SEC Approves FINRA Rule Relating to Filing of Private Placements

Recently, the SEC approved, on an accelerated basis, FINRA Rule 5123 (the Rule). The Rule will require, subject to certain exceptions, FINRA member firms that sell securities in certain private placements to submit a notice filing with FINRA. FINRA has noted that the filing requirement is a notice-filing only. Therefore, issuers and member firms should not expect to receive FINRA comments or input before commencing an offering.

Under the Rule, members that sell a security in a private placement must submit to FINRA a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale. Submissions must be made within 15 calendar days of the first sale. Members that do not employ offering documents must indicate to FINRA that no such documents were used in connection with the applicable offering.

The Rule exempts certain offerings and offerings to certain purchasers from the notice-filing requirements. For example, offerings made solely to one or more of the following purchasers are exempt:

  • institutional accounts;
  • qualified purchasers;
  • qualified institutional buyers (QIBs);
  • investment companies and banks;
  • entities composed exclusively of QIBs;
  • employees and affiliates of the issuer; and
  • knowledgeable employees, eligible contract participants and accredited investors as defined in Securities Act Rule 501(a)(1), (2), (3) or (7).

Exemptions based on the type of offering include offerings made pursuant to Securities Act Rule 144A or Regulation S; and offerings of:

  • certain short-term debt securities;
  • subordinated loans;
  • variable contracts;
  • modified guaranteed annuity contracts and modified guaranteed life insurance policies;
  • certain nonconvertible debt or preferred securities;
  • certain securities issued in conversions, stock splits, and restructuring transactions;
  • securities of a commodity pool operated by a commodity pool operator; and
  • registered investment companies.

Exempt also were offerings involving:

  • business combination transactions;
  • standardized options; and
  • offerings filed with FINRA under Rules 2310, 5110, 5121 and 5122, or exempt from filing thereunder in accordance with Rule 5110(b)(7).

FINRA stated it will treat all information it receives pursuant to the Rule as confidential and will use such information solely for determining compliance with applicable FINRA rules or other regulatory purposes deemed appropriate by FINRA.

Norm Champ Appointed as Director of SEC’s Division of Investment Management

On July 9, Norm Champ assumed his new duties as Director of the SEC’s Division of Investment Management. Previously, Mr. Champ served as Deputy Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE). In OCIE, where he was a member of the Executive and Operating Committees, Mr. Champ served as the acting head of the brokerdealer, investment adviser/investment company and credit rating agency exam programs and as acting chief counsel. Mr. Champ led the creation of OCIE’s first Examination Manual. During his SEC tenure, Mr. Champ received the Chairman’s Award for Law and Policy for his role in OCIE’s implementation of the Dodd-Frank Act and the Chairman’s Award for Labor-Management Relations for his role in the reorganization of OCIE.

Prior to joining the SEC in 2010, Mr. Champ was general counsel for 10 years, as well as a member of the executive committee and a partner, at Chilton Investment Company, an investment management firm which advises private funds and managed accounts.

Wall Street Lawyer (Vol. 16, 9)