Last week, the U.S. Financial Industry Regulatory Authority published proposed amendments to its rules that would require its members and associated persons that offer or sell private placements, as well as those that participate in the preparation of private placement memoranda, term sheets or other related disclosure documents in connection with a private placement, to provide disclosure to investors regarding the anticipated use of the offering proceeds prior to sale. The disclosure to investors would also have to include information regarding the amount and type of offering expenses, as well as the amount and type of compensation provided to sponsors, consultants and members in connection with the offering.
The disclosure documentation would have to be filed with FINRA within 15 days of the first sale. Certain offerings, however, would be exempted from the new requirements, including those sold solely to qualified purchasers, qualified institutional buyers and investment companies, meeting the applicable statutory definitions. According to FINRA, its proposals will "provide important investor protections in connection with private placements without unduly restricting capital formation through the private placement offering process" while also assisting in efforts to "identify problematic terms and conditions in private placements, thereby helping to detect and prevent fraud in connection with private placements."
Comments on the proposals are being accepted for 21 days from the date of publication in the Federal Register.