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The JOBS Act: To Generally Solicit, Or Not To Generally Solicit?

William Carleton, Contributing Editor, VCExperts


It's been almost two weeks now since the SEC proposed rules to lift the ban on general solicitation and general advertising in Rule 506 offerings, as mandated by the JOBS Act.

A lot was at stake. I had said the rules could prove disastrous to angel investing, should the SEC specify methods of "verification" of accredited status that were too onerous for companies, or too invasive of investors' privacy.

But disaster didn't happen.

The Commission proposed that existing 506 be preserved, meaning that those companies comfortable with the process as it works today could continue under that process (without, of course, generally soliciting or generally advertising). That's a good thing. It will give the ecosystem as a whole more time to transition.

And, rather than mandate particular methods of verification (as the language of the JOBS Act arguably contemplates), the Commission instead said issuers should "take reasonable steps to verify" accredited status. What's reasonable will depend on the circumstances of the offering, the investors involved, the means of solicitation, the amounts invested, and other factors.

Some lawyers are thinking that companies and investors would be better served to have safe harbors, clearly spelled-out methods to follow to ensure that the issuer will be deemed to have "taken reasonable steps." I'll bet we see that point repeated in the comments on the proposed rules.

Other fresh, current reading on what the SEC did:

  • Be sure to read this memo from the Montgomery & Hansen law firm. It is the single best summary and analysis I've read.
  • My buddy and StartupTriviaDaily.com partner Joe Wallin covers the topic on his blog as well. His most recent post takes that view that general solicitation in 506 offerings will be good for startups.
  • Securities and hedge fund attorney John Myer blogs that the SEC let us down by refusing to define verification steps that will be deemed reasonable.

William Carleton

Bill is a member of McNaul Ebel Nawrot & Helgren PLLC, a Seattle law firm. He blogs every day at http://wac6.com.