August 7, 2013

JOBS Act: A new SEC rule removes general solicitation ban

Capital raising just got a little bit easier for private securities issuers, but accredited investors may find themselves newly inundated with marketing and advertising. The Securities and Exchange Commission (SEC) adopted a new rule on July 10, 2013, as required by the Jumpstart Our Business Startups (JOBS) Act of 2012, that lifts the ban on general solicitation or advertising for certain private securities offerings. The rule goes into effect 60 days after the date of publication.

The new rule is intended to make it easier for issuers to raise capital. The previous rule required issuers to register their securities with the SEC – a time-consuming and expensive process – or rely on exemptions such as the Rule 506 “private placement” exemption, which allows sales of securities to accredited investors (a type of sophisticated investor defined under the Securities Act of 1033) without the normal SEC registration process. However, issuers relying on the Rule 506 exemption were prohibited from general advertising or solicitation to accredited investors with whom they did not have an existing relationship, a restriction that severely curtailed their marketing efforts. With the ban lifted, issuers can significantly expand their marketing efforts, needing only to take reasonable steps to verify that the purchasers of the securities are accredited investors.

What does this mean for investors? It means you may see an influx of marketing materials soliciting investment in exempt private securities offerings. Because issuers don’t need to have an existing relationship to market these securities to investors, they can now target a much wider audience for advertising.

To read the SEC’s fact sheet, visit

To read the SEC’s press release, visit