The Securities and Exchange Commission released helpful guidance on some of the practical aspects of the new Rule 506(c) exemption for private offerings using general solicitation and advertising. The guidance comes in the form of Questions 260.05 – 260.13 in its Questions and Answers of General Applicability and include the following:
- Exemption is available to an issuer who takes reasonable steps to verify the accredited investor status of an investor and forms a reasonable belief that the investor is accredited at the time of the sale, even if the issuer subsequently learns that the investor did not qualify as such at the time of sale.
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If all purchasers are in fact accredited investors but the issuer did not take reasonable steps to verify their status, the issuer may not rely on the exemption because verification is a requirement separate from and independent of the requirement that sales be limited to accredited investors.
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Relevant documentation to verify accredited investor status under the net worth test must be dated within three months prior to the sale, rather than prior to the time of verification.
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Third-party verification may include foreign lawyers and accountants.
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An issuer that commenced a Rule 506(b) offering may shift to a Rule 506(c) offering so long as the conditions of Rule 506(c) are satisfied with respect to all sales of securities in the offering.
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If the conditions in a purported Rule 506(c) offering are not met, the issuer could not fall back to a Section 4(a)(2) private offering exemption if the issuer engaged in any form of general solicitation.
Our earlier blog on the rules for general solicitation Rule 506 offerings can be found here.