The Securities and Exchange Commission (the “SEC”) today adopted a new rule implementing a JOBS Act requirement to lift the ban on general solicitation or general advertising for certain private securities offerings. In connection with this new rule, the SEC issued an amendment proposal requiring issuers to provide additional information about these offerings to better monitor the market with that ban now lifted. The proposal provides for additional safeguards as the market changes and new practices develop.
Continuing the momentum, the SEC also adopted a long-awaited rule that disqualifies felons and other bad actors from participating in certain securities offerings as required by the Dodd-Frank Act. Under this final rule, an issuer cannot rely on the Rule 506 exemption if the issuer or any other covered person had what the SEC considers a “disqualifying event,” briefly described as a securities-related criminal conviction, court injunction or restraining order, final bar order, SEC disciplinary, cease-and-desist or stop order, suspension or expulsion from membership in a self-regulatory organization, or U.S. Postal Service false representation order.
The final rule provides an exception from disqualification when the issuer can show that it did not know and, in the exercise of reasonable care, could not have known that a covered person with a disqualifying event participated in the offering. The disqualification applies only for events that occur after the effective date of this rule. However, matters that existed before the effective date and that otherwise would be disqualifying are subject to a mandatory disclosure requirement to investors.