April 14, 2012
In revising Rule 506 as required by Sec. 201(a)(1), I believe it is critical that the Rule allow general solicitation and advertising provided that the issuer REASONABLY BELIEVES that all purchasers are accredited investors. If instead the Rule requires all purchasers to be accredited investors, I suspect that many issuers will forgo engaging in general solicitation and advertising out of concern of destroying the exempt status of their offerings by selling to an investor whom they reasonably believed was accredited but turns out not to be.
This approach is arguably beyond the language of Sec. 201(a)(1) given that Congress included a reasonable belief standard in Sec. 201(a)(2) with respect to general solicitation and advertising for Rule 144A offerings but did not do so in Sec. 201(a)(1). I believe, however, that it is well within the Commission's authority to go beyond the changes Congress has required for Rule 506, especially given that Sec. 201(b) amends Securities Act Sec. 4 to make clear that offers and sales of securities under the revised Rule 506 are still considered private even if the issuer engaged in general solicitation and advertising. Specifically, the Sec. 201(b) language does not contain the accredited investor limitation of Sec. 201(a)(1). This indicates that the Commission has the authority to include a reasonable belief standard in revised Rule 506.