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JOBS Act The “ Jumpstart Our Business Startups Act ,” also known as the “ JOBS Act ,” was signed into law by President Obama on April 5 , 2012 . Among other things , such as increasing the number of owners ( e . g ., shareholders , members , limited partners ) a company may have before being required to register its ownership interests ( e . g ., common stock , membership interests , limited partner interests ) with the SEC and become a publicly reporting company , the JOBS Act lifts the current ban on general solicitation and advertising in Rule 506 offerings sold exclusively to accredited investors . While the law was signed into effect , the SEC was required to formally make amendments to existing rules in order to implement the changes in the law . On Aug . 29 , 2012 , the SEC proposed certain amendments pursuant to the JOBS Act ; however , they have not been formally adopted . As required by the JOBS Act , the proposed amendments included an elimination of the prohibition against general solicitation and general advertising with respect to offers and sales of securities made pursuant to Rule 506 , provided that all purchasers are “ accredited investors .” The proposed amendments also obligate issuers to take “ reasonable steps ” to verify that the purchasers of the securities are “ accredited investors .” While specific verification methods were not prescribed , it seems that there would be a heighten standard over the current standards for verification . It is important to note that while the JOBS Act has been passed , and amendments have now been proposed by the SEC , final amendments have not yet been adopted by the SEC . As a result , issuers should tread cautiously in relying on the JOBS Act until greater certainty surrounding the law is established .
Reg S Reg S is entirely different in its approach than Reg D . Essentially , Reg S exempts offers and sales of securities “ that occur outside the United States ” from Section 5 of the Securities Act , which contains the principal obligations for issuers to register securities under federal law . Note that Reg S does not address blue sky or foreign laws , so a Regional Center would still have to address those issues and comply with such laws .
An offer or sale of securities is deemed to occur outside the United States if ( 1 ) it is made in an offshore transaction ; ( 2 ) it is made without any directed selling efforts in the United States ; and ( 3 ) it meets certain other conditions , depending on what category ( Category 1 , 2 or 3 ) under Rule 903 ( b ) of Reg S applys to the securities being issued . Most Regional Centers issue “ Category 3 ” securities , which are subject to the most conditions .
Though Reg S seems to set forth the conditions quite simply , one must carefully review the definitions for certain terms , such as “ distribution compliance period ,” “ offshore transaction ,” “ directed selling efforts ,” “ offering restrictions ,” “ U . S . person ” and others , as those definitions provide crucial guidance in interpreting the rules governing Reg S . One benefit of Reg S is that , unlike Reg D , it does not require filing of any notice with the SEC in order for it to be available as an exemption .
Simultaneous Offerings A Regional Center relying primarily on the Reg S exemption may also concurrently utilize other available exemptions . A Regional Center may choose to conduct an offering using multiple exemptions because one exemption does not cover all the investors the Regional Center plans to seek or because it desires to have a backup exemption in case its primary exemption fails . This allows for a Regional Center to conduct offerings under multiple exemptions , such as a simultaneous offering under both Rule 506 and Reg S . Careful attention must be paid to the method of offering and sale of the securities to make sure that the Regional Center is in compliance with all of the conditions of each exemption it hopes to rely upon .
Compliance Compliance with the requirements of Rule 506 and Reg S is extremely important . While some mistakes may not jeopardize a Regional Center ’ s ability to rely on the claimed exemptions , others may invalidate the Regional Center ’ s ability to do so . If the criteria permitting reliance upon the exemptions provided under Rule 506 or Reg S are not satisfied , a Regional Center would have to register or qualify the securities in order to legally sell them , unless the Regional Center was able to find alternative exemptions . Again , that process of registration or qualification will generally be much more painful and expensive than simply finding an exemption . In the case of Regional Centers , registration or qualification of securities would be impractical due to cost , timing and other factors . Beware that Regional Centers avoiding registration or qualification of securities at the state level due to reliance on Rule 506 and that Rule ’ s preemption of state securities laws would , in the case of failure to qualify for the Rule 506 exemption , also have to either register the securities in all applicable states or find available exemptions in each one .
“ The Regional Center , and its key persons , can become subject to civil , and in severe cases , criminal liability for violations of these anti-fraud provisions .”
Anti-Fraud The second objective of the securities laws highlighted by the SEC is to “ prohibit deceit , misrepresentations and other fraud in the sale of securities .” Generally , both the federal and state securities laws address this objective by prohibiting a misstatement or omission of a material fact in connection with an offering of securities . Neither Rule 506 nor Reg S exempts securities offerings from the anti-fraud provisions of the various securities laws . The Regional Center , and its key persons , can become subject to civil , and in severe cases , criminal liability for violations of these anti-fraud provisions . Though the mandate to disclose information in a non-fraudulent manner seems simple , determining what is “ material ,” and therefore must be disclosed accurately , can be difficult . Generally speaking , something is considered material if there is a substantial likelihood that a reasonable investor would consider the fact to be important in deciding whether or not to invest .
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