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How will the SEC’s New Reg D Rules Affect Offerings by Private Funds?
July 17, 2013 download PDF
On July 10, 2013, the SEC approved final rules that eliminate the prohibition against general solicitation and general advertising in certain offerings of securities pursuant to Rule 506 of Reg D and Rule 144A under the Securities Act. The SEC also approved final rules disqualifying felons and other "bad actors" from Rule 506 offerings, and proposed related amendments to Reg D, Form D and Rule 156 under the Securities Act.
Although new Rule 506(c) allows for the use of advertising in connection with fundraising activities, there are certain limitations for private funds relying on Rule 506(c):
- the inability to rely on Section 4(a)(2) of the Securities Act as an alternative for inadvertent failure to comply with Rule 506(c);
- increased compliance burdens and costs due to the new verification of accredited investor status requirements;
- proposed filing of an initial Form D prior to commencing any general solicitation and heightened disclosure requirements;
- greater risk of running afoul of the anti-fraud rules while engaging in general solicitation activities; and
- lack of harmonization with the exemptions contained in CFTC Rules 4.7(b) and 4.13(a)(3) (which include restrictions against "marketing to the public").