On January 23, the Securities and Exchange Commission’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) with respect to Rule 506 exemptions from registration under the Securities Act of 1933. These C&DIs relate to the rules adopted by the SEC in September 2013 pursuant to Section 201(a) of the JOBS Act, which required the SEC to eliminate the prohibition on general solicitation as long as all investors are accredited investors and the issuer takes reasonable steps to verify that purchasers are accredited investors. The new C&DIs include the following interpretive guidance: 

C&DI 260.33 clarifies that an issuer that commenced an offering before September 23, 2013 (the effective date of the new Rule 506(c) exemption), is not required to take reasonable steps to verify the accredited investor status of purchasers of securities in the offering before September 23, 2013. Once the issuer begins to make sales in reliance on Rule 506(c), it must take reasonable steps to verify that purchasers of securities in the offering are accredited investors. The issuer must also amend any previously filed Form D to reflect that it is relying on the Rule 506(c) exemption. 

C&DI 260.34 provides that an issuer that commenced an offering before September 23, 2013, in reliance on what is now the Rule 506(b) exemption, may switch from the Rule 506(b) exemption to the Rule 506(c) exemption even if Rule 506(b) sales were made after September 23 and included non-accredited investors, provided that all securities thereafter sold in reliance on the Rule 506(c) exemption are sold only to accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors.   

The guidance suggests there are reasonable grounds for allowing Rule 506(b) issuers that have an existing marketing ability and the ability to implement Rule 506(c) compliance procedures to switch to the Rule 506(c) exemption. The Rule 506(c) exemption applies to operating companies as well as private funds. Nevertheless, the relative rarity of Rule 506(c) offerings to date suggests that compliance experts have not yet updated compliance policies and procedures to deal with Rule 506(c) publicly solicited private placements or that the Rule 506(c) verification requirements are onerous.