• Major SEC Rule Change Opens New Era for Equity Fundraising
  • October 25, 2013 | Authors: Lee A. Harkavy; Jordan E. Reifler; Aaron D. Zibart
  • Law Firms: Wyatt, Tarrant & Combs, LLP - Memphis Office ; Wyatt, Tarrant & Combs, LLP - Louisville Office
  • A recent SEC rule change, (Rule 506(c)) will allow advertising and general solicitation in certain unregistered securities offerings. This change will allow startups and businesses seeking investors to reach a much broader audience.

    The basic requirements of the new rule are:

    • All purchasers must be accredited investors (net worth of $1 million or who earn at least $200,000 a year)

    • The issuer must take reasonable steps to verify that all purchasers are accredited

    • No “bad actors” may be involved in the offering

    The “bad actor” prohibitions will apply to all Rule 506 transactions - those relying on new Rule 506(c) and also those relying on the existing Rule 506(b) private offering exemption.

    Note: These rule changes are NOT to be confused with the “crowdfunding” portion of the JOBS Act. The SEC has yet to issue the rules needed to make equity crowdfunding a reality (at least for the non-accredited crowd), so that remains off-limits for now. Stay tuned.