10 Implications Of SEC's Repeal Of General Solicitation Rules

In a historic and long-anticipated move to make private placements less "private," the Securities and Exchange Commission (SEC) recently adopted final rules allowing general solicitation and general advertising in private placements so long as:

The issuer takes reasonable steps to verify that the investors are "accredited investors;" and All investors meet the requirements of accredited investors or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities. Issuers can offer the securities to anyone, through any medium, including the Internet or any social media, even if they do not qualify as an accredited investor, so long as only accredited investors actually purchase the securities. The SEC is also maintaining the existing regime of Regulation D private placements, which includes investors below the accredited investor minimums but without any public advertising or solicitation.

Accredited investors generally are natural persons whose individual net worth with their spouse exceeds $1 million, excluding the value of their home and any related indebtedness. It also includes an individual with net income of greater than $200,000 ($300,000 when combined with that of their spouse) in each of the last two years with a reasonable expectation to meet that level in the current year. There are separate categories for entities, like partnerships and limited liability companies.

"Reasonableness" is an objective assessment by the issuer, considering the facts and circumstances of each purchaser and the transaction, including:

Nature of purchaser and type of accredited investor that it claims to be; Amount and type of information issuer has about the purchaser; and Nature of the offering, such as manner in which purchaser was identified, and terms of offering, like minimum investor amount. The SEC provides a non-exclusive list of methods issuers can use to satisfy the verification process, including reviewing copies of IRS forms that report income plus a written representation that the purchaser will likely continue to earn the necessary income in the current year. Additionally, the issuer can satisfy the requirements by receiving a written confirmation from a registered broker-dealer, SEC registered investment adviser, licensed attorney or certified public accountant that an entity or person has taken reasonable steps to verify the purchaser's accredited status within prior three...