1. PattonBoggs.com Securities and M&A Client Alert 1
JULY 15, 2013
This Alert provides only
general information and
should not be relied upon
as legal advice. This Alert
may also be considered
attorney advertising under
court and bar rules in
certain jurisdictions.
For more information, contact your
Patton Boggs LLP attorney or the
authors listed below.
NORMAN B. ANTIN
nantin@pattonboggs.com
JEFFREY D. HAAS
jhaas@pattonboggs.com
JOSEPH G. PASSAIC
jpassaic@pattonboggs.com
KEVIN M. HOULIHAN
khoulihan@pattonboggs.com
DAVID K. TEEPLES
dteeples@pattonboggs.com
JONATHAN C. PAVONY
jpavony@pattonboggs.com
MARK R. GOLDSCHMIDT
mgoldschmidt@pattonboggs.com
SECURITIES AND M&A CLIENT ALERT
SEC ENDS PROHIBITION AGAINST
GENERAL SOLICITATION AND
PROPOSES NEW REGULATION D
REQUIREMENTS
On Wednesday, July 10, 2013, the U.S. Securities and Exchange Commission
(SEC) adopted amendments to Rule 506 of Regulation D and Rule 144A under
the Securities Act of 1933, as amended (Securities Act), to permit general
solicitation and general advertising in certain securities offerings, as required by
Section 201(a) of the Jumpstart Our Business Startups Act (JOBS Act).
The amendments to Rule 506 permits an issuer to engage in general solicitation or
general advertising in offering and selling securities pursuant to Rule 506,
provided that all purchasers of the securities are accredited investors and the
issuer takes reasonable steps to verify that such purchasers are accredited
investors. The amendments to Rule 506 also includes a non-exclusive list of
methods that issuers may use to satisfy the verification requirement for purchasers
who are natural persons, and includes provisions to disqualify issuers and other
market participants from relying on Rule 506 if “felons and other ‘bad actors’” are
participating in the Rule 506 offering.
The amendment to Rule 144A provides that securities may be offered pursuant to
Rule 144A to persons other than qualified institutional buyers (QIBs), provided
that the securities are sold only to persons that the seller and any person acting on
behalf of the seller reasonably believe are QIBs.
In addition, the SEC proposed amendments to Regulation D, Form D and Rule
156 under the Securities Act that are intended to enhance the SEC’s ability to
evaluate the development of market practices in Rule 506 offerings.

2. PattonBoggs.com Securities and M&A Client Alert 2
LIFTING GENERAL SOLICITATION BAN FOR NEW RULE 506(C) OFFERINGS
The SEC added a new paragraph (c) to Rule 506 of Regulation D to enable an issuer to use general solicitation and
general advertising to offer and sell securities, provided the issuer satisfies each of the following conditions of this new
exemption:
→ all of the terms and conditions in Rule 501(definitions), Rule 502(a) (integration) and 502(d) (resale
restrictions) are satisfied;
→ all of the purchasers of the securities are accredited investors; and
→ the issuer takes reasonable steps to verify that the purchasers are accredited investors.
Whether an issuer’s steps taken to verify accredited investor status are “reasonable” depends on the particular facts
and circumstances of each purchaser and the transaction. The SEC provided the following factors that issuers should
consider under this facts and circumstances analysis:
→ the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
→ the amount and type of information that the issuer has about the purchaser; and
→ the nature of the offering, such as the manner in which the purchaser was solicited to participate in the
offering, and the terms of the offering, such as a minimum investment amount.
Issuers relying on Rule 506(c) for their offerings will not be subject to the prohibition against general solicitation
found in Rule 502(c). The existing provisions of Rule 506, continue as a separate exemption under Rule 506(b), so
that issuers conducting Rule 506 offerings without the use of general solicitation and general advertising are exempt
from the new verification rule, and can continue to conduct their offerings in the same manner as was permitted
pursuant to prior offering practices under Rule 506.1
NON-EXCLUSIVE METHODS OF VERIFYING ACCREDITED INVESTOR STATUS OF NATURAL PERSONS
The risk of participation by non-accredited investors is highest in offerings involving natural persons as purchasers.2
As a result, the SEC included four specific non-exclusive, non-mandatory methods of verifying accredited investor
status for natural persons under Rule 506(c), which, if used, are deemed to satisfy the verification requirement.
1 The existing Rule 506(b) exemption allows issuers to sell privately to up to thirty-five (35) non-accredited investors who meet existing Rule 506’s sophistication
requirements.
2 Natural persons may be accredited investors provided that either (i) their individual net worth (or joint net worth with that person’s spouse), exceeds $1 million,
excluding the value of the person’s primary residence, or (ii) their individual annual income has exceeded $200,000 in each of the two most recent years (or joint
income with that person’s spouse in excess of $300,000 in each of those years), and such person has a reasonable expectation of reaching the same income level in
the current year.

3. PattonBoggs.com Securities and M&A Client Alert 3
• If basing the decision on net income, the issuer:
→ reviews any Internal Revenue Service form that reports a person’s income for the two most recent years;
and
→ obtains a written representation that the person reasonably expects to reach the income level required to
qualify as an accredited investor in the current year.
• If basing the decision on net worth, the issuer:
→ reviews one or more types of documents dated within the past three months, including bank statements,
brokerage statements, certificates of deposit, tax assessments, and for liabilities, a credit report from at
least one of the national consumer reporting agencies; and
→ obtains a written representation that the person has disclosed all liabilities necessary to make a net worth
determination.
• The issuer obtains a written representation from a third party (a registered broker-dealer, an SEC-registered
investment adviser, a licensed attorney, or a certified public accountant) that they have taken reasonable steps
to verify the person’s accredited investor status within the past three months and have determined that the
person is an accredited investor.
• With respect to an existing securityholder who had acquired the issuer’s securities in a previous Rule 506
offering and had qualified as an accredited investor at that time, the issuer obtains a certification from the
securityholder that confirms his or her accredited investor status at the time of the sale.
GENERAL SOLICITATION TO BE PERMITTED IN ALL RULE 144A TRANSACTIONS
Pursuant to Section 201(a)(2) of the JOBS Act, the SEC revised Rule 144A to permit securities to be offered under
Rule 144A to persons other than QIBs, including by use of general solicitation or general advertising, if those
securities are actually sold only to investors which the seller and any person acting on behalf of the seller reasonably
believe is a QIB.3 The SEC also amended Regulation M to reflect and conform with the changes to Rule 144A.
DISQUALIFYING FELONS AND BAD ACTORS IN RULE 506 OFFERINGS
The SEC adopted amendments to Rule 506 of Regulation D that disqualify securities offerings based on the safe
harbor provided by Rule 506 if any felons or other bad actors are involved in the offering, as required by Section 926
3
Prior to this amendment, Rule 144A prohibited offers to non-QIBs, which would likely be violated by any kind of general solicitation or general
advertising in connection with the offering.

4. PattonBoggs.com Securities and M&A Client Alert 4
of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Under the new Rule 506(d), the Rule 506
exemption will not be available for an offering if any “person” covered by the rule was involved in a "disqualifying
event."
Persons covered by Rule 506(d) include:
→ The issuer and any predecessor of the issuer or affiliated issuer.
→ Any director, executive officer, or other officer participating in the offering, general partner or managing
member of the issuer.
→ If the issuer is a pooled investment fund, its investment managers, the general partners and managing
members of the investment managers.
→ Any beneficial owner of 20 percent or more of the issuer's outstanding voting equity.
→ Any promoter connected with the issuer in any capacity at the time of sale.
→ Any person that has been or will be compensated for soliciting investors, as well as the general partners,
directors, certain officers and managing members of any compensated solicitor.
Under Rule 506(d), “disqualifying events” include the following:
• Criminal convictions (felony or misdemeanor) entered within five years before the proposed offering in the
case of issuers (or ten years, in the case of other covered persons) or court injunctions or restraining orders
entered within five years before the proposed offering:
→ in connection with the purchase or sale of a security;
→ in connection with making a false filing with the SEC; or
→ arising out of the conduct of the business of certain types of financial intermediaries.
• Final orders issued by state banking, credit union, and insurance regulators, federal banking regulators, the
Commodity Futures Trading Commission (CFTC) and the National Credit Union Administration (NCUA)
that bar the covered person from:
→ associating with the regulated entity issuing the order;
→ engaging in the business of securities, insurance or banking; or
→ engaging in savings association or credit union activities.
• Final orders issued by state banking, credit union, and insurance regulators and federal banking regulators, the
CFTC or the NCUA within ten years before the proposed offering that are based on a violation of any law or
regulation that prohibits fraudulent, manipulative or deceptive conduct.

5. PattonBoggs.com Securities and M&A Client Alert 5
• Certain SEC disciplinary orders relating to brokers, dealers, municipal securities dealers, investment
companies and investment advisers and their associated persons, which would be disqualifying for as long as
the order is in effect.
• SEC cease-and-desist orders arising out of any scienter-based anti-fraud violation or violation of Section 5 of
the Securities Act.
• Suspension or expulsion from membership in a self-regulatory organization, which would be disqualifying for
the period of suspension or expulsion.
• SEC stop orders applicable to a registration statement and orders suspending the Regulation A exemption for
an offering statement issued within five years before the proposed offering.
• US Postal Service false representation orders entered within five years before the proposed offering.
Disqualification events that occurred prior to the effective date of the new rules will not be subject to the
disqualification rules. However, under Rule 506(e), the issuer must provide written disclosure to investors of any
disqualifying events that occurred before the effective date of the new rules.
The new rule also provides for a reasonable care exception from disqualification that applies if an issuer can prove
that it did not know and, in the exercise of reasonable care, could not have known that a disqualification existed.
EFFECTIVE DATE
The amendments to Rule 506 of Regulation D and Rule 144A of the Securities Act become effective 60 days after
publication in the Federal Register.
PROPOSED AMENDMENTS TO REGULATION D, FORM D AND RULE 156
In addition to the aforementioned final amendments, the SEC proposed the following amendments that are designed
to provide information on the Rule 506 market once general solicitation is permitted and offer additional investor
protection safeguards.
FORM D
Issuers relying on new Rule 506(c) would 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.

6. PattonBoggs.com Securities and M&A Client Alert 6
→ Disclose additional information in the Form D (including the types of general solicitation used or to be used
and the methods used or to be used to verify the accredited investor status of purchasers).
The SEC also proposed an amendment that would disqualify an issuer that failed to file any required Form D reports
in the past five years from using any provision of Rule 506 for a future offering. This disqualification would end one
year after all required Form D filings were made.
GENERAL SOLICITATION MATERIALS
The SEC proposed to add a new Rule 509 that would require prescribed legends in any written materials used for
general solicitation in a Rule 506(c) offering. In addition, the SEC proposed a new Rule 510T that would require
issuers to submit any general solicitation materials to the SEC by no later than the date of first use of the materials.
This new Rule 510T would expire two years after its effective date and the submitted materials would not be made
publicly available.
RULE 156
Under proposed amendments to Rule 156, which interprets the antifraud provisions of the federal securities laws in
connection with sales literature used by investment companies, the anti-fraud guidance in Rule 156 would also apply
to the sales literature of all private funds.