do additional background work to satisfy the “reasonable steps” requirement is now heightened, especially when the investor is an individual. For instance, the SEC provided some guidance that, for individuals, companies are likely to be able to satisfy the “reasonable steps” requirements by obtaining bank statements and tax returns or by obtaining certifications from accountants, attorneys or financial planners. A simple investor questionnaire or list of representations and warranties signed by the investor may no longer be enough. Considering that the additional background work may result in a chilling effect on investors, companies will need to consider carefully whether taking advantage of the new rules makes sense.