SEC Rules Providing Safe Harbor for Private Placements: General Condition of Information Disclosure, Solicitation Prohibition

A second general condition in the SEC rules allowing a safe harbor for a private placement is the mandatory provision of certain information described in the rules. The information includes audited financial statements and additional non-financial information. All of the investors must receive the same information.

Although the rules are changing on this particular issue, general solicitation of investors is currently prohibited. If the issuer and investor have a prior relationship, this is generally not a problem. If investors are approached individually and are sold by direct negotiation, solicitation is not likely to be a problem. At least in one instance, the SEC has taken the position that certain nonprofit matching activities between investors and opportunities do not count as violation of the solicitation.

It should be noted that a part of the JOBS Act passed by Congress, the SEC is preparing new rules which will eliminate the solicitation prohibition for certain offerings provided that the investor is an accredited investor.

Next up…What is an Accredited Investor for Private Placements?…

Leave a Reply

Your email address will not be published. Required fields are marked *