Tag Archives: JOBS Act

SEC Adopts Rule to Disqualify Felons and other “Bad Actors” from Using Rule 506 of Regulation D in Connection with Private Placement Offerings.

 Bad-Boys, Bad-Boys What You Going to Do?

In lieu of doing a public offering of securities, companies issuing securities can rely on an exemption from registration.  Regulation D is one of those exemptions. In 2010, Congress passed the Dodd-Frank Act.  That law specifically ordered the SEC to prohibit felons and other bad actors from utilizing Rule 506 of Reg. D to issue securities pursuant to the before-mentioned “safe harbor.”

Persons who are subject to the ban include promoters, directors, investment managers or those owning more than twenty percent (20%) of the issuer’s securities. The “bad boy” behavior that would prevent one from using Rule 506 of Reg D includes:

i)                   criminal convictions;

ii)                 injunctions and restraining orders related to securities;

iii)              final orders from other securities regulators, banking regulators and the CFTC;

iv)               SEC disciplinary orders, SEC “cease and desist” orders, and SEC “stop orders;”

v)                 suspension or expulsion of broker-dealers (B-Ds) or registered representatives from the NASD, FINRA, NYSE; and

vi)                U.S. Postal Service “false representation orders.”

The length of time for the bar on events listed above is either within five (5) or ten (10) years.

While the disqualification events listed above would have to occur after the effective date of the amended Rule 506, matters previously existing and that would otherwise fall under the rule, are subject to mandatory disclosure to investors. The amended Rule 506 becomes effective in mid-September.

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SEC Adopts Rule to Disqualify Felons and other “Bad Actors” from Using Rule 506 of Regulation D in Connection with Private Placement Offerings.

 Bad-Boys, Bad-Boys What You Going to Do? In lieu of doing a public offering of securities, funds issuing securities can rely on an exemption from registration.  Regulation D is one of those exemptions. In 2010, Congress passed the Dodd-Frank Act.  That law specifically ordered the SEC to prohibit felons and other bad actors from utilizing Rule 506 of Reg. D to issue securities pursuant to the before-mentioned “safe harbor.” Persons who are subject to the ban include promoters, directors, investment managers or those owning more than twenty percent (20%) of the issuer’s securities. The “bad boy” behavior that would prevent one from using Rule 506 of Reg D includes:

i)                   criminal convictions;

ii)                 injunctions and restraining orders related to securities;

iii)              final orders from other securities regulators, banking regulators and the CFTC;

iv)               SEC disciplinary orders, SEC “cease and desist” orders, and SEC “stop orders;”

v)                 suspension or expulsion of broker-dealers (B-Ds) or registered representatives from the NASD, FINRA, NYSE; and

vi)                U.S. Postal Service “false representation orders.”

The length of time for the bar on events listed above is either within five (5) or ten (10) years. While the disqualification events listed above would have to occur after the effective date of the amended Rule 506, matters previously existing and that would otherwise fall under the rule, are subject to mandatory disclosure to investors. The amended Rule 506 becomes effective in mid-September.

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SEC Adopts Final Rule to Allow General Solicitation and Advertising by Issuers, Private Companies and Startups.

JOBS Act and Congress Force the SEC to Go “Down the Rabbit Hole” of Mass Marketing.

The SEC’s recent vote changes the rules on the marketing of so called private placements or those securities not involved in a public offering.

This changed an 80 year prohibition on so-called general advertising or general solicitation, which generally speaking amount to broader types of marketing. So long as the investments are only sold to accredited investors, there is now no need for a pre-existing personal or business relationship between the issuer’s principals, internal marketers and broker-dealers (BDs) selling the offering of stock or debt.

Generally speaking, an accredited investor is the one with more than a one million dollar net worth, excluding home equity or one having incomes above $200,000 for individuals and $300,000 for couples. According to the SEC, 7.4% of U.S. households meet the definition of accredited investor according to the net worth definition. Under the amended Regulation D, the issuer of the private securities can no longer satisfy the accredited investor qualification by a “check the box” response. Now, issuers must take steps that amount to “reasonable verification of income and/or assets.” Companies/start-ups can review tax returns to substantiate the purchaser’s income or get confirmation of a person’s net worth or income by obtaining it from a registered broker-dealer (B-D), registered investment adviser (RIA), licensed attorney or a CPA.  

The JOBS Act itself was passed in April 2012. The Congressional deadline for the SEC to implement the JOBS Act expired more than 1 year ago. Nevertheless, the SEC has implemented the changes that will now allow for certain crowd-funding- type features to be used by issuers of securities.

Hedge funds, venture capital and private equity funds seemed to have “sneaked passed the bouncer,” as the impetus behind the change according to the JOBS Act was ease of raising capital and thus boost employment. It remains doubtful that loosening the rules on marketing by hedge funds, venture capital and private equity funds will lead to any additional hiring. The change in the marketing rules amount to a “sea change” when one considers that last year, the amount of private capital raised in the U.S. was just under 900 billion dollars.

The new rule takes effect sometime in mid-September 2013.

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SEC Adopts Final Rule to Allow General Solicitation and Advertising by Hedge Funds, Venture Capital and Private Equity Funds.

JOBS Act and Congress Force the SEC to Go “Down the Rabbit Hole” of Mass Marketing.

The SEC’s recent vote changes the rules on the marketing of so called private placements or those securities not involved in a public offering.

This changed an 80 year prohibition on so-called general advertising or general solicitation, which generally speaking amount to broader types of marketing. So long as the investments are only sold to accredited investors, there is now no need for a pre-existing personal or business relationship between the issuer’s principals, internal marketers and broker-dealers (BDs) selling the offering of the fund.

Generally speaking, an accredited investor is the one with more than a one million dollar net worth, excluding home equity or one having incomes above $200,000 for individuals and $300,000 for couples. According to the SEC, 7.4% of U.S. households meet the definition of accredited investor according to the net worth definition. Under the amended Regulation D, the issuer of the private securities can no longer satisfy the accredited investor qualification by a “check the box” response. Now, issuers must take steps that amount to “reasonable verification of income and/or assets.” Issuers/Funds can review tax returns to substantiate the purchaser’s income or get confirmation of a person’s net worth or income by obtaining it from a registered broker-dealer (B-D), registered investment adviser (RIA), licensed attorney or a CPA.

The JOBS Act itself was passed in April 2012. The Congressional deadline for the SEC to implement the JOBS Act expired more than 1 year ago.  Nevertheless, the SEC has implemented the changes that will now allow for certain crowd-funding- type features to be used by issuers of securities.

Hedge funds, venture capital and private equity funds seemed to have “sneaked passed the bouncer,” as the impetus behind the change according to the JOBS Act was ease of raising capital and thus boost employment. It remains doubtful that loosening the rules on marketing by hedge funds, venture capital and private equity funds will lead to any additional hiring. The change in the marketing rules amount to a “sea change” when one considers that last year, the amount of private capital raised in the U.S. was just under 900 billion dollars.

The new rule takes effect sometime in mid-September 2013.

Leave a comment

Filed under broker-dealer, Hedge Funds, Investment Advisers, Securities