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Reaction to Change of SEC Rule 506

Many of you may be interested to learn of the new proposed change to Rule 506 to go into effect in a month or so. This new rule  eliminates the prohibition on general solicitation and general advertising in certain offerings. This is pretty good news for start ups and other fund seekers.

I thought I’d share some of the reactions from my colleagues in the business. Some thought this was a move to create efficiency in the market and a safe move since fund raisers will still have to target their solicitations to accredited investors. I’ve also heard that the new rule just ensures that offerors don’t get nailed on a technicality if they happen to solicit a non-accredited investor–which has always been a big scare in these raises. On a positive outlook, some say this will result in a boom on real estate syndication and angel fund raisers. From a regulatory approach, some are concerned about the conflicts this rule may create with state’s blue sky laws. A more pessimistic thought suggests more less sophisticated investors creating business relationships will create more business divorces.

Nasir Pasha, Esq.

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Managing attorney and co-host of podcast Legally Sound | Smart Business

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