Rule 506 Revolution: The SEC Adopts Significant Amendments to the Rules Regarding Private Offerings of Securities


On July 10, 2013, the Securities and Exchange Commission (SEC) adopted the new, much-anticipated rules that lift the ban on general solicitation and advertising in connection with certain private offerings of securities. In April 2012, Congress passed the Jumpstart our Business Startups (JOBS) Act, a revolutionary piece of legislation, which, among other things, directed the SEC to adopt rules permitting general solicitation and advertising in private offerings of securities. We are pleased that the SEC finally took action to remove the ban on general solicitation and advertising in connection with the private placement of securities pursuant to Rule 506 of Regulation D and resales of securities pursuant to Rule 144A. We believe these changes will have a significant positive economic impact.

In addition to the adoption of the rules relating to general solicitation and advertising, the SEC adopted bad actor provisions for Rule 506 offerings as required by Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). Under the bad actor provisions, an issuer can be disqualified from utilizing the Rule 506 exemption in connection with a private offering of securities if the issuer or certain related persons have committed certain bad acts.

Both of these new rules will be effective 60 days after publication in the federal register, which we expect to occur in the next few days.

Also on July 10, 2013, the SEC issued a series of proposals relating to the proposed amendment of Regulation D and Form D to enhance the SEC’s ability to monitor and analyze Rule 506(c) offerings and to provide guidance to private funds on applying the antifraud provisions of the federal securities laws to such funds’ sales literature. The SEC plans to monitor the use and implementation of Rule 506(c) and undertake a review of market practices in Rule 506(c) offerings and the impact of these amendments on capital formation.

To read the full alert, click on the PDF linked below.


If you have any questions about this topic, please contact a member of our Venture Capital/Emerging Company or Capital Markets and Securities practice groups.


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