The SEC has approved a new FINRA Rule 5123 which imposes a new filing requirement on FINRA member broker-dealers acting as placement agent for private offerings of securities. The Rule requires placement agents to file a copy of the Private Placement Memorandum or other offering documents with FINRA within 15 days after the date of the first sale (any subsequent material amendments must also be filed). The documents must be filed through FINRA’s new electronic filing system, which is still under development but expected to be accessible through FINRA’s Firm Gateway online filing and information platform.
The Rule exempts offerings to various types of institutional investors and offerings of specialized types of securities from the above filing requirement. Specifically and importantly for placement agents raising capital for hedge and private equity fund issuers, the Rule exempts (i) offerings to qualified purchasers or knowledgeable employees under the Investment Company Act (e.g., Section 3(c)(7) offerings), (ii) offerings of interests in a commodity pool operated by a commodity pool operator, and (iii) offshore fund offerings under Regulation S. This means that, in the private fund context, the Rule should apply primarily to capital raising activities on behalf of domestic private funds which are not commodity pools and which rely on the Section 3(c)(1) exemption from registration under the Investment Company Act (i.e., subject to the 100 investor limitation).
The new Rule 5123 filing is a notice filing and is not subject to any FINRA comments or approval process. The Rule is effective December 3, 2012 and applies to all offerings that begin on or after such date. The Rule also provides that all filings shall be kept confidential and allows firms to apply to FINRA on an ad hoc basis for an exemption from the filing requirement for good cause.