Wednesday, May 25, 2011
The SEC today proposed a rule to deny certain securities offerings from qualifying for exemption from registration if they involve certain “felons and other bad actors.” The proposed rule would implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Regulation D provides three exemptions that a company can use to avoid registration under the securities laws, the most widely used of which is Rule 506. If an offering qualifies for the Rule 506 exemption, an issuer can raise unlimited capital from an unlimited number of accredited investors and up to 35 non-accredited investors. Under the proposed rule, an offering would be unable to rely on the Rule 506 exemption if the issuer or any other person covered by the rule had a “disqualifying event” such as a criminal conviction, court injunction and restraining order.