Effective December 3, 2012, member firms of the Financial Industry Regulatory Authority, Inc. (FINRA) who commence selling efforts in private placement offerings on or after that date are required under new FINRA Rule 5123 to file offering documents in such offerings electronically with FINRA within 15 days of the date of the first sale in the offering, or inform FINRA that it did not use any offering documents in such offering. Also, member firms who sell their own securities in a private offering are required, effective December 3, 2012, to submit a filing about such offerings electronically with FINRA.
The new Rule is intended to compliment FINRA Rule 5122 which established standards on disclosure, use of proceeds, and a filing requirement for private placements where the member firm or a controlled entity of the member firm is the issuer of the securities.
The new Rule is a “leaner” version of the Rule first proposed by FINRA. In response to significant member firm opposition, FINRA dropped from the proposed Rule, the requirement to file prior to the commencement of the offering, and provided a number of exemptions from the filing requirement. The Rule even provides the option that no offering documents were used by the member firm in the offering, but the member firm still has to report to FINRA that no offering documents were used. FINRA expects that only a limited number of private placement offerings sold by member firms will result in reporting that no offering documents were utilized.
The Rule provides exemptions from the filing requirements for offerings to qualified purchasers, institutional purchasers, and other sophisticated investors, all as defined under the Rule. Offerings to individual accredited investors are not exempted from the Rule’s filing requirements.
The Rule is intended, in part, to keep FINRA informed as to the involvement of member firms in private placement offerings. Information filed in compliance with the Rule is afforded confidential treatment by FINRA.