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The Securities and Exchange Commission (“SEC”) has proposed amendments to Regulation D that, if adopted, would ban certain “felons” and other “bad actors” from reliance on the exemption from securities registration provided under Rule 506 of Regulation D under the Securities Act of 1933 (the “Proposal”). The Proposal would also prohibit banned persons from claiming “covered securities” status for purposes of the preemption of state Blue Sky laws for Rule 506 offerings. Requirements of the Proposal Under the Proposal, covered persons (“Covered Persons”) cannot rely on the exemption from registration of securities provided by Rule 506 if such Covered Persons had a disqualifying event within a certain period of time. Who Are the Covered Persons? ? the issuer, including any predecessor and affiliated issuers, and promoters; ? directors, officers, general partners, and managing members of the issuer; ? any beneficial owner of 10 percent or more of any class of the issuer’s equity securities; and ? persons who are compensated directly or indirectly for soliciting investors as well as general partners, directors, officers, and managing members of the compensated persons. Disqualifying Events The following are disqualifying events: ? Criminal convictions in connection with the purchase or sale of a security, the making of any type of “false filing” with the SEC or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment adviser. The criminal conviction must have occurred within ten years of the sale of securities or five years, in the case of the issuer and its predecessors and affiliated issuers. ? Court injunctions and restraining orders in connection with the purchase or sale of a security, the making of any type of “false filing” with the SEC or arising out of the conduct of the business of an underwriter, broker, dealer, municipal securities dealer, or investment adviser. The injunction or restraining order must have occurred within five years of the proposed sale of securities. ? Final orders from state securities, insurance, banking, savings association or credit union regulators, federal banking agencies; or the National Credit Union Administration that bar the issuer from: ? associating with a regulated entity; ? engaging in the business of securities, insurance, or banking; and ? engaging in savings association or credit union activities; or ? that constitutes a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct entered within ten years before such sale. ? SEC orders under Section 15(b) or 15(c) of the Securities Exchange Act of 1934, or Section 203(e) or 203(f) of the Investment Advisers Act of 1940, that at the time of sale: ? suspend or revoke registration as a broker, dealer, municipal securities dealer, or investment adviser; ? places limitations on the activities, functions, or operations of such persons; or bars such persons from being associated with any entity or from participating in the offering of any penny stock. ? Suspension or expulsion from membership in a “self-regulatory organization” (“SRO”) or suspension or bar from association with an SRO member, which would be disqualifying for the period of suspension or expulsion. ? Commission stop orders and orders suspending the Regulation A exemption issued within five years before the proposed sale of securities. ? U.S. Postal Service false representation orders issued within five years prior to the proposed sale of securities. The SEC acknowledges the potential difficulty of ascertaining whether disqualifying events may apply to the Covered Person, and the Proposal includes an exception from disqualification if the issuer can show it did not know and, in the exercise of reasonable care, could not have known that a disqualifying event existed. For further information about this article, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 201 S, Boca Raton Florida, (561) 416-8956, by email at info@securitieslawyer101.com or visit Hamilton & Associates Securities Law – Brenda Hamilton . This memorandum is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. For more information concerning the rules and regulations affecting the use of Rule 144, Form 8K, FINRA Rule 6490, Rule 506 private placement offerings, Regulation A, Rule 504 offerings, Rule 144, SEC reporting requirements, SEC registration on Form S-1 and Form 10, Pink Sheet listing, OTCBB and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, go public direct transactions and direct public offerings or please contact Hamilton and Associates at (561) 416-8956 or by email a info@securitieslawyer101.com. Please note that the prior results discussed herein do not guarantee similar outcomes.
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