General Solicitation Under Rule 506(b) after Citizen VC : Clearer Guiding Principles Analyzed and Possible Future Best Practices Considered

On August 6, 2015, without fanfare, the SEC Division of Corporation Finance issued an interpretative letter to Citizen VC and posted several updates to the Division's Compliance and Disclosure Interpretations (the “Companion C&DIs”), all concerning the nuts and bolts of exempt private offerings, principally under Rule 506(b). Some commentators have reported that the Citizen VC guidance significantly changed the overall compliance landscape for a key requirement of Rule 506(b) private offerings – that under the requirements of Rule 502(c) offers and sales must be made without the use of “general solicitation or general advertising.” They see Citizen VC and the Companion C&DIs as a compliance roadmap for any issuer to contact an unlimited number of prospective investors via impersonal non-selective means (e.g., the internet) without jeopardizing Rule 506(b) compliance. Others have a less expansive view about the general applicability of the Citizen VC and Companion C&DIs' guidance to conventional issuers and companies other than registered broker-dealers or similar third-party financial intermediaries. This article begins with a careful analysis of these recent SEC pronouncements and their underlying rationale and regulatory provenance. With this analytical foundation, this article suggests how best practices for conventional issuers might evolve for permissible general solicitation activities in future Rule 506(b) private offerings that will not violate the prohibitions of Rule 502(c)