In February 2008, the SEC adopted new rules, substantially as proposed, pertaining to the use of the Regulation D safe harbor exemption from registration for securities offered and sold in transactions not involving a public offering and the Form D filings it requires. Regulation D—adopted in the early 1980s and promulgated under the Securities Act of 1933—was part of an initiative by the SEC to provide a coherent pattern of exemptive relief from the registration requirements of the Securities Act, address the capital formation needs of small businesses and serve as a tool for data collection and the enforcement of federal securities laws through the information reported in Form D filings. The revisions to the content contained on Form D and its conversion to electronic filing are part of an effort by the SEC to fix perceived deficiencies in the form as a data collection device and an enforcement tool.
Effective March 16, 2009, all new and amended Form D filings with the SEC must be made electronically through the SEC’s EDGAR System (now called “IDEA” for Interactive Data Electronic Applications). Issuers, including hedge funds, private equity funds, and other pooled investment vehicles that rely on Regulation D with respect to the sale of their securities to investors, are required to file a notice on Form D with the SEC and to make amendments to Form D in accordance with revised Rule 503 of Regulation D.
Among the most notable changes to Rule 503 is the requirement that an amended Form D be filed annually for continuous offerings. Previously, issuers were only required to amend a previously filed Form D in the event of a material change to the information reported on the form. Beginning on March 16th, however, issuers engaged in a continuous offering will be required on or before the first anniversary of the initial filing (irrespective of when the initial filing was made) to file an amended Form D annually during the continuous offering period. Accordingly, an issuer that filed its initial or most-recent amended Form D prior to March 16, 2008 must file its annual amendment no later than March 16, 2009. If an issuer made a filing after March 16, 2008, the annual amended Form D is due on or before the first anniversary of the most recent filing and must reflect any changes in the offering and update the current number of investors and current dollar amount of securities sold.
In order to file electronically on IDEA, an issuer will need to obtain its own IDEA filing codes and password. The application process to obtain the filing codes takes several days, including the submission of a notarized signature page. Therefore issuers that anticipate making a Form D filing on or after March 16th should apply for filing codes as soon as possible through the EDGAR Filer Management Website at https://www.filermanagement.edgarfiling.sec.gov. Once filed through IDEA, a Form D filing and its amendments will be available to the public and fully searchable through the SEC website. Currently, Form D is filed in paper format and only accessible to the public on request or in person at the SEC’s Public Reference Room or through a document research vender.
More importantly, the SEC adopted revisions to the disclosure requirements of the Form D. These changes represent a significant expansion of the information required on the form, but also streamline the form in some aspects. These disclosure changes, which actually became effective on September 15, 2008, include:
- permitting all issuers in a multi-issuer offering to be identified and to submit one collective Form D;
- eliminating the requirement to reveal all owners of 10 percent or more of a class of the issuer’s equity securities as“ related persons”
- soliciting optional disclosure of revenue range information from the issuer, or aggregate net asset value range information in the case of hedge funds or other pooled investment funds other than private equity or venture funds;
- requiring disclosure of the date of first sale and whether the offering is expected to last more than a year;
- requiring disclosure of whether the offering is being made in connection with a business combination (including a tender offer, merger or acquisition);
- requiring the disclosure of CRD numbers for both individual recipients of sales compensation and associated broker-dealers who currently have a CRD number;
- limiting expense disclosure to include only amounts paid for sales commission and, separately stated, finders’ fees;
- limiting disclosure of use of proceeds to include only amounts paid to executive officers, directors and promoters;
- requiring a certification that the issuer is not disqualified by rule from relying on the exemption claimed;
- requiring the filing of an amendment to a previously filed Form D if there is a material change in information either about the offering or the issuer
- requiring annual amendments to be filed on or before the first anniversary of the previously filed Form D filing or amendment; and
- permitting a finite amount of free writing to clarify certain information provided.
For over 20 years, Form D has served as a means to promote federal and state uniformity and coordination in securities regulation by providing a uniform notification form that can be filed with the SEC and with state securities regulators. According to the SEC, the contemplated electronic filing system for Form D information will continue that tradition and enhance the utility of the form as a means to promote uniformity and coordination between federal and state securities regulation. The individual states are not prepared to accept electronic Form D filings as yet; however, the North American Securities Administrators Association (NASAA) is spearheading the development of a comprehensive electronic filing system for the states that would work in conjunction with the IDEA system.