SEC Advisory Committee on Small Business: Relaxing general solicitation restrictions in private offerings

This is the final blog on the SEC Advisory Committee on Small and Emerging Companies recommendations.  The final recommendation concerns relaxing or modifying restrictions on general solicitation in certain private offerings of securities.

Although this recommendation parallels the still unenacted Congressional mandate in the Jobs act, due almost a year ago but still not implemented, we continue support the Committee’s analysis and recommendation and hope that the SEC begins to take more seriously the mandates of the JOBS Act.

The Committee noted:

  1. Private offerings of securities pursuant to Section 4(2) under the Securities Act of 1933 (the “Securities Act”) are a successful instrument for facilitating capital formation by emerging privately held small businesses and smaller public companies;
  2. In offerings of securities conducted pursuant to Rule 506 of Regulation D (“Rule  506”), which is a safe harbor for private offerings of securities under Section 4(2)  of the Securities Act and the most widely used Regulation D exemption, neither  the issuer nor any person acting on the issuer’s behalf may offer or sell securities by any form of general solicitation or general advertising and securities sold  pursuant to Rule 506 must be sold to “accredited investors” or persons who, either  alone or with a representative, have sufficient knowledge and experience in  financial and business matters to make them capable of evaluating the merits and  risks of a prospective investment;
  3. The restrictions on general solicitation and general advertising prevent many privately held small businesses and smaller  public companies from gaining sufficient access to sources of capital and thereby materially limit their ability to raise capital through private offerings of securities;  and
  4. The investor protections afforded by the existing restrictions on general solicitation and general advertising are not necessary in private offerings of securities whereby the securities are sold solely to accredited investors.

So all three of us, Congress, the Advisory Committee, and we, and maybe you too, recommend that the Commission take immediate action to relax or modify the restrictions on general solicitation and general advertising to permit general solicitation and general advertising in private offering offerings of securities under Rule 506 where securities are sold only to accredited investors.

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