Dodd-Frank: Bad Actors Disqualified from SEC Rule 506 Offerings

The SEC has recently proposed a rule to implement the “Bad Actor” provision of Dodd-Frank. Here is a list of articles by lawyers on JD Supra concerning the effects of implementation.

More New Rules for Startups to Follow (Davis Wright Tremaine LLP)

“Section 926 of the Dodd-Frank bill required the SEC to adopt rules that disqualify securities offerings involving certain ‘felons and other bad actors’ from reliance on the safe harbor from Securities Act registration provided by Rule 506 of Regulation D. These new rules are going to make life more difficult for startups raising capital. Why? Because now startups are going to have to investigate “covered persons” to determine whether they are “bad actors.” These inquiries are going to take time, and require companies to take affirmative action—a burden that doesn’t exist under the current law.” Read more »

SEC Proposes Disqualifying “Bad Actors” from Rule 506 Offerings (Duane Morris LLP)

“The U.S. Securities and Exchange Commission (SEC) has announced proposed rules1 that would deny the safe-harbor exemption provided by Rule 506 of Regulation D to securities for any offering involving certain ‘felons and other bad actors’under the Securities Act of 1933. The period for comments on the proposed rules expires on July 14, 2011.” Read more »

Bad Boys and Rule 506 (Priore Law Group)

“The SEC is proposing new regulations under the Section 926 of the Dodd- Frank Wall Street Reform and Consumer Protection Act. The Rule is officially know as the Disqualification of Felons and Other ‘Bad Actors’ from Rule 506 Offerings. These rules are similar to the rules provided for in Rule 505, Regulation A, Regulation E and state limited offering exemptions. This article summarizes the main aspects of this proposed regulation. Read more »

Sec Proposes Rule To Disqualify Felons And Other Bad Actors From Rule 506 Offerings (Wilson Sonsini Goodrich & Rosati)

“On May 25, 2011, the Securities and Exchange Commission (SEC) proposed a rule that would, among other things, prevent an issuer from using a Rule 506 exemption for any securities offerings in which ‘felons and other bad actors’ are involved. The current version of Rule 506 does not impose any bad-actor disqualification requirements…Once the SEC’s proposed rule takes effect, an issuer hoping to rely on a Rule 506 exemption will need to conduct a factual inquiry with respect to potentially disqualifying events to establish its reasonable care exception.” Read more »

“Bad Actor” Disqualification from Rule 506 Offerings (Thompson Coburn LLP)

“Although currently only a proposed rule, the revisions are significant, as Rule 506 is by far the most widely used SEC-sanctioned securities offering exemption and one of the most cost-efficient ways for small businesses to raise equity capital. For a non-public issuer with a current or future need to raise equity capital in excess of $1,000,000, an inability to use Rule 506 could very well imperil that issuer’s future. Additionally, if an offering thought to be exempt under Rule 506 turns out not to be due to “bad actor” disqualification, the issuer could face action from either the SEC or its investors.” Read more »

Dodd-Frank Update: SEC Proposes Bad Actor Disqualifications for Private Placements under Regulation D (Morrison & Foerster LLP)

“Section 926 of the Dodd-Frank Act, entitled ‘Disqualifying felons and other bad actors from Regulation D offerings, requires the SEC to adopt rules to disqualify certain securities offerings from reliance on the private placement safe harbor provided by Rule 506 of Regulation D. We discuss the background, the proposed amendments to Rule 506 of Regulation D, and possible future SEC rulemaking below. Read more »

SEC Proposes John Wilkes Booth Rules (Allen Matkins Leck Gamble Mallory & Natsis LLP)

“Although on its face it seems reasonable to bar convicted felons and other nefarious people from relying upon Rule 506, the bar actually makes little sense. Rule 506 is a non-exclusive safe harbor exemption (see Preliminary Note 3 to Regulation D). Thus, if the only deficiency is a ‘bad actor’ disqualification, it seems that the offer and sale will be exempt under Section 4(2) of the Securities Act of 1933.” Read more »

Reformation and Regulations – Dodd-Frank Act & Mortgage Reform (Jonathan Foxx)

“Reformation and Regulations, the article is the first of a 3-part series that dissects the landmark financial reform legislation now known as the Dodd-Frank Act…In this article, I provide a chart of the Act’s reform and consumer protection features, as they relate to residential mortgage loan originations; and, I review the Mortgage Loan Regulatory Provisions and, where relevant, their integration into other parts of the Act.” Read more »

Dodd-Frank: Key Transactional Securities and Public Company Disclosure/Governance Provisions (Manny Rivera)

A summary of the transactional securities law and public company disclosure and corporate governance provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Read more »