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SEC proposes barring felons, 'bad actors' from rule 506 offerings

May 26 2011 Stuart Gittleman, Compliance Complete

The Securities and Exchange Commission on Wednesday proposed denying certain securities offerings that involve certain felons and "bad actors" from qualifying for exemption from registration. Comments on the proposal, which would implement section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act with respect to rule 506 of Regulation D under the Securities Act of 1933, should be received by the SEC by July 14. Rule 506 accounts for over 90 percent of the offerings made, and the overwhelming majority of capital raised, under Reg D. The exemption lets issuers raise unlimited capital from an unlimited number of "accredited investors" and up to 35 non-accredited ones. The exemption has also been said to unduly attract fraudsters, including recidivists. The proposal would disallow the exemption if the issuer, including its predecessors and affiliated issuers, or any of the following persons: directors, officers, general partners and managing members of the issuer;

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