Companies thinking about raising money under the new rule should consider whether the compliance burden is worth the hassle to make a general advertisement instead of making the offering through the traditional private placement channels to a defined group of people.

1. SEC Lifts Ban on Advertising for Certain Offerings | BizTaxBuzz
by Trevor Crow
biztaxbuzz.com/bizlaw/sec-lif ts-ban-advertising-certain-of f erings/
26thSeptemberSEC Lifts Ban onAdvertising for Certain
Offerings
Posted by Trevor Crow
On July 10, the SEC belatedly adopted a new rule allowing companies raising money to use general advertising when
offering and selling equity interests in the company. This new rule is a paradigm shift from prior laws regulating
securities offerings. The new rule became effective on September 23, 2013; thus companies are now permitted to use
general advertising under the new rule. This new rule permits companies to advertise securities offerings and will also
allow companies (and their lawyers) to feel more comfortable using social media, their website and speaking at
conferences while the company is raising money. Companies relying on this rule can only permit “accredited investors”
to purchase equity interests and must take reasonable steps to verify that these investors are accredited.
Investors Must be Accredited
Companies relying on the new rule may not take subscriptions from investors who do not fall within the definition of an
“Accredited Investor.” While there are several ways to qualify as an accredited investor, typically accredited investors
are individuals that meet minimum income or net worth requirements. You can find a more in depth discussion of
accredited investors here.
Reasonable Steps to Verify
The new rule does not mandate specific steps that issuers can use to satisfy the requirement to take “reasonable steps”
to verify that potential investors are actually accredited investors. However, it is likely not sufficient to simply rely on a
representation from the investor that he or she is accredited. The new rule contemplates an objective determination
based on the facts and circumstances of the relationship between the issuer and the investor. While the new rule does
contain a list of methods that an issuer may use to verify someone is an accredited investor, this is a non-exclusive list.
General Solicitation Materials
The SEC has also proposed amendment that would require the general advertising material to be disclosed to the
SEC. If these proposed amendments are adopted, it may make the use of the new rule very burdensome.
Bottom Line: Companies thinking about raising money under the new rule should consider whether the compliance
burden is worth the hassle to make a general advertisement instead of making the offering through the traditional private
placement channels to a defined group of people.