Washington, D.C., May 25, 2011 – The Securities and Exchange Commission 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.
“The Dodd-Frank Act requires the Commission to adopt rules that would make this safe harbor unavailable if a felon and other ‘bad actor’ is involved in the offering,” said SEC Chairman Mary L. Schapiro. “Our proposals would implement the Dodd-Frank Act requirement in a balanced and tailored way.”
Public comments on the SEC’s proposal should be received by July 14, 2011.