The SEC on Wednesday is expected to release a rule proposal to allow the general solicitation and advertising of private placements made under Reg D Rule 506.
Given the complexity of the issues involved in the changes to Rule 506, plus the enormous impact those changes will have on the investing public, NASAA has strongly urged the SEC to consider a simple question: How does this help investors?
Perhaps the greatest persistent threat to investors—and one that is expected to grow as a result of the JOBS Act—involves private offerings made under the SEC’s Regulation D Rule 506.
In the most recent survey of state securities regulators, fraudulent private placement offerings were ranked as the most common product or scheme leading to investigations and enforcement actions.
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Regulation D Rule 506 is an exemption under federal securities laws that allows private placements to be sold to investors without registration. By definition, these are limited investment offerings that are highly illiquid, generally lack transparency and have little regulatory oversight.
While Regulation D Rule 506 offerings are used by many legitimate companies to raise capital, these investment offerings are high-risk and may not be suitable for many individual investors.