FINRA Rules

On July 15, 2021, FINRA announced[1] that it has updated its rules regarding the offering of private placement securities to expand the existing requirement that each broker-dealer that issues and/or sells a private placement submit a copy of the offering documents (and any subsequent, materially amended versions thereof) before the document’s first use or the securities’ first sale[2] or notify FINRA that no such offering documents were used.[3] The amended rules, effective October 1, 2021, now require any retail communication that “promotes or recommends [a] private placement” also be filed with FINRA prior to the first use or sale.[4]

Key definitions relevant to the new rules include the following:

Likely Forthcoming Regulations

FINRA’s further expansion into overseeing the sale of private placement securities is likely only the beginning of securities’ regulators expansion into the space. Chairman Gensler’s near-term agenda for the SEC, released on June 11, 2021, includes seeking public comment on various aspects of the regulations governing exempt (i.e., private placement) offerings, including the accredited investor definition[13] and the information that private placement issuers are required to provide to the SEC and to prospective investors.[14] We recommend that broker-dealers and other industry participants (e.g., investment advisers, issuers) that assist with or conduct private offerings and investments in private offerings monitor regulatory developments in this area closely.