Due to the general solicitation ban, hedge funds, VCs, and startups had to quietly raise that money, soliciting by word of mouth and other forms of private communication.
Federal and state regulations prohibit what is known as "general solicitation and advertising" in private offerings.
"And that's not what this is," he added, referring to the new rule allowing general solicitation.
Until last year, federal securities laws had long banned general solicitation — and for good reason.
But only a small fraction of issuers claimed the new exemption permitting general solicitation.
General solicitation under Rule 506, Regulation A+ and crowdfunding demand this heightened, more comprehensive effort.
One rule concerns "general solicitation," or the mass advertising of investments in companies that are not publicly traded.
The S.E.C. bars hedge funds from doing anything that could be seen as advertising or a general solicitation.
Funds that used Rule 506 were prohibited from using any form of "general solicitation or general advertising". The SEC applied a "pre-existing, substantive relationship" test when deciding that the general solicitation rule has not been violated.
(Lifting the ban on general solicitation, as it is called, is addressed in Title II of the law; crowdfunding in Title III).
A ban on what is known as general solicitation was passed in the 1930s to protect investors from an abundance of money-raising scams during the Depression.
