EB5 Investors Magazine Volume 2 Issue 1 | Page 67

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