Adoption of Amendments to Rule 504
                           Fact Sheet
                             2/19/99


     Rule 504, the limited offering exemption under Regulation D,
is designed to help small businesses raise "seed capital."
Currently, Rule 504 permits non-reporting issuers to offer and
sell securities to an unlimited number of persons without regard
to their sophistication or experience and without delivery of any
specified information.  General solicitation and advertising are
permitted for all Rule 504 offerings.  The aggregate offering
price of this exemption is limited to $1 million in any 12-month
period, and certain other offerings must be aggregated with the
Rule 504 offering in determining the available sales amount.
Securities sold under this exemption may be resold freely by non-
affiliates of the issuer.

     While Regulation D offerings are exempt from federal
securities registration requirements, currently these offerings
must be registered in each state in which they are offered unless
a state exemption is available.  The vast majority of states
require registration of public Rule 504 offerings.  In adopting
Rule 504 in 1982, the Commission placed substantial reliance upon
state securities laws, since the size and local nature of these
small offerings did not appear to warrant imposing extensive
federal regulation.  These offerings, however, continue to be
subject to federal liability and civil liability provisions.

     Unfortunately, since adoption of certain revisions to Rule
504 in 1992, there have been some recent disturbing developments
in the secondary markets for some securities initially issued
under Rule 504, and to a lesser degree, in the initial Rule 504
issuances themselves.  These offerings generally involve the
securities of "microcap" companies.  Recent market innovations
and technological changes, most notably, the Internet, have
created the possibility of nation-wide Rule 504 offerings for
securities of non-reporting companies that were once thought to
be sold locally.

     In some cases, Rule 504 has been used in fraudulent schemes
to make prearranged "sales" of securities under the rule to
nominees in states that do not have registration or prospectus
delivery requirements.  As a part of this arrangement, these
securities are then placed with broker-dealers who use cold-
calling techniques to sell the securities at ever-increasing
prices to unknowing investors.  When their inventory of shares is
exhausted, these firms permit the artificial market demand
created to collapse, and investors, lose much, if not all, of
their investment.  This scheme is sometimes colloquially referred
to as "pump and dump."

     The Commission will consider amendments to Rule 504 to deter
these abuses yet preserve the ability of legitimate small
businesses to raise capital.  These amendments would establish
the general principle that securities issued in a Rule 504
transaction, just like the other Regulation D exemptions, would
be restricted, and would prohibit general solicitation and
general advertising, unless the specified conditions for a public
Rule 504 offering are met.  These conditions would be:

                            --more--
Rule 504 Fact Sheet
Page 2


* the transactions are registered under a state law requiring
  public filing and delivery of a substantive disclosure document
  to investors before sale.  For sales to occur in a state without
  this sort of provision, the transactions must be registered in
  another state with such a provision and the disclosure document
  filed in the state must be delivered to all purchasers before
  sale in both states; or

* the securities are issued under a state law exemption that
  permits general solicitation and advertising, so long as sales
  are made only to accredited investors as that term is defined in
  Regulation D.

     Most Rule 504 offerings are private.  Private Rule 504
offerings would still be permitted for up to $1 million in a 12-
month period, under the same terms and conditions, except for the
specific disclosure requirements, as offerings under Rules 505
and 506.  Securities in these offerings would be restricted, and
these offerings would no longer involve general solicitation and
advertising.

     However, the amendments to Rule 504 would leave avenues open
for issuers to make less limited offerings.  By focusing on state
registration, review and disclosure requirements, which are
generally comprehensive, legitimate small issuers could continue
to access the capital markets without having to sell restricted
securities.

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