Enter to open, tab to navigate, enter to select
SEC Publishes Small Entity Compliance Guide on Bad Actor Disqualification
Practical Law Legal Update 9-542-3146 (Approx. 4 pages)
SEC Publishes Small Entity Compliance Guide on Bad Actor Disqualification
by Practical Law Corporate & Securities
| Published on 19 Sep 2013 • USA (National/Federal) |
The SEC published a small entity compliance guide on Rule 506(d) of Regulation D under the Securities Act, the so-called "bad actor" disqualification.
On September 19, 2013, the SEC published a small entity compliance guide on Rule 506(d) of Regulation D under the Securities Act, the so-called "bad actor" disqualification provision. Rule 506(d), which was adopted over the summer and becomes effective on September 23, 2013, disqualifies securities offerings from relying on the safe harbor provided by Rule 506 or requires certain disclosure to be made to investors if the issuer and certain other related parties, including directors, executive officers, at least 20% beneficial shareholders and placement agents, among others, have particular disqualifying events in their past. Disqualifying events include certain securities-related criminal convictions and civil orders and certain orders by regulators. Rule 506(d) was required by Section 926 of the Dodd-Frank Act.
The small entity compliance guide provides a summary of Rule 506(d). It also highlights that:
- Rule 506(d) allows parties to seek from the SEC waivers from disqualification under Rule 506(d). The guide refers interested parties to information on past applications and waivers granted in the context of Regulation A under the Securities Act. It also states that staff in the SEC's Office of Small Business Policy are available to discuss concerns about potential waivers.
- Disqualification will not arise on the basis of a disqualifying event if the court or regulator that entered the relevant order, judgment or decree advises in writing, either in the order itself or separately to the SEC, that disqualification under Rule 506 should not arise as a result of the order, judgment or decree.
- Disqualifying events that occurred before September 23, 2013 do not prohibit an offering from relying on Rule 506. Instead, they require disclosure about the event to be made to investors. The guide clarifies that the rule looks to the date of the disqualifying event (meaning the conviction or order) and not to the date of the underlying conduct.
For more information on Regulation D and bad actor disqualification, see Practice Note, Section 4(a)(2) and Regulation D Private Placements. For standard forms that can assist in conducting an investigation under Rule 506(d), see Standard Document, Bad Actor Questionnaire and Standard Clauses, Bad Actor (Rule 506(d)) Disqualification Representations and Covenants.
For information on other rulemaking under the Dodd-Frank Act, see Practice Note, Road Map to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.