Rule 506 l Not for Bad Actors Anymore

On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adoptedRegulation D of the Securities Act of 1933, as amended (the “Securities Act”) to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The amendments to Rule 506 were originally proposed more than two years ago, on May 25, 2011. The final amendments to

Rule 506 l Not for Bad Actors Anymore

On July 10, 2013, the Securities and Exchange Commission (the “SEC” or “Commission”) adopted amendments to rules promulgated under Regulation D of the Securities Act of 1933, as amended

(the “Securities Act”) to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The amendments to Rule 506 were originally proposed more than two years ago, on May 25,

Private Placement Memorandums 101

A private placement memorandum (“PPM”) is also referred to as a confidential offering circular or memorandum. PPM’s are typcially prepared by securities lawyers who assist private companies with their going public transactions.  PPM’s are used to raise capital by selling either debt or equity in an exempt offering that has not been registered with the SEC. These exempt offerings are often called  private placements.  Most private placements are made pursuant to Rule 506 of Regulation D. This is particularly true after the JOBS Act.

 

PPM disclosures vary depending on several factors including whether the investor is accredited or non-accredited and whether the Company is subject to the SEC’s reporting requirements, among other things.

 

When a Company sells equit, it most often offers common shares to investors who then become shareholders of the Company.  In going

Rule 506(C) Verification of Accredited Investor Status

Rule 506(c) of Regulation D of the Securities Act became effective on September 23, 2013.   The rule fundamentally changes how private placements are conducted, by allowing issuers to engage in general solicitation and advertising of their private placements if specific requirements are met.

The SEC has confirmed that the Rule 506(c) exemption will not be forgiving for issuers who engage in general solicitation but fail to comply with its requirements.Even one sale to a non-accredited investor in s private placement will prevent the issuer from relying upon the exemption, making it a time bomb for issuers who fail to adopt proper compliance methods for their offerings.