SEC Issues Proposed JOBS Act Private Placement Rule

September 5, 2012

On Aug. 29, the Securities and Exchange Commission (SEC) issued a proposed rule that is designed to implement a JOBS Act requirement allowing companies to advertise seeking accredited investors for private placements. The law requires the SEC to have adopted a final rule by July 5.

Under Rule 506 of Regulation D, companies may accept investments from accredited investors without complying with the onerous regulations imposed on public companies.  Accredited investors are those with incomes over $200,000 ($300,000 joint) or a residence exclusive net worth of $1 million or more.

The JOBS Act forced the SEC to change its rules so that companies can advertise on the internet, in newspapers or otherwise seeking accredited investors to invest in their company provided that the company takes reasonable steps to verify that investors are accredited investors.

The proposed rule simply repeats the JOBS Act statutory requirement. It does not provide much guidance about what constitutes “reasonable steps to verify” that investors are accredited investors (although there is some discussion in the regulation preamble).  The proposed rule does not impose any specific requirement on those seeking investors.

The SEC is under pressure from state regulators, self-styled consumer groups, labor unions and others to change the proposed rule to adopt a complex and burdensome set of requirements on such investments that would effectively nullify this part of the JOBS Act.  It is necessary that small firms comment to the SEC urging that the rule not be changed to make the cost and expense of compliance so high that businesses will be prevented from seeking investors through this new JOBS Act provision.

Comments on the proposed rule are due 30 days after publication in the Federal Register. Thus, they are likely to be due in early October.

To read the proposed rule, click here.

To read NSBA’s August 2 Comments on this issue prior to the proposed rule being released, click here.

To submit comments, click here.