On July 10 the Securities and Exchange Commission (“SEC”) amended Rule 506 of Regulation D to implement Section 201(a) of the Jumpstart Our Business Startups Act (the “JOBS Act”). The amendments to this Rule caused quite a stir in the securities industry by releasing a long-standing ban on hedge funds preventing general solicitation in the marketplace. In response to this fervor over the controversial passage of Rule 506’s advertising release, further amendments to Regulation D, Form D and Rule 156 under the Securities Act have been proposed by the SEC, changes that are, according to the SEC, “expected to enhance the SEC’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506.”
Most importantly, these amendments would require an issuer to include additional information about offerings conducted in reliance on Regulation D. Some of the requirements for the implementation of the revised Rule 506, include:
- Filing a Form D in Rule 506(c) offerings before the issuer engages in general solicitation;
- Filing a closing amendment to Form D after the termination of any Rule 506 offering;
- Explication of certain legends and other disclosures in written general solicitation materials used in Rule 506(c) offerings;
- Submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission; and
- The disqualification of any issuer relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate of the issuer, did not comply with Form D filing requirements in a Rule 506 offering within the last five years.
Additionally, the SEC is proposing to amend Rule 156 under the Securities Act to apply to sales literature and advertising produced by private funds. As such, private fund managers and compliance personnel should review information contained within this “anti-fraud” rule and evaluate the potential impact on their firm.
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