The JOBS Act which passed in April 2012 had specific crowdfunding provisions for changing regulations in the marketing of private placement securities. On Wednesday (April 29), Securities and Exchange Commission (“SEC”) Chairwoman Mary Shapiro announced an SEC proposal to allow general solicitation and advertising for marketing of private placement securities (Rule 506 and Rule 144A) to accredited investors. The SEC is inviting public comments.

Generally, an individual accredited investor is a person who makes $200,000 a year and has a net worth (exclusive of home) of $1 million. Accredited investors may also include companies, organizations, pension funds, etc. On Menu see Private Placement > Regulation D.

Mary Shapiro indicated that “In recent years, the need for the prohibition against general solicitation has been the subject of increasing debate, particularly in light of changes in communication technologies. New technologies have caused many to question the feasibility and continued desirability of communication restrictions in private offerings.”

The SEC proposal places the burden onto the issuer to “take reasonable steps to verify that purchasers of the securities are accredited investors.” Issuers can also rely on third parties, such as broker dealers for verification of investors.

Marketing Importance
The significance of the proposed ruling will be in the internet marketing of private placement securities. Websites, Facebook, Linkedin and other social/business networking application will now be able to promote securities targeted to potential accredited investors.

Shapiro further stated “I believe that the proposed rules fulfill Congress’s clear directive that issuers be given the ability to communicate freely to attract the capital they need, while obligating them to take steps to ensure that this ability is not used to sell securities to those who are not qualified to participate in such offerings.” The public has 30 days to comment on the proposal. Voting is expected in October with implementation later this year. 

The “Insurance Regulatory and Compliance Council” of the ACFIA is expecting to review the affect of general solicitation and advertising on Directors and Officers Liability insurance and will respond to the SEC with industry comments.

Investment Promotion
Richard Look, Executive Director of the American Crowdfunding Investment Association ("ACFIA") said “Companies can now directly interact with potential investors …and we are ready to help them.”

ACFIA offers a “Facebook for Business” service which provides professional Facebook pages to crowdfunding issuers. In addition, it also provides SEO, mobile applications and social/business networking marketing services.

Unfortunately, still no guidance regarding the crowdfunding provisions for small businesses seeking to raise $1 million or less from non-accredited investors. Hopefully, news will be forthcoming before December 31, 2012 deadline.