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SEC Proposes New Rules for General Solicitation and Advertising

SEC Proposes New Rules for General Solicitation and Advertising

Get ready to hear a lot more about all sorts of startups and other ventures that want your money, so long as you're an accredited investor, that is. That's the likely outcome if proposed new rules from the U.S. Securities and Exchange Commission survive the public comment period and further debate unchanged.

The SEC's proposed rules would lift the ban on general solicitation and advertising for certain types of securities -- specifically those that rely on Rule 506 for you SEC regs buffs.

The commission's proposed rules leave the options for solicitation and advertising more or less wide open, with just a few caveats, according to the SEC's own summary:

Under the proposed rules, companies issuing securities would be permitted to use general solicitation and general advertising to offer securities, provided that:

  • - The issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors.
  • - All purchasers of securities are accredited investors, because either:
  1. * They come within one of the categories of persons who are accredited investors under existing Rule 501.
  2. * The issuer reasonably believes that they meet one of the categories at the time of the sale of the securities.

The new rules are part of the SEC's efforts to comply with some of the new requirements laid out by the JOBS Act, signed into law by President Obama in April. The commission had previously delayed issuing the rules, finally issuing them on Wednesday.

“I believe that the proposed rules fulfill Congress’s clear directive that issuers be given the ability to communicate freely to attract capital, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings,” said SEC Chairman Mary Schapiro.

While the new rules are not part of the new crowdfunding provisions of the JOBS Act, they hold the potential to impact the emerging crowdfunding for equity industry in the United States, particularly those platforms that plan to target accredited investors.

The commission will accept public comment on the proposed rules for thirty days before meeting to review the comments and voting whether or not to adopt the rules.

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