Proposed Rules Just That, Proposed

SEC proposalA fundamental question that has been lingering for some time was answered recently by the Chair of the SEC, Mary Jo White. The question was, can a company start generally soliciting on September 23, 2013, and only comply with the final rules that go effective on that day, or do companies that generally solicit also have to comply with the proposed rules that were introduced on the same day?

If you are not aware, the final rules contain three requirements if you generally solicit:

  1. That you only take money from accredited investors. An “accredited investor” is generally an investor that either (i) made more than $200,000 a year for the last two years, with the expectation of the same in the current year, or $300,000 with spouse; or (ii) has a net worth in excess of $1,000,000 excluding primary residence (but taking into account debt on the residence to the extent that it exceeds the FMV of the residence).
  2. That you take reasonable steps to verify the accredited investor status of your investors and keep records you did so. This means reviewing Forms W-2 and financial statements, etc.
  3. That you check a box on your Form D that you generally solicited.

The proposed rules require much, much more.

  1. That you file an Advance Form D 15 days before generally soliciting;
  2. That you submit your written offerings materials to the SEC;
  3. That you include legends on all of your written general solicitation materials;
  4. That you file a closing amendment to your Form D after the termination of your offering; and
  5. That your Form D include a lot more information.

In addition, it is the proposed rules that contain the onerous 1 year penalty box provision if you miss a Form D filing deadline.

In her letter to Congressman McHenry, Chair White confirmed that issuers will not have to comply with the proposed rules on September 23, 2013.

“Issuers are not required to comply with any aspect of the Commissioner’s July 10th rule proposal until such time as the Commissioner may approve a final rule and such rule becomes effective.”

This is obviously good news.

You can find a link to the letter here:


About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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