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SEC Repeals The Ban ON General Solicitation Under Rule 506

Posted by AGORACOM-JC at 8:44 AM on Thursday, July 25th, 2013

On July 10, 2013, Securities and Exchange Commission (the “SEC”) amended Rule 506 of Regulation D to implement Section 201(a) of the JOBS Act, allowing companies to openly advertise the sale of their securities in private offerings. Under the new Rule 506(c), an issuer can offer securities by way of general solicitation, or advertising provided that all purchasers of the securities are accredited investors under Rule 501 of Regulation D and the issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors.

Effects of the New Rules

The final rules will be effective sixty (60) days after publication in the Federal Register, which we expect to occur in the next few days. The elimination of the prohibition against general solicitation for a subset of Rule 506 offerings will enable issuers to solicit potential investors directly, through both physical (such as mailings, newspaper advertisements and billboards) and electronic (such as the Internet, social media, email and television) means. As a result, the SEC anticipates that issuers will be able to reach a much greater number of potential investors than is currently the case, thereby increasing issuers’ access to sources of capital.

“Reasonable Steps to Verify” Accredited Investor Status

Principles-Based Approach

The Rule 506(c) “reasonable steps” due diligence requirement may require some potential investors to provide more information to issuers than they currently provide and issuers may have to apply a stricter and costlier process to verify accredited investor status than what they currently use. The term “reasonable” is an objective determination by the issuer based on the particular facts and circumstances of each purchaser and transaction. Issuers should consider factors including:

The nature of the purchaser and the type of accredited investor that the purchaser claims to be.
The amount and type of information that the issuer has about the purchaser.
The nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

Natural Person Investors – Non-Exclusive List of Methods

To clarify what reasonable steps need to be taken, the SEC has included in Rule 506(c) a non-exclusive list of four methods for verifying if natural persons are accredited investors. These methods are:

Income Test. For accreditation on the basis of income, verification by reviewing copies of the two most recent years’ IRS tax forms that report income.
Net Worth Standard. For accreditation on the basis of assets, verification by reviewing (1) supporting asset documentation, such as bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments and appraisal reports issued by independent third parties; and (2) a written representation by the person dated within the prior three months stating that all liabilities necessary to make a determination of net worth have been disclosed.
Third-party Attestation. Obtaining a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney, or a certified public accountant that such person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that such purchaser is an accredited investor.
Existing Accredited Investors. Any natural person who invested in an issuer’s Rule 506(b) offering as an accredited investor prior to the effective date of Rule 506(c) and remains an investor of the issuer, for any Rule 506(c) offering conducted by the same issuer, the issuer is deemed to satisfy the verification requirement in Rule 506(c) with respect to any such person by obtaining a certification by such person at the time of sale that he or she qualifies as an accredited investor.

Rule 506(c) does not impose any formal record-keeping requirements but issuers are expected to document the steps taken to verify that purchasers are accredited. Such record-

keeping is necessary because the issuer has the burden of demonstrating that its offering is entitled to an exemption from the registration requirements of Section 5 of the Securities Act.

If the verification of purchasers presents difficulties and issuers do not wish to engage in general solicitation, such issuers will continue to have the ability under Rule 506(b) to conduct Rule 506 offerings subject to the prohibition against general solicitation.

For Further Information

If you have any questions regarding the information in this alert, please contact Richard I. Anslow at [email protected] or Gregg E. Jaclin at [email protected] or any attorney in the firm with whom you are regularly in contact with.

Disclaimer: This Alert has been prepared and published for informational purposes only and does not constitute advertising, a solicitation, or legal advice. Transmission of the materials and information contained herein is not intended to create, and receipt thereof does not constitute formation of, an attorney-client relationship.

About Anslow + Jaclin

Anslow + Jaclin servers diverse clients domestically and worldwide on unique and sophisticated securities and corporate matters including IPO’s, PIPEs, Registered Direct Offerings, reverse mergers, corporate finance, M+A and general corporate work. Anslow + Jaclin’s clients are publicly held corporations which include well-established and other business entities across a broad range of industries. Anslow + Jaclin has consistently been ranked as one of the top law firms in the United States by SEC New Registrations Report for the number of pre-effective IPO registrations advised. In addition, Deal Flow Media, Inc.’s The Deal Flow Report ranks Anslow + Jaclin as one of the top Issuers and Investors Legal Counsel for number of placements advised.

BREAKING: SEC Says “YES” To Social Media. AGORACOM Online IR Platform For Investor Relations & Disclosure

Posted by AGORACOM at 7:09 AM on Wednesday, April 3rd, 2013

This is simply big – and long overdue –  news out of the SEC last night.  In 2008, the SEC allowed companies to use their websites to conduct investor relations and make disclosure.  As of today, companies can now use social media sites to conduct investor relations, including the release of material news, data and information.


1.  Freedom To Communicate And Create Real Conversations With Investors – Until yesterday, small-cap CEO’s couldn’t say a thing about their businesses without consulting lawyers, their board and anybody else in the compliance process.  This made it extremely difficult – actually impossible – for small-cap companies to release any new information via anything but a press release, especially those small but important tidbits of information that didn’t warrant the expense of a press release.

For example, this specific decision arose from an incident that occurred last summer when NetFlix CEO, Reed Hastings, posted to Facebook that NetFlix had exceeded 1 billion hours in a month for the first time.  It was an important milestone that Hastings wanted investors to know about – but not necessarily something that warranted a press release or SEC filing.

The SEC took exception and opened an investigation in whether or not this violated selective disclosure rules.

However, as a result of this decision, the SEC now agrees that release of such information via social media sites is sufficient.  The only requirement is that all companies must make it clear to investors that they plan to use a particular social media site (i.e. AGORACOM).

In the case of AGORACOM, all clients issue press releases announcing the launch of their online IR community.  Until yesterday, those IR communities were used to post press releases and then answer questions from shareholders. NOW, small-cap executives can make a major leap forward by actually posting helpful information and data to help investors better understand their company and progress.

For example, a small-cap executive at a trade show can now go back to their hotel room and post an overview of the day including the number of visitors to their booth, product feedback, etc. Moreover, small cap companies can now provide regular updates on previously announced or brand new initiatives.  The possibilities are endless.  The most important thing is such disclosure can now lead to real conversations with investors that extend well beyond big material news.

This is critical for small-cap companies that typically don’t have or can’t afford a plethora of press releases and want to fill the information gaps with shareholders.

2.  Significant Savings – In the sentence above, I touched on the fact that most small-cap companies simply can’t afford a plethora of press releases.  As such, they are forced to release only the biggest, most important news, which significantly limited their frequency of communication with investors.  The only option was to issue more press releases and spend more $$.  With this new SEC decision, this is no longer an issue.

Moreover, small cap companies were often forced to issue “kitchen sink” press releases because they would piggyback smaller tidbits of information and updates with material press releases.  I don’t have to tell you how that causes expenses to skyrocket when you are being charged by the word.

3.  Size Doesn’t Matter – It doesn’t matter if your online shareholder audience is 200,000 or 200.  As long as you’ve clearly told investors where to look for your information, you’re good to go.

4.  Social Media vs Your Website – Investors simply don’t have time to navigate to every website of companies they’re either invested in, or interested in.  They overwhelmingly prefer financial communities such as AGORACOM, or even non-financial communities such as Twitter where all information is available under one roof.   Thanks to this decision, small-cap companies can now meet investors where they exist, rather than forcing them to visit stand alone websites that rarely change with the exception of new press releases.


This is a great day for small-cap companies and investors that want to truly engage in meaningful discussions without having to worry about disclosure rules and expenses.  To be clear, you are still going to issue important, material press releases by press release.

However, much like the NetFlix example above, it is all those valuable morsels and tidbits of information that can now finally be set free to open the lines of communications with current and prospective investors.

“Great day” is actually an understatement.  It is more accurate to say this day is monumental, even epic for small-cap investor relations.

To discuss this post and your next investor relations steps, contact me right now.


George Tsiolis, Founder


60 Minutes Fries Wall Street / SEC / Justice Department ….. Sarbox Officially A Joke

Posted by AGORACOM at 12:04 AM on Monday, December 5th, 2011

(CBS News) Two whistleblowers offer a rare window into the root causes of the subprime mortgage meltdown. Eileen Foster, a former senior executive at Countrywide Financial, and Richard Bowen, a former vice president at Citigroup, tell Steve Kroft the companies ignored their repeated warnings about defective, even fraudulent mortgages. The result, experts say, was a cascading wave of mortgage defaults for which virtually no high-ranking Wall Street executives have been prosecuted.

I blankly stared at my keyboard thinking of ways to succinctly articulate my thoughts on this matter for 10 minutes. I couldn’t do it. Not without embarking on a 1,000 word rant.

All I can say is that Wall Street will burn. That isn’t anger. It isn’t vengeance. It is simply the clear path upon which Wall Street has set itself upon.

The full 60 Minutes page on this story can be found here.

The full 60 Minutes video can be found in the two clips below.

SEC Provides Guidance On Super 8-K’s

Posted by AGORACOM at 11:57 PM on Tuesday, October 11th, 2011

(Via Richardson & Patel Newsletter)


In 2005, the SEC adopted a rule that required the filing of what is an equivalent to a public offering prospectus for a merger with a public reporting shell company. In recent months the SEC has taken to reviewing these transactions and issued advice based on these reviews.

The SEC has reiterated that virtually any acquisition, including by lease, merger or exchange, triggers the obligation to file a Super 8-K. Issuers were also reminded that Item 9.01(b) of Form 8-K requires pro forma financial information to be included, not just the financial statements of the acquired company. Additionally, any exhibits, including those representing material contracts, have to be in English. Clear disclosure of holding company and control arrangements, as well as a detailed description of both current and planned business going forward is also required. Lastly, if risk factors are included, they must be tailored specifically to the company.

The SEC also offered guidance pertaining to the involvement of officers in the company. If officers are not spending full time in the business, they should be specific about the time they do devote. It is also important to include a summary compensation table for the acquired company’s most recent fiscal year. In disclosing affiliate and related transactions, a two year look back prior to the public company’s latest fiscal year is required in describing the standards used to determine director independence

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