The Devil is in the Details – Proposed Changes to SEC Rules Affecting Rule 506 Offerings and Summary of Comments

September 5, 2013

On July 10, 2013, the SEC proposed significant changes affecting private offerings under Rule 506 of Regulation D, the most frequently used exemption from the registration requirements. If adopted, these proposed changes will impact all offerings made under Rule 506, not just offerings made under the new advertised private placement rule. The proposals would change the filing requirements and content of Form D, provide a one-year disqualification penalty for failure to file a required Form D and require several actions relating to materials used in advertised private placements. Click here for our explanation of these proposals.

The proposed changes are directly related to two important rule amendments relating to Rule 506 offerings, which the SEC adopted at the same time. These amendments:

  • permit advertised private placements; and
  • disqualify an issuer from using Rule 506 if the issuer or specified persons or entities associated with the issuer or the offering are “bad actors.”

These amendments are both effective Sept. 23, 2013. Click here for our explanation of the amendments permitting advertised private placements and click here for our explanation of the bad actor amendments.

The changes proposed on July 10, 2013, are primarily a result of suggestions regarding investor protection made during the comment process for the rules relating to advertised private offerings. Many investor advocates, state securities regulators and others, including the SEC’s Investor Advisory Committee, recommended numerous changes to deal with advertised private placements. The proposed changes described in our explanation in large part represent the investor protection measures suggested in the comments that a majority of the SEC commissioners were willing to support.

The proposed changes are controversial. Investor advocates strongly support them. Start-up sponsors vehemently oppose them.

The comment period on the proposed changes ends on Sept. 23, 2013. The comments received through Sept. 3, 2013 are also summarized in our white paper. We intend to update this summary after the comment period ends.

Download our executive summary and white paper >>