Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, May 25, 2011

SEC Proposes Rule Disqualifying "Bad Actors" from Reg D Offerings

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.

SEC Action | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference SEC Proposes Rule Disqualifying "Bad Actors" from Reg D Offerings:


As we know, Rule 506 is a safe harbor for the 4(2) exemption which exempts any offering not involving a public offering. I don't know how the involvement of a bad actor in a private placement precludes an offering from being one not involving a public offering. Doen't this fly in the face of years of SEC interpretation stating that bad actors were not excluded from utilizing the 4(2) exemption or 506 safe harbor? Is the no bad actor requirement going to be incorporated into the 4(2) exemption as well going forward?

Posted by: Gustav | May 26, 2011 7:09:39 AM

Post a comment