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As we know, the Jumpstart Our Business Startups (JOBS) Act requires the SEC to promulgate new rules to eliminate the ban on general solicitation and advertising in Regulation D private offerings, so long as only accredited investors ultimately purchase in the offering. This is a very dramatic change and has the potential to usher in a new era of Internet-based offerings as well as solicitation through email blasts and newspaper advertising. It might especially help new private equity and venture funds interested in wealthy investors that previously might not have had access to these types of opportunities.
The proposed rules were due July 5, but before that the SEC announced it needed a bit more time. The key question: the JOBS Act requires the SEC to let us know exactly how to confirm that someone is accredited. In the past it was up to individual companies and their advisors to determine how to verify someone's accredited status. The hope is that the SEC does not add draconian burdens on companies hoping to benefit from the ability to advertise and solicit.
Many professoinals active in the space believe it should be sufficient to continue the customary approach of requiring investors to complete a separate "check the box" statement of accredited investor, requiring them to be fully aware that they are being asked to confirm not only that they are accredited, but how. One assumes the SEC is not seeking to protect folks who simply lie on these forms, here the company should not be penalized so long as it is not complicit in the misleading effort.
A legitimate concern the SEC has expressed is that investment bankers in offerings sometimes "help" investors fill out the accredited statement and the investor doesn't even realize what they are signing. Maybe the SEC can require a handwritten confirmation by the investor that he understands that they completed the form themselves and that the information in the statement is correct under the penalty of perjury. Or just put the language in large bold print right above the signature.
Hopefully we will see how the staff sees this soon.
For additional insights on reverse mergers, SPACs, other alternatives to traditional initial public offerings, the small and microcap markets and the economy, visit the Reverse Merger and SPAC Blog by David N. Feldman, Esq., Partner of Richardson & Patel LLP.
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