SEC Proposes Amendments to Reg D and Rule 144A

Private Funds

On August 29th, the SEC proposed rules aimed at easing the restrictions on a private fundís ability to advertise. As we explained in a prior Compliance Alert, the recently enacted Jumpstart Our Business Act (JOBS Act) requires the SEC to eliminate the prohibitions against general solicitation and advertising in offerings under Rule 506 of Regulation D and Rule 144A. The proposed rules seek to do just that.

First, proposed Rule 506(c) allows general solicitation of privately offered securities provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that the purchasers are accredited investors. The proposal retains the exemption under existing Rule 506(b), which allows funds to sell to non accredited investors if they do not generally solicit the fund.

Among other provisions, the proposed rule also:

  • Confirms that private funds can engage in general solicitation pursuant to new Rule 506(c) and still qualify for 3(c)(1) and 3(c)(7) exemptions.
  • Declines to include provisions governing the content and manner of advertising.
  • Revises Form D to add a separate check box for issuers to indicate whether they are claiming an exemption under the new rule.
Second, the proposed rule amends Rule 144A to permit resales of securities through the use of general solicitation so long as the securities are sold to a Qualified Institutional Buyer (QIB) or a purchaser the seller reasonably believes is a QIB.

The JOBS Act required the SEC to adopt these rules within 90 days of the passage of the Act. The Commission missed this deadline but indicated that it intended to issue an interim final rule on August 22nd. In a last minute decision, the Commission instead decided to follow the standard procedure of proposing a rule for public comment. The comment period is 30 days. We will provide an update once the SEC issues its Final Rule.








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