SEC Adopts “Me Too” Amendments for Rule 144A

As part of amendments to Regulation D, and as required by the JOBS Act, the SEC adopted an amendment to Rule 144A to provide that securities sold under that Rule may be offered to persons other than qualified institutional buyers, often referred to as QIBs, including by means of general solicitation or general advertising, provided that securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs.

Rule 144A is a “safe-harbor” from the Securities Act registration requirements that is often used by public and private companies to quickly raise capital through sale of debt and preferred securities.  Securities are purchased from the issuer by an initial purchaser, typically an investment bank, pursuant to the Securities Act Section 4(a)(2) private placement exemption, and then resold pursuant to the Rule 144A exemption.  Prior to the amendment, it had been unclear whether general solicitations were permitted under Rule144A.  This amendment clarifies that general solicitations are permitted provided that sales are made only to QIBs or persons reasonably believed to be QIBs.

This amendment will become effective 60 days after publication in the Federal Register.  The Adopting Release provides that for ongoing Rule 144A offerings that commenced before the effective date, offering participants will be entitled to conduct the portion of the offering following the effective date of the amended rule using general solicitation, without affecting the availability of Rule 144A for the portion of the offering that occurred prior to the effective date.  Footnote 172 to the Adopting Release also makes it clear that the use of a general solicitation permitted in Rule 144A resales from the initial purchaser to QIBs will not affect the availability of the Section 4(a)(2) private placement exemption or the Regulation S offshore offering exemption for the sale of the securities from the issuer to the initial purchaser.

Lastly, in response to some comments, the SEC reaffirmed its view, previously expressed in the Proposing Release, that concurrent offshore offerings that are conducted in compliance with Regulation S will not be integrated with domestic unregistered offerings that are conducted in compliance with Rule 506 or Rule 144A, as amended.

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