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FINRA Amends Rule 5123, Adding Questions to Required Filing
Practical Law Legal Update 3-532-4229 (Approx. 3 pages)
FINRA Amends Rule 5123, Adding Questions to Required Filing
by PLC Corporate & Securities
| Published on 21 Jun 2013 • USA (National/Federal) |
FINRA amended Rule 5123 to codify existing filing requirements and add additional questions to the required form.
On June 20, 2013, FINRA filed immediately effective amendments to FINRA Rule 5123. The amendments codify the requirement that FINRA member firms make Rule 5123 filings through FINRA's electronic private placement form and also add additional questions to the form, including whether:
- The offering is a contingency offering.
- Independently audited financial statements are available for the issuer's most recently completed fiscal year.
- The issuer is able to use offering proceeds to make or repay loans to, or purchase assets from, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer's affiliates.
- The issuer has a board of directors comprised of a majority of independent directors or a general partner that is unaffiliated with the member firm.
- The issuer has engaged, or the member firm anticipates that the issuer will engage, in general solicitation to offer or sell the securities.
- The issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer's affiliates has been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last ten years.
The amended form also asks for the issuer's industry. The amended form would permit a member firm to indicate that it does not know the answers to these questions. Notably, though, the rule proposal indicates that FINRA plans to use the information to, among other things, evaluate whether member firms are conducting reasonable investigations of private placements they participate in.
FINRA Rule 5123, which became effective in December 2012, requires each FINRA member that sells securities in certain types of private placements to make a notice filing with FINRA, which must either:
- Include a copy of any private placement memorandum, term sheet or other offering document that the member firm used to sell the offering.
- Indicate that it did not use an offering document.
FINRA filed the amendments for immediate effectiveness and asked the SEC to waive the 30-day delay period that would otherwise apply.
Update:
On June 25, 2013, the SEC waived the 30-day delay period. It is accepting comments until 21 days after publication in the Federal Register.
For a discussion of FINRA regulation of member firm due diligence in private placements, see Practice Note, FINRA Regulation of Broker-Dealer Due Diligence in Regulation D Offerings.