At this week’s  Practicing Law Institute annual conference on securities regulation, there was extensive discussion of changes in the regulatory scheme for private placements. 

There are three major moving parts to 2012 JOBS Act reforms loosening up the private placement market:

• The JOBS Act requires the SEC to revise the provisions of SEC so-called Regulation A, an abbreviated registration procedure historically processed through regional SEC offices rather than through Washington; the SEC shortly is expected to propose regulations permitting such offerings in amounts up to $50,000,000. 
• The JOBS Act mandates crowd-funding regulations, which just the other day were promulgated by the SEC (although subject to a lengthy public comment period; much commentary is anticipated). 
• The SEC a couple of months ago promulgated changes to Regulation D, adding subsection 506(c) which permits public solicitation in private offerings (if directed only to accredited investors, with reasonable steps to verify that status). 

The marketplace is just finding its way in terms of how bold it will permit itself to be in the nature of general solicitation.  The conference panel noted that once general solicitation is undertaken, and it is thereafter decided to move to a full registered public offering or into a traditional Regulation D offering (which might include up to thirty-five unaccredited investors), substantial practical problems are encountered.  Most notably, having undertaken general solicitation you have a problem effecting a traditional placement under Rule 506(b) wherein you are permitted non-accredited investors but are prohibited from general solicitation. 

What constitutes reasonable steps to verify accredited status?  There are no specific guidelines, only guiding principles provided by the SEC.  Would it not be better to have a specific safe harbor?  Some commentators suggested not; if you have a specific safe harbor, and it provides for example that you must verify status every six months, what happens if you verify status every seven, eight or nine months?  Does the non-exclusive safe harbor become a de facto exclusive articulation?