Regulation D

SEC Issues Guidance Regarding Standards Applicable to Waivers of Disqualification under Regulation A and Rules 505 and 506 of Regulation D

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The disqualification provisions of Rules 262 and 505 under the Securities Act make the exemptions from registration under Regulation A and Rule 505 of Regulation D unavailable for an offering if, among other things, an issuer, any of its predecessors, or any affiliated issuer is subject to certain administrative orders, industry bars, an injunction involving certain securities law violations or specified criminal convictions. Disqualification also occurs if any of the issuer’s directors, officers, general partners, 10 percent beneficial owners of any class of the issuer’s equity securities, or promoters, underwriters, persons compensated for soliciting purchasers, or any of the underwriters’ or paid solicitors’ partners, directors, or officers, is subject to administrative orders, injunctions, associational bars or specified convictions.

On March 13, the SEC clarified that it may waive Regulation A or Regulation D disqualifications upon a showing of good cause that it is not necessary under the circumstances that the exemptions be denied.  A waiver could include conditions or limitations. The SEC has delegated authority to grant these waivers to the Director of its Division of Corporation Finance.

New Compliance and Disclosure Interpretations

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On December 4, the Division of Corporation Finance of the SEC issued new Compliance and Disclosure Interpretations regarding, among other things, Rules 506(d) and (e) of Regulation D under the Securities Act of 1933.  These rules prohibit issuers from conducting private placements that rely on Rule 506 if felons and other “bad actors” participate in the offering.

Section 260 of the Interpretations addresses questions arising under “Rule 506 – Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering.”  Interpretations.

Fed Proposed Rules for Reserve Banks and Depository Institutions

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On October 11, the Fed proposed rules to amend Regulation D (Reserve Requirements of Depository Institutions) and Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire). The proposed rules are intended to simplify the administration of reserve requirements and reduce administrative and operational costs for depository institutions and Reserve Banks. Comments must be submitted within 60 days after publication in the Federal Register. Fed Release. Proposed Amendment to Reg D. Proposed Amendment to Reg J.