Articles Posted in Solicitors

Several Congressmen and an SEC Commissioner have independently urged the SEC to move forward with adopting proposed rules that impose additional requirements on public solicitations of Rule 506 offerings. At the same time that the SEC finalized its initial rulemaking on the subject last September, it proposed additional rules that would require filing Form D prior to any general solicitation and would impose advertising restrictions, among other things. We discussed that action and the proposed rules in two earlier posts.

Rule 506 was adopted as a safe harbor under Section 4(2) of the Securities Act of 1933, which provides that securities sold “by an issuer not involving any public offering” are exempt from registration under the Act. However, under Title II of the JOBS Act, passed in 2012, Congress required the SEC to adopt a rule allowing for the use of public solicitation in those offerings under conditions to be prescribed by the SEC. The initial rule adopted last September – requiring enhanced verification of accredited investor status – was the Commission’s first small step on the issue.

The comment period on the simultaneous rule proposal imposing additional requirements expired on November 4, 2013, but the Commission has taken no further action to date. On December 5, 2013, however, SEC Commissioner Luis Aguilar, speaking at a Consumer Federation of America conference, forcefully called upon the rest of the Commission to move forward in adopting the strengthened rules. “Every day that these proposals are not adopted is another day that investors face great harm. I’m frustrated because investors are going to be damaged” said Commissioner Aguilar. “Unfortunately, it’s been almost five months since those proposals have been issued for comment.”
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The Georgia Secretary of State issued an Implementation Order that became effective yesterday (December 31, 2010) excluding many solicitors from the definition of “Investment Adviser Representatives,” thereby eliminating the registration requirement for those coming within the exclusion. Entered pursuant to the Georgia Uniform Securities Act of 2002, Secretary of State Uniform Act Implementation Order No. 2010-4 substantially preserves, but slightly modifies, the practice that prevailed under the Georgia Securities Act of 1973.

Under the Georgia Uniform Securities Act of 2008, an individual associated with an investment adviser who “receives compensation to solicit, offer, or negotiate for the sale of investment advice” must register as an “investment adviser representative.”

The Implementation Order, however, excludes from the definition of “investment adviser representative” a solicitor that does not provide investment advice and who meets a number of other requisites. The effect of the Order is to allow persons who typically provide client solicitation services under SEC Rule 206(4)-3, without advising solicited clients, to avoid registration in Georgia. Care should be taken to insure that the solicitor who seeks benefit of the exclusion follows a number of unique provisions of the Georgia order, among them that compensation can be received for no more than 10 clients in a calendar year, unless the solicitor does nothing more than provide a list of investment advisers without determining or representing the advisability of a prospective client entering into a relationship with a particular adviser. Attorneys and CPAs may also solicit persons with whom they have existing relationships.