Having just allowed the use of advertisements and “general solicitation” to raise money, the SEC now proposes several steps to protect investors and keep track of the explosion in Crowdfunding the new rules are certain to trigger.

Beefing Up Form D

Form D has been around for along time, but now the SEC proposes to beef it up significantly. The company raising money through general solicitation will now have to:

• File a Form D no later than 15 days before first engaging in general solicitation.
• File a closing amendment to Form D within 30 days after the offering has been completed or abandoned.
• Disclose much more information in the Form D, including:
  • Its website address;
  • Specific uses of the proceeds of the offering;
  • The number and types of accredited investors participating in the offering;
  • Whether general solicitation materials were filed with FINRA;
  • The types of general solicitation used or to be used; and
  • Methods used or to be used to verify the accredited investor status of purchasers.

More Legends

The SEC also proposes a number of new legends that must appear in general solicitations, including that the securities can only be sold to accredited investors, that the SEC has not passed on the merits of the offering, that investing entails risk (!), and that past performance does not guaranty future performance.

Sending General Solicitation Material to the SEC

Finally, the SEC proposes that companies must submit their written general solicitation materials to the SEC, on a temporary basis, by no later than the date of first use of the materials. This rule would expire two years after its effective date, presumably giving the SEC enough time to see what is happening in the marketplace and issue a new or different rule as it sees fit.

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Unlike the rules allowing general solicitation, these new rules are merely proposals, and could be revised or withdrawn after a 60 day public comment period.

Questions? Let me know.