I was talking to a group over breakfast the other day about the JOBS Act and the new rules we hoped would soon be finalized regarding general solicitation (this was before the final rules came out). And I was summarizing the current rules. I got to the point in my presentation where I quote the current rule. The part that says companies relying on Rule 506 can’t “offer or sell” securities by any form of general solicitation or general advertising, including but not limited to:
- “Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.”
And I quoted the rule on my slide. The rule reads as follows (emphasis is mine):
- Except as provided in Rule 504(b)(1), neither the issuer nor any person acting on its behalf shall offer or sell the securities by any form of general solicitation or general advertising, including, but not limited to, the following
- Any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio; and
- Any seminar or meeting whose attendees have been invited by any general solicitation or general advertising;
A person in my audience was surprised. “Wait a minute,” he said. “Doesn’t this happen all the time?”
My response was, “Well, it shouldn’t happen.”
But he was concerned. He was concerned that he had never heard this before. That maybe some of the angel groups he was participating in weren’t following this rule – that members of the general public were being invited to these meetings where companies were pitching. I suggested to him that it might be a good idea to remind any groups he was involved with about these rules.
The old rules are still the existing rules for companies trying to raise money in non-generally solicited offerings (which are known as 506(b) offerings). If you are a company trying to raise money in a Rule 506(b) (non-generally solicited offering) offering and you want to preserve your Rule 506(b) exemption, you cannot pitch your deal to angel groups if those angel groups invite attendees by any general solicitation or general advertising. I suspect this is one of the reasons companies are going to gravitate toward 506(c) offerings (i.e., generally solicited offerings), rather than 506(b), in the future.