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In considering the relaxation of the prohibition against general
solicitation and general advertising that was incorporated into the
JOBS Act, Congressional attention seemed to focus on some quid pro
quo arrangement that demands verification of accredited investor
status. This leads us to wonder why it takes a "trade" of
this sort to justify removing the ban on general solicitation,
which was deemed anachronistic long before the JOBS Act was
contemplated. For at least the last decade, practitioners have been
urging the SEC to consider whether the prohibition against general
solicitation made sense given advances in communications. In fact,
the deregulation of "offers" had been proposed as far
back as the late 80s. Throughout this period, there have been few
studies regarding any fraud or evidence that investors misrepresent
their status as accredited investors in order to gain access to
certain investment opportunities, or that this type of conduct
might be so prevalent that traditional means of certifying investor
status should be set aside in favor of a more burdensome process.
In the pre-comment period, we note that a variety of views have
been submitted to the SEC Staff regarding investor accreditation.
Some suggested approaches advance the notion of a bifurcated
path—that is, if you want to use general advertising, you
must may the price and engage in a more rigorous verification
process. Why? Again, we understand the idea of rough justice. If
you will not benefit from the more relaxed communications rules,
then you shouldn't pay the added toll of verifying. But,
neither experience nor logic suggests that investors are not that
likely to embellish their status if there is no general
solicitation but more prone to do so if they are alerted to an
opportunity through the use of general advertising. Other
commenters have suggested that if a broker-dealer or financial
intermediary is involved in facilitating the private placement, the
broker-dealer should be the "gatekeeper," and should take
additional steps (beyond the traditional certification process) to
verify status. Don't the know-your-customer and suitability
rules already require a baseline level of inquiry? All in all, the
intense focus on verification of accreditation seems overdone.
Because of the generality of this update, the information
provided herein may not be applicable in all situations and should
not be acted upon without specific legal advice based on particular
situations.
Last month, the National Association of Corporate Directors took a stab at identifying ground rules in its "Directors’ Guide" to corporate board and committee minutes.
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The SEC has recently announced that it entered into a Non-Prosecution Agreement with Ralph Lauren Corp. in connection with alleged violations of the Foreign Corrupt Practices Act.
The time has come to take out and refresh those business associate agreements, HIPAA privacy and security compliance manuals, and HIPAA privacy notices.
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