Paving the Way to Allow General Advertising and Solicitation in Exempt Securities Offerings

As reported in this prior post, efforts to eliminate the prohibition on general advertising and solicitation in Rule 506 of Regulation D have recently gained momentum at the federal level. The states appear to be following suit by proposing new exemptions permitting the use of general advertising and solicitation in securities offerings as a means to facilitate the ability of businesses to raise capital. On Friday, February 23, a new bill was introduced in the California Legislature to add a new exemption from qualification for securities offerings expressly permitting the use of general advertising and solicitation.

Assembly Bill No. 2081 (AB 2081) would add a new Section 25102(r) to the California Corporations Code to exempt any offer or sale of a security by an issuer using any form of general solicitation or general advertising as specified in Rule 502(c) of Regulation D. Unsolicited telephone calls to a person’s residence or cellular telephone would still be prohibited unless the issuer and the caller reasonably believe, after due inquiry, that the person is an accredited investor, as defined in Rule 501 of Regulation D. Under the proposed exemption, sales of securities may only be made to persons who are, or who the issuer reasonably believes to be, accredited investors. In addition, all advertisements, communications, or other publicly disseminated information about the offering must specify that the securities will be sold to accredited investors only. The bill also imposes a suitability condition, requiring the issuer to have a reasonable belief that the offering is suitable for the person, based on the person’s financial status, objectives, investment experience, time horizon, risk tolerance, and any other information the issuer deems relevant to determine whether the offering is suitable to the person.

If enacted, the exemption would greatly expand the ability to raise capital through securities offerings in California and is another example of what seems to be a trend toward relaxing current prohibitions on general advertising or solicitation in exempt securities offerings. For additional information on the proposed exemption contained in AB 2081, contact us at (619) 278-0020 to schedule a consultation.

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