Regulation S
Regulation S provides an exemption from registration for
those offers and sales of securities that occur outside of the
United States. This exemption is less restrictive about general
solicitation, but it does not preempt state law or foreign laws, so
issuers are still required to comply with the applicable state laws
that may prohibit general solicitation. Notice filing with the
SEC is not required for this exemption. In order to qualify for
exemption, the following conditions must be met: 1) the offer
or sale must be made in an “offshore transaction”; 2) there must
not be any “directed selling efforts” in the United States (i.e.,
websites or magazines that are viewable in the United States
cannot be used), and 3) depending on the category under Rule
903(b) of Regulation S that the securities fall under, the offer
and sale must meet certain other conditions for that category.
Changes to Rule 506 relating
to general solicitation
With the Jumpstart Our Business Startups Act of 2012
(“JOBS Act”), Congress required the SEC to amend Rule 506 of
Regulation D to permit issuers of securities in private placements
to raise capital through general solicitation and advertising.
To implement the JOBS Act requirements, the SEC adopted
paragraph (c) of Rule 506. Rule 506(c) provides that issuers can
offer securities through means of general solicitation if: 1) all purchasers in the offering are accredited investors; and 2) the issuer
takes reasonable steps to verify the purchasers’ accredited investor
status. Offerings utilizing Rule 506(c) will still be able to raise an
unlimited amount of capital, but unlike Rule 506(b), Rule 506(c)
does not allow any non-accredited investors to purchase securities
in a Rule 506(c) offering, and it does allow public advertising.
This new rule became effective on September 23, 2013.
In order to implement Section 926 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, the SEC has also
adopted provisions 506(d) and 506(e), which disqualify “bad
actors” from relying on Rule 506 (b) or (c). Under Rule 506(d), an
offering may not rely on Rule 506 if the issuer or any other person
covered by the rule has a relevant criminal conviction, regulatory
or court order or other disqualifying event