Lifting the Ban on General Solicitation and General Advertising

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.