One of the JOBS Act questions of the day seems to be this: I’m an entrepreneur with a private company. I understand the SEC has to take steps to lift the ban on general solicitations for Regulation 506 offerings before I can advertise the sale of securities in connection with a Rule 506 placement. Is there anything I can do now?
It’s a fact specific question that needs to be discussed with your legal counsel, but fortunately, there is guidance for this question, which will be satisfactory to some but not all. The SEC has previously adopted Rule 169 that is obliquely entitled “Exemption from sections 2(a)(10) and 5(c) of the Act for certain communications of regularly released factual business information.” Technically, the rule only applies prior to the time an SEC registered offering is made, but it is often applied by analogy to activities in connection with private offerings.
Rule 169 provides a non-exclusive safe harbor for private companies for certain communications containing “factual business information” if the following conditions are satisfied:
- The issuer has previously released or disseminated information of the type described in this section in the ordinary course of its business;
- The timing, manner, and form in which the information is released or disseminated is consistent in material respects with similar past releases or disseminations;
- The information is released or disseminated for intended use by persons, such as customers and suppliers, other than in their capacities as investors or potential investors in the issuer’s securities, by the issuer’s employees or agents who historically have provided such information; and
- The issuer is not an investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of the Investment Company Act of 1940.
“Factual business information” means:
- Factual information about the issuer, its business or financial developments, or other aspects of its business; and
- Advertisements of, or other information about, the issuer’s products or services.
Factual business information wouldn’t include forward looking information about potential business results or anything that relates to the offering and sale of securities.
So putting it all together, it means if you have done similar advertisements or press releases before, the frequency of the advertisements and press releases do not change and the information is factual and historical and not forward looking, and does not mention the sale of securities, you should be OK. A blitz of adds or press releases not in accordance with past practice or on crowdfunding web sites, even if a sale of securities is not mentioned, would be a different question.
After reading the foregoing, many may ask “But I am a start-up, I have never done advertising or press releaes before, is there anything I can do?” The less satisfying answer to that is Rule 169 is only a non-exclusive safe harbor and there are permissible activities outside of the Rule. Sure advertisements and press releases in the normal course of business would be acceptable, but paid placements on web sites whose primary purpose is attracting potential investor interest would be hard to justify. Line drawing should be done in consultation with qualified securities counsel.
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