On Thursday afternoon, the US Senate passed the Jumpstart
Our Business Startups Act, a bill designed to make it easier for small
companies to raise capital. The centerpiece of the legislation is the
crowdfunding provision. However, the Senate passed an amendment to that section
of the legislation. That means the Senate version and the House version of the
law are different. It's up to the House to pass the Senate version, or meet in
conference to find a compromise.
The Senate did not change Title II of the legislation.
Those sections eviscerate the long-standing prohibition on general
advertisement and general solicitation of investors. Amendments to Title II
were proposed, but were shot down.
It seems like the House is willing pass the Senate
version of the legislation and the President is willing to sign it. That means
one of the biggest limitations to fundraising for private funds is likely to be
erased. It will take a few months after the passage of the law for the SEC to
change the regulations in Rule 506.
As early as this summer, the marketing opportunities for
private funds will dramatically increase. Maybe that's a fair trade for having
to register as an investment adviser with the SEC.
Here is the text of the bill:
TITLE II-ACCESS TO CAPITAL FOR JOB CREATORS
SEC. 201. MODIFICATION OF EXEMPTION
(a) MODIFICATION OF RULES.- (1) Not later than 90 days
after the date of the enactment of this Act, the Securities and Exchange
Commission shall revise its rules issued in section 230.506 of title 17, Code
of Federal Regulations, to provide that the prohibition against general
solicitation or general advertising contained in section 230.502(c) of such
title shall not apply to offers and sales of securities made pursuant to
section 230.506, provided that all purchasers of the securities are accredited
investors. Such rules shall require the issuer to take reasonable steps to
verify that purchasers of the securities are accredited investors, using such
methods as determined by the Commission. Section 230.506 of title 17, Code of
Federal Regulations, as revised pursuant to this section, shall continue to be
treated as a regulation issued under section 4(2) of the Securities Act of 1933
(15 U.S.C. 77d(2)).
(2) Not later than 90 days after the date of enactment of
this Act, the Securities and Exchange Commission shall revise subsection (d)(1)
of section 230.144A of title 17, Code of Federal Regulations, to provide that
securities sold under such revised exemption may be offered to persons other than
qualfied institutional buyers, including by means of general solicitation or
general advertising, provided that securities are sold only to persons that the
seller and any person acting on behalf of the seller reasonably believe is a
qualified institutional buyer.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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