Reaching the Right Investors: Comparing Investor Solicitation in the Private-Placement Regimes of the United States and the European Union

Article by Elan W. Silver

The JOBS Act of 2012 ordered the removal of the long-standing prohibition on general solicitation for private offers of securities directed solely at accredited investors. This change led to the promulgation of the promising SEC Rule 506(c). To take advantage of this safe harbor, however, issuers must verify each investor’s accredited status. Most individuals can attain accredited status only if their annual income or level of wealth exceeds certain thresholds, a rule that has remained largely unchanged for over thirty years. As the lifting of the general solicitation ban presents both opportunity and hazard to private securities markets, this Comment, drawing on securities law of the European Union and the United Kingdom, suggests two alterations to draw out the benefits and limit the risk of the JOBS Act modification. First, to increase investor protection and expand the pool of possible investors, the definition of the accredited investor should be altered to include sophisticated investors experienced in or knowledgeable of securities markets. Second, to limit costs of verification and increase investor confidence, a regulated central database of accredited investors should be created.


89 Tul. L. Rev. 719 (2015)