On November 13, 2013, the Division of Corporate Finance at the Securities and Exchange Commission (SEC) updated its "Securities Act Rules Compliance and Disclosure Interpretations" (or CDIs) to provide 11 new interpretations relating to new Rule 506(c) and revised Rule 144A.  The staff  is providing guidance on the new general solicitation rules and how they relate to private placements.  There are two new CDIs in Section 138 and nine new CDIs in Section 260 of the Securities Act Rules CDIs. 

Some interesting observations about the new interps.  Under Rule 506(c), which now permits general solicitation and advertising in connection with private placements of securities that are sold only to accredited investors, the issuer must take reasonable steps to verify that the investors are indeed accredited.  This requirement established a higher standard than the "reasonable belief" standard that applies to traditional private placements, where general solicitation and advertising are still prohibited.  The staff has now clarified that an issuer does not lose the ability to rely on Rule 506(c) for an offering if a person who does not meet the criteria for any category of accredited investor purchases securities in the offering, so long as the issuer took reasonable steps to verify that the purchaser was an accredited investor and had a reasonable belief that such purchaser was an accredited investor at the time of the sale of securities. [see Question 260.06]  So if an issuer is comfortable with the procedures it followed to verify accredited status, the offering will not be tainted if it turns out that an investor did not satisfy the standard.  Another interp that follows (see Question 260.07) highlights the staff's focus on the verification requirement.  It provides that an issuer may not rely on the exemption in Rule 506(c) if it did not take reasonable steps to verify that all persons investing in the offering satisfied the accredited investor criteria, even if, in fact, all of the investors were accredited.  The staff at the SEC seems very focused on the verification process used by issuers. 

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