Is SEC Regulation of Political Spending Dead?

It is unlikely that it is dead, but it certainly is on life support.  But, I believe that board oversight, and disclosure, of corporate political expenditures will continue to increase.

In 2011, the Committee of Corporate Political Spending, a group of ten academics focusing on corporate and securities law, submitted a petition for rulemaking to the SEC asking the SEC to adopt rules to require public companies to disclosure to shareholders the use of corporate resources for political activities. In the following months, the SEC received in excess of one million comments to the petition. Reportedly, most of the comments expressed support for the requested rulemaking. In 2012, the SEC placed disclosure by public companies of their political expenditures on its rulemaking agenda. It would seem that with disclosure of political expenditures being on the SEC’s rulemaking agenda, combined with broad public interest in such a rule (as evidenced by other one million comments on the petition), the SEC would move forward with rulemaking. But, that didn’t happen.

The SEC dropped from its rule making agenda political expenditures disclosure in 2013.   But, the issue was not dead; press coverage continued.   For example, on October 29, 2014, the New York Times published an editorial advocating for an SEC rule requiring disclosure of corporate political expenditures. In a letter to the editor of the New York Times responding to the editorial, Commissioner Daniel M. Gallagher stated “[m]andatory political contribution disclosure deserves no place on the agency’s agenda, and I will fight to keep it that way.” Given the removal of political expenditures disclosure from the SEC’s rulemaking agenda and Commissioner Gallagher’s public opposition to any such rule, it is probably a fairly safe bet that, unless prodded by congress, the SEC will not take any rulemaking action with respect to disclosure of corporate political expenditures in the near future.

While it appears that the SEC will not take action any time soon, the idea of requiring public companies to disclose political expenditures has certainly not gone away. As we have written about in the past, Institutional Shareholder Services continues to generally recommend that shareholders vote for proposals to require greater disclosure of a company’s political contributions and trade association spending policies and activities. Further, a majority of companies reviewed by the Center for Political Accountability and the Zicklin Center for Business Ethics Research (generally, the top 300 companies in the S&P 500) continue to have some level of board oversight of their political contributions and expenditures. The Shareholders Protection Act of 2015 was also recently introduced in the House of Representatives. If passed (which is unlikely), the bill would amend The Securities Exchange Act of 1934 to require not only disclosure, but shareholder approval of political expenditures and require national securities exchanges and associations to require a board of directors vote for political expenditures in excess of $50,000.

I, for one, hope that Commission Gallagher is successful in his efforts to keep political expenditures disclosure off the SEC’s rulemaking agenda. Existing disclosure documents are already far too long and far too complex. Heaping more disclosure obligations on public companies would simply contribute to that problem. While new SEC rulemaking appears to be unlikely, pressure from shareholders, shareholder groups and others will likely lead to increasing board oversight, and increased voluntary disclosure, of corporate political expenditures.

Is the SEC Doing Enough to Promote Capital Formation?

If you believe Commissioner Daniel M. Gallagher, the answer is an emphatic “no”, at least with respect to small businesses. On September 17, 2014, at a Heritage Foundation event, Commission Gallagher gave a speech criticizing the Securities and Exchange Commission’s failure to adequately promote capital formation by small businesses:

[S]adly, we at the SEC are not doing nearly enough to ensure that small businesses have the access to capital that they need to grow. We layer on rule after rule until it becomes prohibitively expensive to access the public capital markets.

After noting that not all of the regulatory burden is the SEC’s fault as “much of the ever-growing rulebook is a direct result of congressional mandates,” Commissioner Gallagher makes a number of recommendations for the SEC. Highlights include recommendations to:

  • Withdraw the proposed amendments to Regulation D. (Commission Gallagher did not support the proposed amendments as he stated in the SEC’s July 10, 2013 open meeting.)
  • Consider more deeply Regulation D, including considering broadening the blue sky exemption to help make the choice between the various exemptions available under Regulation D more meaningful.  According to Commissioner Gallagher, nearly all Regulation D offerings are conducted under Rule 506, even though 2/3 of the offerings are small enough that they could have been conducted pursuant to Rule 504 or 505, because Rule 506 offerings are exempt from blue sky regulations.
  • Analyze the secondary market for private company shares, where innovation has slowed. “We need more facilities to improve trading among accredited investors in the private secondary market.”
  • Finish implementing the JOBS Act’s reforms to Regulation A and couple the reforms with the formation of venture exchanges (national exchanges with listing rules tailored for smaller companies, including those issuing shares issued pursuant to Regulation A). Commission Gallagher noted that the SEC had proposed a robust set of rules, including blue sky preemption in certain larger Regulation A Offerings. (Commissioner Gallagher also noted, with respect to the proposal for blue sky exemption, that an “outpouring of anger from state regulators . . . wasn’t unexpected. After all, state regulators have been “protecting” investors from investment opportunities that are too risky for decades – I’m sure the Massachusetts residents who missed out on the offering of Apple Computer in 1980 because of their regulator’s concerns about the risk know this all too well.”)
  • Reconsider the current thresholds for scaled disclosure and the amount of disclosure that is required at each level – including having two tiers of scaling: significant scaling of disclosure for “nanocap” companies (i.e., companies with market capitalizations of up to $50 million) and moderate scaling for “microcap” companies with market capitalizations of $50 million to $300 million.

Coincidently, the SEC released its 2014 – 2018 Strategic Plan on September 19, 2014, two days after Commissioner Gallagher’s speech. Featured on the cover of the Strategic Plan is the SEC’s mission statement – “Protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation” (emphasis added).

But, judging by the SEC’s own Strategic Plan and its current rulemaking agenda, it is unlikely that the SEC will be vigorously addressing many of Commissioner Gallagher’s concerns regarding capital formation for small businesses in the near future.

FRIDAY AFTERNOON SMACKDOWN – THE SEC v. THE HOUSE OF REPRESENTATIVES

On Friday, June 20, 2014, the Securities and Exchange Commission filed an action against the Committee on Ways and Means of the U.S. House of Representatives and congressional staffer Brian Sutter seeking enforcement of subpoenas the SEC issued. The SEC is investigating whether laws against insider trading, specifically applicable to members and employees of Congress via the Stop Trading on Congressional Knowledge Act of 2012 (the “STOCK Act”), were violated by the disclosure of non-public information about Medicare reimbursement rates. This is pretty exciting stuff for securities lawyers. It isn’t everyday that one branch of the federal government sues another. (Generally, the facts set forth below are derived from the SEC’s court filing and have not yet been established as true in court.)

About a year after the STOCK Act became law, the SEC launched an investigation into whether information regarding the April 1, 2013 announcement by the U.S. Centers for Medicare and Medicaid Services (“CMS”) on the 2014 reimbursement rates for the Medicare Advantage program was leaked improperly prior to the official public announcement. In its brief filed with the United States District Court for the Southern District of New York, the SEC details the opening of a formal investigation to determine, among other things, the source(s) of information in an email sent from a lobbyist to a broker-dealer that issued a “flash report” indicating that certain Medicare reimbursement rates would actually increase, rather than decrease as had been expected. The flash report was issued approximately 40 minutes before the official CMS announcement regarding the reimbursement rates and was followed promptly by a dramatic increase in the price and trading volume of certain health care stocks.

On May 6, 2014 the SEC staff issued subpoenas to the House Committee on Ways and Means and Brian Sutter. Mr. Sutter is the Staff Director of the House Ways and Means Committee’s Healthcare Committee. Before becoming Staff Director, Mr. Sutter was a staff member to the Subcommittee. Both the Committee and Mr. Sutter have refused to comply with the subpoenas, citing a number of legal objections, including that the documents demanded are protected by the Constitution’s Speech or Debate Clause. The SEC is having none of that and, on June 20, 2014, the SEC filed an action to enforce subpoenas it issued in connection with its investigation, potentially setting up a Constitutional showdown.    

From my perspective, there are at least two interesting points here. First, the SEC appears to be aggressively enforcing the STOCK Act. Hopefully, the courts will find a way to support the SEC in its efforts to conduct the investigation. If the SEC cannot investigate, the STOCK Act may have little, if any, bite. (If you would like to read more about the STOCK Act, please see our summary in the April 2012 issue of Up to Date.) Second, it will be very interesting to watch the matter unfold from a Constitutional perspective.

Investing in Bitcoin? Think Twice Says the SEC.

Bitcoin has been in the news a lot recently and most of the news has been bad, including news of the bankruptcy of Mt. Gox, formerly one of the world’s largest Bitcoin exchanges. Most recently, on May 7, 2014, the SEC issued an Investor Alert to make investors aware of the potential risks of investments involving Bitcoin and other forms of virtual currency.

According to the Investor Alert, Bitcoin has been described as a decentralized, peer-to-peer virtual currency that can be exchanged for traditional currencies, or used to purchase goods or services, usually online. What most distinguishes Bitcoin and similar virtual currencies from more traditional currencies is the fact that they are not backed by any government and operate without any central authority or oversight.

In its release, the SEC discusses:

  • The heightened risk of fraud that investments involving Bitcoin may have, noting that “innovations and new technologies are often used by fraudsters to perpetrate fraudulent investment schemes.”
  • Potential warning signs of investment fraud, including “guaranteed” high investment returns, unsolicited sales pitches, unlicensed sellers, no net worth or income requirements for investors, and pressure to buy immediately.
  • Limited recovery options if fraud or theft results in the loss of Bitcoin.
  • Certain unique risks of investments involving Bitcoin, including lack of insurance usually held by banks and brokerage firms, historic Bitcoin exchange rate volatility, potential governmental restrictions, and the potential that Bitcoin exchanges may stop operating due to fraud, technical difficulties, hackers or malware.

If the SEC’s recent guidance is not enough to make you pause and think before investing in anything relating to Bitcoin, you may want to review the SEC’s July 2013 Investor Alert about the use of Bitcoin in Ponzi schemes, the Financial Industry Regulatory Authority’s recent Investor Alert cautioning investors about the risks of buying and using digital currency such as Bitcoin and the North American Securities Administrators Association listing of digital currency on its list of the top 10 threats to investors for 2013. In addition, the IRS has issued guidance stating that the IRS will treat virtual currencies, such a Bitcoin, as property, which has the potential to make transactions in Bitcoin far more complex than transactions in traditional currencies.

Have you been a “Bad Actor”? Maybe You Should Just Beg for Forgiveness.

Rule 506 under the Securities Act of 1933 is the most widely used exemption from the registration requirements of the Securities Act. The exemption is used by a wide range of issuers from small, start-up companies to the largest investment and hedge funds. Rule 506 generally permits issuers to sell an unlimited amount of securities to an unlimited number of accredited investors. However, pursuant to Section 926 of the Dodd-Frank Act, the SEC adopted Rule 506(d) disqualifying securities offerings involving certain felons and other “bad actors” from reliance on the Rule 506 exemption. Rule 506(d) became effective on September 23, 2013.  

Rule 506(d)(2)(ii) provides that the disqualification shall not apply “upon a showing of good cause . . . if the Commission determines that it is not necessary under the circumstances that an exemption be denied.” Similar disqualification provisions are applicable to offerings exempt from registration pursuant to Regulation A and Rule 505(b). However, neither Regulation A nor Rule 505 is relied upon nearly as often as Rule 506 because of the inherent limitations of those rules. Therefore, the impact of the bad actor disqualifications under Regulation A and Rule 505 has been somewhat limited. However, given the wide use of the Rule 506 exemption, we can expect many more issuers and others involved in securities offerings to request waivers.    

Since Rule 506(d) became effective, the SEC has granted exemptions to five issuers, four of which are financial institutions. In each case, the “bad act” which led to possible disqualification (I say possible because none of the entities requesting exemption actually admitted to disqualification) was an order or judgment entered with the consent or acquiescence of the financial institution.

Generally, each of the requests for exemption cited the following facts: the bad conduct did not involve the offer or sale of securities pursuant to Regulation A or Regulation D; steps have been taken to address the underlying conduct; and disqualification would have an adverse impact on third parties. In addition, each company requesting the exemption also committed to furnishing to each purchaser in certain exempt offerings disclosure of the “bad acts.”

In each case, the order or judgment giving rise to the disqualification, the letter from the financial institution requesting an exemption from Rule 506(d)’s disqualification provision and the letter from the SEC staff confirming that the exemption had been granted, all bear the same date. Most likely the granting of the exemption was part of the overall settlement of the matters that were the subject of the various orders. The four letters can be found here, here, here and here.

SEC Division of Trading and Markets Issues a No Action Letter Regarding M&A Brokers

Business brokers vary greatly in terms of size, services provided and types of business they target as clients.  Generally, the more sophisticated and larger brokers are referred to as investment bankers.  Whether referred to as a business broker, M&A broker, financial advisor or investment banker (referred to collectively as a “business broker”), they all try to assist either buyers or sellers in the process of selling a business and are often paid on a commission basis based on the purchase price of the business to be sold. 

If a business broker is involved in the sale of a business structured as an asset sale, rather than a sale of stock or other securities, then the business broker is not required to be registered with the SEC as a broker-dealer in connection with that transaction.  However, if the same business is being sold through the sale of the stock of company operating the business or the sale or exchange of other securities, then the business broker would in all likelihood be required to register as a broker-dealer with the SEC.  The SEC has issued a Guide to Broker Dealer Registration discussing these issues.  For most, this is a strange result – same business, same broker and broker-related activities, but whether the business broker is required to be registered with the SEC as a broker-dealer is entirely dependent upon whether the transaction is structured as an asset sale or a stock sale.  Now, thanks to a no-action request letter submitted by lawyers from several different law firms, business brokers have some relief available. 

While there is a lot of detail in the no-action request letter and the SEC staff’s response, in general, the SEC staff stated that the Division of Trading and Markets would not recommend enforcement action to the Commission if an “M&A Broker” were to effect securities transactions in connection with the transfer of ownership of “privately-held companies” under the terms and conditions described in the no-action request letter without registration as a broker-dealer, provided that a host of conditions are satisfied, including:

  • The buyer or group of buyers will, upon completion of the transaction, control and actively operate the business acquired; no passive buyers are permitted;
  • The M&A Broker not having the ability to bind a party to the transaction;
  • Neither the M&A Broker nor any affiliate may provide financing for the transaction;
  • The M&A Broker may not have custody or control of any funds or securities issued or exchanged in the transaction;
  • No public offering may be conducted; and
  • No party to the transaction may be a shell company.

For purposes of the no-action letter:

  • An “M&A Broker” is a person engaged in the business of effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company through the purchase, sale, exchange, issuance, repurchase, or redemption of, or a business combination involving, securities or assets of the company, to a buyer that will actively operate the company or the business conducted with the assets of the company.  A buyer could actively operate the company through the power to elect executive officers and approve the annual budget or by service as an executive or other executive manager, among other things; and
  • A “privately-held company” is a company that does not have any class of securities registered, or required to be registered, with the SEC under Section 12 of the Exchange Act, or with respect to which the company files, or is required to file, periodic information, documents, or reports under Section 15(d) of the Exchange Act.  Any privately-held company that is the subject of this letter would be an operating company that is a going concern and not a “shell” company.

In addition, under the no-action letter, the M&A Broker could advertise a privately-held company for sale with information such as a description of the business, general location and price range and facilitate transactions of any size. 

With this no-action letter issued by the staff of the Trading and Markets Division, M&A Brokers now have a clear roadmap to guide them in providing their services in connection with the sale of privately-held companies without registering as a broker-dealer pursuant to Section 15(b) of the Exchange Act.

THE SEC AND FINRA ISSUE PROPOSED CROWDFUNDING RULES

THE SEC AND FINRA ISSUE PROPOSED CROWDFUNDING RULES

On October 23, 2013, the Securities and Exchange Commission released the long-awaited proposed crowdfunding rules necessary to implement Title III of the JOBS Act.  The proposed rules are subject to a 90 day comment period , and the floodgates to crowdfunding will probably not be open until the middle of 2014.  

The SEC provided a fact sheet highlighting some of the requirements under the proposed rules.  Under the proposed rules,

  • A company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.
  • Investors, over the course of a 12-month period, would be permitted to invest up to:
    • $2,000 or 5% of their annual income or net worth, whichever is greater, if both their annual income and net worth are less than $100,000, or
    • 10% of their annual income or net worth, whichever is greater, if either their annual income or net worth is equal to or more than $100,000.  During the 12-month period, these investors would not be able to purchase more than $100,000 of securities through crowdfunding.

Thankfully, the rules as proposed would allow companies to rely on an intermediary to determine that the aggregate amount of securities purchased by an investor will not cause the investor to exceed the investor limits, provided that the company does not have knowledge that the investor had exceeded, or would exceed, the investor limits as a result of purchasing securities in the company’s offering.

  • Both initial and subsequent holders of securities sold in a crowdfunding transaction under the proposed rule will not be counted toward the threshold that requires a company to register with the SEC under Section 12(g) of the Securities Exchange Act.  Under Section 12(g), as amended by the JOBS Act, once a company has total assets exceeding $10,000,000 and a class of securities held of record by either 2,000 persons, or 500 persons who are not accredited investors, registration with the SEC is required. 
  • The proposed rules would require companies conducting a crowdfunding offering to file certain information with the SEC, provide it to investors and the intermediary facilitating the crowdfunding offering, and make it available to potential investors.  Companies seeking to use the crowdfunding exemption would have to disclose in their offering documents, among other things: 
    • Information about officers and directors as well as owners of 20% or more of the company,
    • A description of the company’s business and the use of proceeds from the offering,
    • The price to the public of the securities being offered, the target offering amount, the deadline to reach the target offering amount, and whether the company will accept investments in excess of the target offering amount,
    • Certain related-party transactions,
    • A description of the financial condition of the company, and
    • Financial statements of the company that, depending on the amount offered and sold during a 12-month period, would have to be accompanied by a copy of the company’s tax returns or reviewed or audited by an independent public accountant or auditor.
  • Companies would be required to amend their offering documents to reflect material changes and provide updates on the company’s progress toward reaching the target offering amount.
  • Companies relying on the crowdfunding exemption to offer and sell securities would be required to file an annual report with the SEC and provide it to investors.
  • Consistent with the requirements of the JOBS Act, the proposed rules require that crowdfunding transactions take place exclusively through an online platform operated by an SEC-registered broker-dealer or funding portal.  The proposed rules set forth various requirements for the operation of the funding portals.  Funding portals will have to be registered with both the SEC and FINRA (or another national securities association).  On October 23, 2013, FINRA released its own set of proposed rules for the registration and operation of funding portals. 

Without a doubt, equity crowdfunding has the potential to dramatically alter the way companies raise capital in the United States.  However, whether that potential is realized will depend heavily upon various factors, including whether start up companies will consider crowdfunding to be an efficient and cost-effective manner to raise funds, given various disclosure obligations proposed by the SEC. 

 

 

Focus on Business Continuity and Disaster Recovery

The Securities and Exchange Commission seems to be awfully worried about disasters lately.  On August 16, 2013, the SEC joined the Commodity Futures Trading Commission’s Division of Swap Dealers and Intermediary Oversight and the Financial Industry Regulatory Authority in issuing a Staff Advisory on business continuity and disaster recovery planning.  Less than two weeks later, the SEC issued a Risk Alert on investment advisers’ business continuity and disaster recovery planning.  This focus on the business continuity and disaster recovery is prompted by the coming one-year anniversary of Hurricane Sandy, which had a devastating effect on many businesses. 

As the SEC noted in its August 16, 2013 and August 27, 2013 press releases, the Staff Advisory and Risk Alert make observations and suggest effective practices to address:

  • Preparation for widespread disruption
  • Planning for alternative locations
  • Telecommunications services and technology
  • Communication plans
  • Regulatory and compliance considerations
  • Preparedness of key vendors
  • Reviewing and testing

While the Staff Advisory and Risk Alert focused on the financial industry, they do provide a helpful reminder for all businesses to consider how natural disasters and other disruptive events can impact their businesses as well as useful guidance for planning for potential disruptions.  In addition, the Staff Advisory and Risk Alert serve as a reminder for all public companies to consider whether their periodic reports and offering materials provide adequate disclosure, including risk factors, with respect to their exposure to natural disasters and other potential business disruptions.

The SEC Proposed Extensive Additional Requirements for the General Solicitation of Investors Under Rule 506(c)

In addition to adopting the final rules governing general solicitation and advertising in connection with certain securities offerings where all purchasers are accredited investors, on July 10, 2013, the SEC also proposed new rules that in the SEC’s words are intended: 

to enhance the Commission’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506.

All of the excitement all the hoopla over the past few days about the adoption of new general solicitation and advertising rules has been somewhat tempered by concern that these proposed rules will adversely impact the use of general solicitation in Rule 506(c) private placements under Regulation D.

Regulation D and Form D 

With respect to Regulation D and Form D, the proposals would, if adopted:

Add a new Rule 510T Requiring Issuers to Submit to the SEC General Solicitation Materials.  

New Rule 510T would require issuers, on a temporary basis, to submit (not “file” or “furnish”) to the SEC any written general solicitation materials used in a Rule 506(c) offering no later than the date the materials are first used in connection with the offering.  The SEC did not, however proposed that these materials, when filed with the SEC, be publicly available.  The rule would expire two years after its effective date.  The SEC believes that the collection of these materials will facilitate its assessment of market practices through which issuers solicit purchasers in Rule 506(c) offerings.  Prior to the effectiveness of Rule 510T, the SEC will make available an intake page on the SEC’s website to allow issuers, investors and other market participants to voluntarily submit any written general solicitation materials used in connection with a Rule 506(c) offering. 

Compliance with Rule 510T would not be a condition of the Rule 506(c) exemption.  Instead, Rule 507(a) would be amended to provide that Rule 506 would be unavailable for an issuer if the issuer, or any of its predecessors or affiliates, has been subject to any order, judgment or court decree enjoining such person for failing to comply with Rule 510T. 

Amend Rule 503 of Regulation D to Require:

  • For issuers that intend to engage in general solicitation pursuant to Rule 506(c), the filing of a Form D no later than 15 calendar days in advance of the first use of general solicitation.  Currently, Rule 503 requires that the Form D be filed within 15 after the first sale.
  • The filing of a Form D amendment within 30 calendar days after the termination of a Rule 506 offering.  Currently, Rule 503 does not require the filing of such a closing Form D. 

Amend Rule 507 to Disqualify Issuers from Using Rule 506 for New Offerings for Failing to Comply with Their Form D Filing Requirements.

The proposed rules automatically disqualify an issuer from using  Rule 506 in any new offering for one year if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with all of the Form D filing requirements in a Rule 506 offering.  The one year disqualification period would not start to run until the required Form D filings had been made and would not affect offerings of an issuer that are ongoing at the time of the filing non-compliance.   In addition, the five year look-back period would not extend back beyond the effective date of the new disqualification rule.  The rule would also provide that if a required Form D or amendment was filed within 30 days after its due date, it would not be considered late for purposes of the new disqualification rule.  The cure period will not be available if the issuer previously failed to comply with a Form D filing deadline in connection with the same offering. 

Currently, issuers are precluded from relying on Rule 506 in connection with a failure to file a Form D only if the issuer, any of its predecessors or affiliates have been subject to a court order enjoining such person for failure to comply with Rule 503, which requires the filing of a Form D.    

Add New Rule 509 Requiring Issuers to Include Legends in Certain Offering Materials. 

A new proposed Rule 509 would require issuers to include certain legends in any written communication that constitutes a general solicitation in any offering conducted in reliance on Rule 506(c) and require additional disclosures for private funds, such as private equity, venture capital and hedge funds in general. 

The generally applicable legends will look familiar to securities law practitioners and would include statements regarding sale only to accredited investors, reliance on an exemption from the registration requirements of the Securities Act, and transfer restrictions under applicable securities laws.

Private funds would be required to include additional legends indicating that the securities offered are not subject to the protection of the Investment Company Act of 1940 and additional disclosures in any written general solicitation materials that include performance data.   

Compliance with these additional disclosure requirements would not be a condition of the Rule 506(c) exemption.  Instead, Rule 507(a) would be amended to provide that Rule 506 would be unavailable if the issuer, or any of its predecessors or affiliates, has been subject to any order, judgment or court decree enjoining such person for failing to comply with Rule 509. 

Amend Form D to Require Additional Information Primarily in Connection with Offerings Conducted in Reliance on Rule 506, such as:

  • The issuer’s publicly accessible website address.
  • For offerings conducted under Rule 506(c), the name and address of any person directly or indirectly controlling the issuer.
  • Information about the size of the issuer (revenues or net asset value) where such information is otherwise publicly disclosed (currently, “decline to disclose” is an option on Form D with respect to this type of information).
  • Additional information about the number and types of accredited investors investing.
  • Additional information about the use of proceeds from offerings conducted under Rule 506.
  • If a registered broker-dealer was used in connection with the offering, whether any general solicitation materials were filed with FINRA.
  • In the case of pooled investment funds advised by investment advisers registered with, or reporting as exempt reporting advisers to, the SEC, the name and SEC file number for each investment adviser who functions directly or indirectly as a promoter of the issuer.
  • For Rule 506(c) offerings, the methods used to verify accredited investor status and the types of general solicitation/advertising used.

Rule 156 Amendments

In addition, the SEC also proposed to amend Rule 156 to apply the guidance in that rule to the sales literature of private funds.  Generally, Rule 156 presently provides guidance on the types of information in investment company sales literature that could be misleading for purposes of the federal securities laws.