July 29, 2013
Please revise the proposed new Rule 506(c) to not require the submission of solicitation materials prior to distributing such materials. The requirement of prior submission of all marketing materials will not enable the Commission to further protect investors and will represent a significant burden on small issuers.
First, the Commission can protect investors without reviewing all solicitation materials by relying on a "check the box" designation of an issuer as an advertising issuer (as already proposed) in determining to investigate whether such issuer is only raising capital from accredited investors. The content of solicitation materials generally will not indicate whether an issuer has non-accredited investors unless the issuer is publishing the names of its investors (an unlikely occurrence).
Second, the resources required to process submissions of marketing materials would be massive, and even more resources would be required by the Commission to use such submissions in any way. Even assuming that the marketing materials could be processed, cross-checking all Form D submissions against advertising in the marketplace would not yield signficant benefits because such checking would not indicate whether issuers relying upon Rule 506(c) were receiving money solely from accredited investors. Those resources could be better dedicated to auditing a sample of issuers who have "checked the box" as advertising issuers to confirm that such issuers are not accepting capital from non-accredited investors.
Third, if issuers use Rule 506(c), the proposed pre-filing requirement would impose a huge burden on such issuers. Such issuers are likely to communicate often with the public and to repeatedly revised prior communications in an effort to solicit accredited investors. There would be a huge burden in tracking all current and prior communications just to make sure they had all been submitted to the Commission.
Finally, the use to which the Commission might put submitted materials is unclear and unconstrained. Although I understand that the Commission seeks to learn about what kind of materials are being used in the marketplace in order to better understand how advertising issuers are behaving, the rules do not impose any constraints on how the Commission will use such materials. Further, the Commission can always examine such materials and develop an understanding of such materials by directly seeking them out in the marketplace as the materials will have been publicly distributed.