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In Search of Safe Harbor: Suggestions for the New Rule 506(C)

Vanderbilt Law Review En Banc, Vol. 66, p. 29, 2013

UGA Legal Studies Research Paper No. 2013-19

14 Pages Posted: 12 May 2013  

Usha Rodrigues

University of Georgia School of Law

Date Written: May 1, 2013

Abstract

I devote most of this essay to exploring how, exactly, the Securities and Exchange Commission (“SEC”) should go about providing guidelines to implement the statutory requirement that issuers have a reasonable belief that a purchaser is accredited. The SEC has proposed rules, but these rules merely restate what Congress has already required, thus sidestepping Congress’s direction that the agency itself articulate some verification methods. Taking the SEC’s decidedly amorphous proposal to task, I recommend that the SEC offer two nonexclusive safe harbors for issuers to guide them in determining whether a natural person is an accredited investor. The paragraphs below will discuss the whys and wherefores of these safe harbors.

I focus on the natural persons category because my hunch is that it is the most politically salient and controversial. Here is why: even if the SEC heeds my suggestion and identifies safe harbors, it will ignore the elephant in the room. The problem is that the JOBS Act gave companies a newfound ability to trumpet their investments to the world but simultaneously limited actual purchases to accredited investors. Hopeful investors like our hypothetical Jim will now hear about tantalizing investments they cannot make. As I have argued elsewhere, this difficulty may be grave enough to trigger a rethinking of the public/private distinction that currently underpins our securities laws.

Keywords: securities law, securities act, accredited investor, marketing, JOBS Act, Securities and Exchange Commission, Rule 506, self-certification, general advertising, solicitation, SEC, safe harbor, secondary markets, stock, shares

JEL Classification: K22

Suggested Citation

Rodrigues, Usha, In Search of Safe Harbor: Suggestions for the New Rule 506(C) (May 1, 2013). Vanderbilt Law Review En Banc, Vol. 66, p. 29, 2013; UGA Legal Studies Research Paper No. 2013-19. Available at SSRN: https://ssrn.com/abstract=2263432

Usha Rodrigues (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States
706-242-5562 (Phone)

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