• SEC Provides Guidance on "Bad Actor" Rule

Earlier this month the SEC's Division of Corporation Finance provided guidance on the disqualification of felons and other "bad actors" from participating in exempt offerings made under Securities Act Rule 506. The 14 new Compliance and Disclosure Interpretations ("C&DIs") can be found at Questions 260.14 through 260.27.

Under Rule 506(d), certain "covered persons," including an issuer's directors and certain officers, general partners and managing members of the issuer, as well as individuals compensated for soliciting investors, may not participate in a Rule 506 exempt offering if they committed certain "bad acts" after September 23, 2013, the rule's effective date. If a covered person committed a bad act prior to September 23, 2013, that fact must be disclosed. An issuer is also exempt from disqualification when it can show that it did not know and, in the exercise of reasonable care, could not have known, that a covered person was a bad actor.

Corporation Finance's new guidance provides that an issuer may reasonably rely on a covered person's agreement to provide notice of a potential or actual bad actor triggering event pursuant to, for example, contractual covenants, bylaw requirements, or an undertaking in a questionnaire or certification. Moreover, an issuer can continue to rely on the Rule 506 exemption even if a covered person commits a bad act during the course of the offering if that covered person is immediately terminated. In addition, bad acts committed outside the United States are not triggering events. The guidance further addresses who is an "affiliated issuer," who is "participating" in the offering, and what constitutes "reasonable care."

  • Form D

Last month, Race to the Bottom discussed additional proposed amendments to Regulation D, particularly the possible changes to the regulation's disclosure requirements in Form D regarding the size of the issuer.

  • Crowd Funding

And a recent article by Columbia Law School professor Jason W. Parsont examines the impact that accredited crowdfunding will have on retail crowdfunding.