What New SEC Rule 506 Revisions Mean to You

July 18, 2013

General Solicitations and Advertising Now Permitted in Private Securities Offerings, but Additional Responsibilities Now Apply

The SEC recently amended Rule 506 to eliminate the prohibition on general solicitation and general advertising in certain securities offerings, but also imposed stricter rules that disqualify felons and other “bad actors” from such offerings, and added additional burdens on offerors to verify the “accredited investor” status of potential investors.

Under the new version of Rule 506:

  • Issuers can use general solicitation and general advertising to offer securities;
  • Issuers must now reasonably attempt to verify that investors are “accredited investors,” and that the purchasers of the securities are “accredited investors” or the issuer reasonably believed that the investors were “accredited investors” at the time of the sale of securities;
  • Securities sold under Rule 144A may be offered to individuals who are not qualified institutional buyers through general solicitation as long as the securities are only sold to individuals who are reasonably believed to be qualified institutional buyers; and
  • Rule 506 prevents issuers from relying on the Rule 506 exemption if the issuer or anyone associated with the issuer that is covered by the rule had a disqualifying event such as certain criminal convictions or having been subject to certain injunctions or restraining orders.

Those seeking to take advantage of the ability to solicit and advertise generally in private offerings will need to understand how to protect themselves and their offering by complying with the new verification requirements related to participants and investors.


Please contact Jeff Gifford or one of the attorneys in our Corporate and Securities Department to help you take advantage of these new fund raising opportunities.

Cox Smith Matthews Incorporated is a leading business and commercial law firm with offices in Austin, Dallas, El Paso, McAllen and San Antonio.

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