All ADMS lists are guaranteed to be of the highest quality in the industry. Lists are updated quarterly, NCOA'd twice a year and certified to be 93% accurate.      
1-800-527-5080

American Direct Marketing Services Blog

SEC Repeals Ban on Securities Advertising to Accredited Investors

by Scott Casson | Oct 31, 2013

Recently, the Securities and Exchange Commission amended Rule 506 of Regulation D to implement Section 201(a) of the JOBS Act, meaning companies and investment firms can openly advertise the sale of securities. Prior to July repeal, even accredited investors or those with accredited investor status were not privy to open, public solicitations to buy securities.

"In connection with this new rule, the Commission voted to issue a rule proposal requiring issuers to provide additional information about these securities offerings to better enable the SEC to monitor the market with that ban now lifted. The proposal also provides for additional safeguards as this market changes and new practices develop," the SEC said in a statement. 

Under the existing rules, firms looking to raise capital from qualified accredited investors through the sale of securities must either register the securities offering with the SEC or rely on an exemption from registration, as stated by the SEC.

With the passage of the new rules, there is some burden on the issuer or seller of the securities to ensure accredited and qualified investors really are accredited and qualified. "All purchasers of the securities fall within one of the categories of persons who are accredited investors under an existing rule (Rule 501 of Regulation D) or the issuer reasonably believes that the investors fall within one of the categories at the time of the sale of the securities," according to the SEC.

The current version of Rule 501, the SEC considers accredited investors to fit at least one of the following two criteria:

1) An individual net worth or joint net worth with a spouse that exceeds $1 million at the time of the purchase, excluding the value (and any related indebtedness) of a primary residence.

2) An individual annual income that exceeded $200,000 in each of the two most recent years or a joint annual income with a spouse exceeding $300,000 for those years, and a reasonable expectation of the same income level in the current year.

Under the new rules qualifying accredited investor leads and verification of accredited investor status must take place through reviewing copies of any IRS form that reports the income of the purchaser and obtaining a written representation that the purchaser will likely continue to earn the necessary income in the current year, says the SEC.

The other avenue for verification of accredited investor status is "receiving a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that such entity or person has taken reasonable steps to verify the purchaser's accredited status."

"Issuers will still be able to sell securities under Rule 506 (b) in offerings that do not involve general solicitation in which they may sell to an unlimited amount of accredited investors and up to 35 non-accredited investors," according to  Sichenzia Ross Friedman Ference LLP.

However, it should also be noted that Rule 506 (c) presents new opportunities for gathering accredited investor leads.  In addition to the traditional advertising arena, accredited investors leads will be able to be solicited through online and social media channels, including Facebook, Linked-In as well as from crowdfunding sites or other new yet to be launched online/mobile platforms.

So what does all this mean?  First of all, issuers can still sell securities under Rule 506 (b) to non-accredited investors as long as the offerings do not involve general solicitation or advertising.  So nothing really changes there. 

On the flip side, issuers that sell securities that are advertised on the various media channels mentioned above (and fall into the category of general solicitation) must only accept money from accredited investors.  In this new self policing environment the SEC is leaving the qualification of the investor in the hands of the issuers or the lawyers. 

The point is now that the general solicitation barrier has been lifted, numerous companies across all industries and market sectors will have the power to solicit funds from accredited investors.  Fairly soon you could see be a flood of advertisements coming from issuers via email, direct mail, T.V., telemarketing, radio and social media...and who know how much more once the SEC finalizes their equity based crowdfunding laws.

Will these new laws create more headaches, problems and fraud?  Or will they do what their intended to do; create more jobs and fund exciting new companies.  2014 will definitely be the year to find out.  At the very least, the impact on the Venture Capital Industry alone will be an intriguing study.

As I have mentioned before and to be perfectly clear about the above discussion, American Direct Marketing Services, Inc. is not offering legal, financial, or consulting services whatsoever…you should consult with and seek advice from your own advisors regarding the ways to achieve your personal, business and financial goals. 

      All ADMS lists are guaranteed to be of the highest quality in the industry. Lists are updated quarterly, NCOA'd twice a year and certified to be 93% accurate.