SEC removes PE general solicitation ban
The US Securities and Exchange Commission (SEC) has voted to remove the longstanding ban on general solicitation by private-issuers, opening a path for private equity firms to speak publicly about their fundraising efforts and engage more freely with potential investors. However, steps will also be taken to ensure that are only made to accredited investors.
The removal of the ban was a key provision of the Jumpstart Our Business Startups (JOBS) Act, passed last year with a view to helping businesses raise capital. Under the umbrella of allowing PE firms, hedge funds and other private issuers more scope in terms investor interaction, there is also the prospect of offerings being publicly advertised.
While the change may ultimately reduce the cost of capital formation, this doesn't mean the fundraising process will become easier. The freedom to solicit more widely comes on the condition of more regulatory disclosure and restrictions on whom - of those receiving solicitations - can actually participate.
The JOBS Act instructs the SEC to "require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission." Under existing SEC rules, accredited investors include institutions that meet certain minimum asset levels and individuals with a certain level of income or net worth.
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