SEC "Green Lights" Advertising: Proposed Amendments Would Provide Greater Access to Capital Sources

The SEC has proposed amendments to the private placement rules under Regulation D which would, among other things, allow for limited advertising by issuers in connection with sales of securities to large accredited investors.

We believe that the proposed rules would be directly helpful to private equity fund managers and promoters, and companies raising capital. The availability of limited advertising would provide managers forming and capitalizing new funds greater access to potential investors. The rules would permit managers to advertise the formation of new funds in newspapers, on the Internet, and in industry publications, and pay commissions to placement agents.

One of the largest impediments to raising private equity is the prohibition on general solicitation or advertising under the federal private securities offering exemptions. Recognizing the limits that the prohibition puts on capital raising efforts, the flow of information in the modern market, and the ability of large sophisticated investors to fend for themselves, the SEC has proposed amendments to the Regulation D private securities offering exemptions.

The most common federal private placement exemption used by issuers raising capital is the exemption provided by Rule 506 of Regulation D for sales to accredited investors. The SEC has proposed providing a similar exemption under a new Rule 507 for sales of securities to a new class of "large accredited investors." However, unlike Rule 506, the new exemption would allow for limited advertising of the issuer's securities. While the advertisement could only be in written form, it could occur in both print media or on the Internet. Issuers should consider before advertising their offering that investors not meeting the large accredited investor criteria will be ineligible to participate in the offering after advertising has been used.

Under the new rules, entities owning $10 million in investments would qualify as large accredited investors. Individuals having annual income of $400,000 (or $600,000 with one's spouse) or owning $2.5 million in investments would qualify as large accredited investors.

We will continue to follow the evolution of the proposed rules and their potential impact on capital raising. Allen Matkins represents private equity funds, managers, promoters, sponsors and investors in the formation and capitalization of new funds, as well as in the operation, acquisition and disposition of fund assets. We are particularly adept at representing funds, managers and investors of real estate equity and debt funds, and in structuring new funds to meet evolving market conditions, including distressed company and other scavenger funds. We leverage our experienced corporate & securities, tax and ERISA practice groups to meet the needs of our clients in structuring well balanced funds and financing vehicles.

Allen Matkins Private Equity Practice group

Full text of the proposed amendments

Public comments to proposed amendments