SEC Revises Guidance for Exemption From Bad Actors Disqualification Under Reg A and Reg D Pursuant to Dodd Frank

The disqualification provisions of Rules 262 and 505 provide that the exemptions from the registration provisions of the Securities Act available under Regulation A and Rule 505 of Regulation D are not available for an offering if, among other things, an issuer, an affiliate, or the underwriter is subject to a criminal conviction, an administrative order or an injunction or bar involving certain securities law violations. Disqualification also occurs if any of the issuer’s directors, officers, general partners, 10 percent owners, or promoters, or the underwriter’s partners, directors, or officers, are subject to such a conviction, order, injunction or bar

The disqualifying events in Rule 506(d) are similar to Regulation A, but broader. In addition to the criminal convictions, injunctions, administrative orders, and industry bars covered under Regulation A and Rule 505, the disqualifying events in Rule 506(d) include: 

Issuers may submit waiver requests from the disqualification provisions of Rule 506(d) for disqualifying events that occur on or after September 23, 2013.  For disqualifying events that occurred before September 23, 2013, Rule 506(e) requires that issuers provide a description in writing of any matters that would have triggered disqualification. This written statement must be furnished to all purchasers a reasonable time before sale in any Rule 506 offering. The rules do not provide for waiver of the disclosure requirements of Rule 506(e).

The Commission may waive Regulation A and Regulation D disqualifications upon a showing of good cause that the disqualification is not necessary under the circumstances. The Commission has delegated authority to grant waivers of this kind to the Director of its Division of Corporation Finance, and the authority has been subdelegated to certain officials of the Division, including the Chief of the Division’s Office of Small Business Policy. The Commission itself retains authority to grant Regulation A and D waivers, including granting them in connection with settling a Commission enforcement action.

In Release No. 33-9414 (July 10, 2013), the Commission also identified a number of circumstances (such as change of control, change of supervisory personnel, absence of notice and opportunity for hearing, and relief from a permanent bar for a person who does not intend to apply to reassociate with a regulated entity) that could be relevant to an evaluation of a Rule 506 waiver request.