Discussions surrounding the accredited investor definition have crescendoed of late, demonstrating a sharp divide in opinion among regulators. On one side lies the North American Securities Administrators Association (“NASAA”), the lobbying group that represents the state securities administrators. The NASAA published a comment letter on the definition on May 25, 2016, evidencing a highly conservative approach.[1] The group relies on investor protection concerns in calling …
The “Bad Actor” Amendments: Private Issuer Compliance with Rule 506
By Simon Riveles and Peter Tyson On July 10, 2013, the Securities and Exchange Commission (SEC) adopted amendments to Rule 506 of the Securities Act of 1933 to disqualify securities offerings relying on the Rule 506 exemption that involve certain “felons and other ‘bad actors’”. The final amendments (the Final Rules) went into effect on September 23, 2013 (the Effective Date) and apply to all …
Private Placements under FINRA Scrutiny
Peter Tyson and Simon Riveles The Financial Industry Regulatory Authority (“FINRA”) announced in its Annual Regulatory and Examination Priorities Letter from January 11, 2013 that it would prioritize policing private placements in 2013. Of particular concern to FINRA is enhancing its risk-based supervision of the private placement market, and addressing inadequate disclosures and due diligence procedures, which can mislead and/or harm investors. FINRA’s announcement is …
FINRA Outlines 2013 Regulatory Priorities
In keeping with its prior year practice, on January 11, 2013, FINRA (the “Agnecy”) issued a Examination Priorities Letter to member firms highlighting the areas of the industry it intends to focus particular attention and resources. These areas include market regulation, business conduct, insider trading, financial and operational concerns. Market Regulation As computer based trading continues to capture an increasingly large segment of the market, …
FINRA Rule 5123 Becomes Effective December 3, 2012
On September 5, 2012, FINRA issued a regulatory notice informing its members that Rule 5123, approved by the SEC in June, will become effective December 3, 2012. The rule requires that FINRA registered broker-dealers provide a notice filing to FINRA within 15 days of making a private placement of securities to certain classes of investors. The notice filing will consist of the private placement memorandum …
Proposed FINRA Rule 5123: Enhanced Investor Protection or Unnecessary Regulatory Burden?
Originally proposed on October 5, 2011, FINRA Rule 5123 (the “Rule”) would, if adopted, significantly increase the regulatory burden on certain issuers, such as private funds, and FINRA members involved in private placement of securities such as third party marketers, placement agents, solicitors and finders involved in private placements and may encourage issuers to rely on the services of unregistered intermediaries to facilitate introductions to …
Private Offerings in New York: How an “Integration Clause” bars an Investor from Relying on the Offerors’ Representations
By Kaiser Wahab, Counsel Anyone in business should be careful to note whether their contracts contain “integration clauses.” A so called integration clause makes the contract “king” in terms of the promises and representations of a party to a transaction. In other words, if there is an integration clause in a contract that says “X”, even if one party may have orally maintained “Y” throughout …
Finders Exception to Broker-Dealer Registration in the Capital Introduction Space
As competition for capital has steadily increased for private companies and private funds, issuers and managers have turned to the services of third party marketers (“TPMs”) to raise capital or sell their funds to prospective investors. In the hedge fund space, TPMs typically demand an exclusive arrangement with the fund and approximately 20% of all fees. But due to the nature of their services and …
SEC Proposes New Investor Disclosure Requirements for Hedge Funds Using Third Party Marketers
On October 18, 2011, the SEC released a notice of FINRA’s filing of Proposed Rule 5123 (the “Proposed Rule”) which would require FINRA members and associated persons to: 1) provide to investors disclosure