Issuers must determine if they are subject to bad actor disqualification any time they are offering or selling securities in reliance on Rule 506. An issuer that is not offering securities (for example, a fund that is winding down and is closed to investment) need not determine whether Rule 506(d) applies unless and until it commences a Rule 506 offering. An issuer may reasonably rely on a covered person's agreement to provide notice of a potential or actual bad actor triggering event under, for example, contractual covenants, bylaw requirements or an undertaking in a questionnaire or certification. However, if an offering is continuous, delayed or long-lived, the issuer must periodically update its factual inquiry through bring-downs of a covered person's representations, questionnaires and certifications or through negative consent letters, periodic re-checking of public databases and other steps, depending on the circumstances. (Question 260.14.)

After a placement agent or one of its control persons becomes subject to a disqualifying event during an offering, an issuer can continue to rely on Rule 506 under certain conditions. If a placement agent or one of its covered control persons (for example, an executive officer or managing member) becomes subject to a disqualifying event while an offering is still ongoing, the issuer could rely on Rule 506 for future sales in that offering if the engagement with the placement agent was terminated and the placement agent did not receive compensation for the future sales. Alternatively, if the triggering disqualifying event affected only the covered control persons of the placement agent, the issuer could continue to rely on Rule 506 for that offering if the relevant persons were terminated or no longer performed roles with respect to the placement agent that would cause them to be covered persons under Rule 506(d). (Question 260.15.)

"Affiliated issuer" does not mean every affiliate of the issuer that has issued securities. Instead, for purposes of Rule 506(d), an "affiliated issuer" of the issuer is an affiliate (as defined in Rule 501(b) of Regulation D) of the issuer that is issuing securities in the same offering, including offerings subject to integration pursuant to Rule 502(a) of Regulation D. Questions 130.01 and 130.02 of the Securities Act Forms C&DIs provide examples of co-issuer or multiple issuer offerings. (Question 260.16.)

All persons who have been or will be paid, directly or indirectly, remuneration for solicitation of purchasers are covered by Rule 506(d). Compensated solicitors are not limited to brokers, as defined in Section 3(a)(4) of the Securities Exchange Act of 1934 (Exchange Act), who are subject to registration pursuant to Exchange Act Section 15(a)(1) and their associated persons. The disclosure required in Item 12 of Form D expressly contemplates that compensated solicitors may not appear in the Central Registration Depository (CRD) of brokers and brokerage firms maintained by FINRA. (Question 260.17.)

"Participating in the offering" does not include persons whose sole involvement with a Rule 506 offering is as members of a compensated solicitor's deal or transaction committee that is responsible for approving that compensated solicitor's participation in the offering. (Question 260.18.)

Whether the officers of a compensated solicitor are deemed to be "participating" in a Rule 506 offering does not depend only on whether they are involved in soliciting investors for that offering. Examples of participation in an offering include participation or involvement in due diligence activities or the preparation of offering materials (including analyst reports used to solicit investors), providing structuring or other advice to the issuer in connection with the offering and communicating with the issuer, prospective investors or other offering participants about the offering. To constitute participation for purposes of the rule, the officer's activities must be more than transitory or incidental. Administrative functions (for example, opening brokerage accounts, wiring funds and bookkeeping activities) would generally not be deemed to be participating in the offering. (Question 260.19.)

Disqualification under Rule 506(d) is not triggered by actions taken in jurisdictions other than the US. This includes convictions, court orders or injunctions in a non-US court or regulatory orders issued by non-US regulatory authorities. (Question 260.20.)

Disqualification under Rule 506(d)(1)(v) is not triggered by all SEC orders to cease and desist from violations of SEC rules under Exchange Act Section 10(b). Instead, disqualification is triggered only by SEC orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules. An order to cease and desist from violations of a non-scienter based rule would not trigger disqualification, even if the rule is promulgated under a scienter-based provision of law. For example, an order to cease and desist from violations of Exchange Act Rule 105 would not trigger disqualification, even though Rule 105 is promulgated under Exchange Act Section 10(b). (Question 260.21.)

The provisions of Rule 506(d)(2)(iii) are self-executing. Accordingly, if an order issued by a court or regulator provides, in accordance with Rule 506(d)(2)(iii), that disqualification from Rule 506 should not arise as a result of the order, then it is not necessary to seek a separate waiver from the SEC or to take any other action to confirm that bad actor disqualification will not apply as a result of the order. (Question 260.22.)

The reasonable care exception under Rule 506(d)(2)(iv) applies whenever the issuer can establish that it did not know and, despite the exercise of reasonable care, could not have known that a disqualification existed under Rule 506(d)(1). This may occur when, despite the exercise of reasonable care, the issuer was unable to determine the existence of a disqualifying event, was unable to determine that a particular person was a covered person or initially reasonably determined that the person was not a covered person but subsequently learned that determination was incorrect. If an issuer newly discovers a Rule 506(d) disqualifying event or covered person during the course of an ongoing Rule 506 offering, it must then consider what steps would be appropriate. An issuer may need to seek waivers of disqualification, terminate the relationship with covered persons, provide Rule 506(e) disclosure to investors or take other remedial steps to address any Rule 506(d) disqualification. (Question 260.23.)

The Rule 506(e) disclosure obligation for past events that would have been disqualifying, except that they occurred before September 23, 2013 (the effective date of Rule 506(d)), is not subject to waiver. (Question 260.24.)

Rule 506(e) only requires disclosure of events that would have triggered disqualification at the time of the offering had Rule 506(d) been applicable. Because orders that are not in effect at the time of the offering and events that are outside the applicable look-back period (for example, a criminal conviction that occurred more than ten years before the offering) would not trigger disqualification, Rule 506(e) does not mandate disclosure of those types of matters as a condition to the issuer's ability to rely on Rule 506. (Question 260.25.)

Issuers must provide all investors with the Rule 506(e) disclosure for all compensated solicitors (and covered control persons) who are involved with the offering at the time of sale. In an offering in which the issuer uses multiple placement agents or other compensated solicitors, if Rule 506(e) disclosure is required with respect to one or more of those agents or solicitors (or their covered control persons), the issuer may not selectively provide Rule 506(e) disclosure only to those investors who were solicited by the specific agents or solicitors that triggered the disclosure requirement. (Question 260.26.)

In a continuous offering, the issuer is not required to provide disclosure under Rule 506(e) for all solicitors that were ever involved during the course of the offering. A reasonable time prior to the sale of securities in reliance on Rule 506, the issuer must provide the required disclosure with respect to all compensated solicitors that are involved at the time of sale. Disclosure with respect to compensated solicitors who are no longer involved with the offering need not be provided under Rule 506(e) in order for the issuer to be able to rely on Rule 506. (Question 260.27.)