Beginning March 16, 2009, issuers relying on Regulation D for an exemption from the registration requirements of the Securities Act of 1933, as amended, will be required to file Form D (Notice of Exempt Offering of Securities) electronically, instead of in paper format as currently required. This electronic filing requirement is part of the package of amendments to Form D adopted by the Securities and Exchange Commission (SEC) on September 15, 2008 (the “Amendments”). The Amendments also revised the format of Form D, clarified when amendments must be filed, and implemented annual amendment obligations for continuing offerings. Other than the electronic filing requirement, the Amendments became effective last fall.
In addition to simplifying the filing process, the shift from paper filing to electronic filing will cause the information contained in Form Ds to be “more readily available to regulators and members of the public.”1 The information, which will be accessible to the public through the SEC’s Web site (www.sec.gov), will also be “interactive and searchable.”2 Participants in exempt “private placement” offerings, including issuers, officers, directors and placement agents, sometimes assume that information about such transactions is “private.” While Regulation D has always required a public filing (in paper format), the transition from paper filing to electronic filing will result in Form D information becoming much more accessible to regulators, competitors and the public.
Issuers seeking an exemption from registration under the Securities Act of 1933 frequently rely on Regulation D, which consists of three separate exemptions (set forth in Rules 504, 505 and 506). Issuers relying upon one of these Regulation D exemptions are required to file a Form D with the SEC.
Until the Amendments were adopted, the SEC required that Form Ds be filed in paper format. Copies of these Form D filings have been available to the public via the SEC’s Public Reference Room in Washington, D.C., and, upon request, by mail. While the information contained in a Form D was, in one sense, “publicly available,” it was difficult, from a practical perspective, for the public to access this information.
Key Elements of the Amendments
- As mentioned above, filers will be required to use an online submission system for all Form D filings. The information submitted through this system will be stored by the SEC electronically and will be accessible on the SEC’s Web site from any computer with access to the Internet. The information will be tagged so that the data will be interactive, searchable and viewable in an easy-to-read format. The SEC has noted that this system will make Form D filings more accessible to the SEC, to state regulators, to competitors of the issuer and to the general public.3
- Filers that do not already have EDGAR filing codes will need to obtain a user identification number (which the SEC refers to as a Central Index Key or “CIK” code), a CIK Confirmation Code number and a password (by electronically filing a Form ID at https://www.filermanagement.edgarfiling.sec.gov and, in connection therewith, by filing the required authenticating documents by facsimile within two business days thereafter).
Revised Information Requirements
In addition to the electronic filing requirement, the Amendments made a number of changes to Form D itself, including the following:
- Deleting the requirement to identify owners of 10% or more of a class of the issuer’s equity securities;
- Replacing the requirement to provide a business description of the issuer with a requirement to classify the issuer by industry from a pre-established list of industries;
- Requiring revenue range information for the issuer, or net asset value range information in the case of pooled investment vehicles (the form permits the filer to decline to disclose this information);
- Requiring the name and Central Registration Depository number of each person, including finders, who will be paid any compensation or other consideration in connection with an offering;
- Reducing the disclosure regarding the expenses of the offering and the intended uses of the proceeds of the offering, with such disclosure now limited to sales commissions and any amounts paid to directors, officers or promoters; and
- Deleting the appendix requiring a state-by-state allocation of the offering proceeds.
Obligation to Update
- The Amendments require annual updating amendments to previously filed Form Ds for issuers engaged in continuing offerings, such as pooled investment vehicles that remain open to new investors. Such updating amendments must be filed on or before the anniversary of the filing of the initial Form D (or the latest amendment).
- In addition, the Amendments require that a revised Form D be filed as soon as practicable after the discovery of a material mistake or a change in the information previously provided.
Coordination With State Governments
- The Amendments have been designed to facilitate greater coordination between the SEC and state securities regulators in the future. The Amendments replace the current federal and state signature requirements with a combined signature requirement that includes a requirement to provide offering documents to regulators upon request. The new signature requirement also includes a consent to service of process and a certification that the issuer is not disqualified by rule from relying on any exemption claimed. Nevertheless, the Amendments fall short of implementing a one-stop filing system, and issuers will still be required to make paper filings and comply with the specific filing and amendment requirements of the appropriate states.
To ensure a smooth transition to electronic filing, issuers intending to rely on Regulation D will need to obtain the necessary EDGAR filing codes. Issuers should also review the revised Form D to ensure that they are prepared to furnish the requested information and, in the case of continuous offerings, should implement a procedure to ensure that amendments are timely filed.
As noted above, the Amendments will provide an additional tool to the SEC, to state regulators and to the public (including competitors) to compile and easily search information filed by Form D filers. Private placement participants should be aware that the Amendments, particularly the electronic filing requirement, will make Form D information more widely available and, in light of recent events and the current economic environment, may facilitate increased scrutiny of private placements reported on Form D as well as those participating in private placements, including finders, business brokers and capital introduction companies.