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44806 Federal Register / Vol. 78, No. 142/ Wednesday, July 24, 2013/ Proposed Rules

117 CFR 230.156.217 CFR 230.503.317 CFR 230.506.417 CFR 230.507.517 CFR 230.500 through 230.508.617 CFR 239.500. 715 U.S.C. 77a et seq.

SECURITIES AND EXCHANGECOMMISSION

17 CFR Parts 230 and 239

[Release No. 339416; Release No. 3469960; Release No. IC30595; File No. S70613]

RIN 3235AL46

Amendments to Regulation D, Form Dand Rule 156

AGENCY: Securities and ExchangeCommission.

ACTION: Proposed rules.

SUMMARY: The Securities and ExchangeCommission, which today in separatereleases amended Rule 506 ofRegulation D, Form D and Rule 144Aunder the Securities Act of 1933 toimplement Section 201(a) of the

Jumpstart Our Business Startups Actand Section 926 of the Dodd-Frank Wall

Street Reform and Consumer ProtectionAct, is publishing for comment anumber of proposed amendments toRegulation D, Form D and Rule 156under the Securities Act. Theseproposed amendments are intended toenhance the Commissions ability toevaluate the development of marketpractices in Rule 506 offerings and toaddress concerns that may arise inconnection with permitting issuers toengage in general solicitation andgeneral advertising under newparagraph (c) of Rule 506. Specifically,the proposed amendments to Regulation

D would require the filing of a Form Din Rule 506(c) offerings before the issuerengages in general solicitation; requirethe filing of a closing amendment toForm D after the termination of any Rule506 offering; require written generalsolicitation materials used in Rule506(c) offerings to include certainlegends and other disclosures; requirethe submission, on a temporary basis, ofwritten general solicitation materialsused in Rule 506(c) offerings to theCommission; and disqualify an issuerfrom relying on Rule 506 for one yearfor future offerings if the issuer, or anypredecessor or affiliate of the issuer, didnot comply, within the last five years,with Form D filing requirements in aRule 506 offering. The proposedamendments to Form D would requirean issuer to include additionalinformation about offerings conductedin reliance on Regulation D. Finally, theproposed amendments to Rule 156would extend the antifraud guidancecontained in the rule to the salesliterature of private funds.

DATES: Comments should be received onor before September 23, 2013.

ADDRESSES: Comments may besubmitted by any of the followingmethods:

Electronic Comments

Use the Commissions Internetcomment form (http://www.sec.gov/rules/proposed.shtml);

Send an email to rule-

[email protected]. Please includeFile Number S70613 on thesubject line; or

Use the Federal eRulemaking Portal(http://www.regulations.gov).Follow the instructions forsubmitting comments.

Paper Comments

Send paper comments in triplicateto Elizabeth M. Murphy, Secretary,Securities and ExchangeCommission, 100 F Street NE.,Washington, DC 205491090.

All submissions should refer to FileNumber S70613. This file numbershould be included on the subject lineif email is used. To help us process andreview your comments more efficiently,please use only one method. TheCommission will post all comments onthe Commissions Internet Web site(http://www.sec.gov/rules/

proposed.shtml). Comments are alsoavailable for Web site viewing andprinting in the Commissions PublicReference Room, 100 F Street, NE.,Washington, DC 20549 on official

business days between the hours of10:00 a.m. and 3:00 p.m. All commentsreceived will be posted without change;

we do not edit personal identifyinginformation from submissions. Youshould submit only information thatyou wish to make available publicly.FOR FURTHER INFORMATION CONTACT:Charles Kwon, Special Counsel or TedYu, Senior Special Counsel, Office ofChief Counsel, or Karen C. Wiedemann,Attorney Fellow, Office of SmallBusiness Policy, Division of CorporationFinance, at (202) 5513500; or, withrespect to private funds, Melissa Gainoror Alpa Patel, Senior Counsels,Investment Adviser Regulation Office,Division of Investment Management, at

(202) 5516787, Securities andExchange Commission, 100 F Street NE.,Washington, DC 20549.SUPPLEMENTARY INFORMATION: We areproposing amendments to Rule 156,1Rules 503,2 506 3 and 507 4 of RegulationD,5 and Form D 6 under the Securities

Act of 1933.7 We are proposing to addRule 509 and Rule 510T of RegulationD under the Securities Act.

Table of Contents

I. IntroductionII. Proposed Amendments Relating to Form D

A. BackgroundB. Timing of the Filing of Form D

C. Form D Closing Amendment for Rule506 OfferingsD. Proposed Amendments to the Content

Requirements of Form DE. Proposed Amendment to Rule 507

III. Proposed Rule and Rule AmendmentsRelating to General Solicitation Materials

A. Mandated Legends and OtherDisclosures for Written GeneralSolicitation Materials

B. Proposed Amendments to Rule 156C. Request for Comment on Manner and

Content Restrictions for Private FundsIV. Proposed Temporary Rule for Mandatory

Submission of Written GeneralSolicitation Materials

V. Request for Comment on the Definition ofAccredited Investor

VI. Additional Requests for CommentVII. General Request for CommentVIII. Paperwork Reduction Act

A. BackgroundB. Burden and Cost Estimates Related to

the Proposed Amendments1. Proposed Amendments Relating to Form

D2. Rule 506(c) General Solicitation

MaterialsC. Request for Comment

IX. Economic AnalysisA. Broad Economic ConsiderationsB. Economic Baseline1. Size of the Exempt Offering Market2. Affected Market Participantsa. Issuers

b. Investorsc. Investment Advisersd. Broker-Dealers3. Incidence of Fraud in Securities

Offerings4. Current Practicesa. Missing Form D Filings

b. Legends and Other Disclosures inRegulation D Offering Materials

C. Analysis of the Amendments Relating toForm D

1. Advance Filing of Form D for Rule506(c) Offerings

2. Form D Closing Amendment for Rule506 Offerings

3. Amendments to the ContentRequirements of Form D

a. Investor Typesb. Issuer Sizec. Issuer Industry Groupd. Control Personse. Trading Venue and Security Identifiersf. Use of Proceedsg. Issuer Web Siteh. Types of General Solicitation Usedi. Verification Methods4. Proposed Amendment to Rule 507D. Analysis of the Proposed Rule and Rule

Amendments Relating to GeneralSolicitation Materials

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44807Federal Register / Vol. 78, No. 142/ Wednesday, July 24, 2013/ Proposed Rules

817 CFR 230.506. The Commission adopted Rule506 and Regulation D in 1982 as a result of theCommissions evaluation of the impact of its ruleson the ability of small businesses to raise capital.See Revision of Certain Exemptions FromRegistration for Transactions Involving LimitedOffers and Sales, Release No. 336389 (Mar. 8,1982) [47 FR 11251 (Mar. 16, 1982)]. Over the years,the Commission has revised various provisions ofRegulation D in order to address, among otherthings, specific concerns relating to facilitatingcapital raising as well as abuses that have arisenunder Regulation D. See, e.g., Additional SmallBusiness Initiatives, Release No. 336996 (Apr. 28,1993) [58 FR 26509 (May 4, 1993)] and Revision ofRule 504 of Regulation D, the Seed CapitalExemption, Release No. 337644 (Feb. 25, 1999) [64

FR 11090 (Mar. 8, 1999)].917 CFR 239.500.10Public Law 112106, sec. 201(a), 126 Stat. 306,

313 (Apr. 5, 2012). See Eliminating the ProhibitionAgainst General Solicitation and GeneralAdvertising in Rule 506 and Rule 144A Offerings,Release No. 339354 (Aug. 29, 2012) [77 FR 54464(Sept. 5, 2012)] (Rule 506(c) Proposing Release).

11Public Law 111203, sec. 926, 124 Stat. 1376,1851 (July 21, 2010) (codified at 15 U.S.C. 77dnote).

1215 U.S.C. 77d(a)(2). As with the Section 4(a)(2)statutory exemption, Rule 506 is available only tothe issuer of the securities and not to any aff iliateof the issuer or to any other person for resales ofthe issuers securities. See 17 CFR 230.500(d).

13Eliminating the Prohibition Against GeneralSolicitation and General Advertising in Rule 506and Rule 144A Offerings, Release No. 339415 (July10, 2013) (Rule 506(c) Adopting Release). Inaddition to these requirements, under new Rule506(c), all terms and conditions of Rule 501 andRules 502(a) and 502(d) of Regulation D [17 CFR230.501 and 502(a) and (d)] must be satisfied.

14As discussed in Section II.A of this release,Form D is the notice of an offering of securitiesmade without registration under the Securities Actin reliance on an exemption provided by RegulationD or Section 4(a)(5) of the Securities Act.

15Disqualification of Felons and Other BadActors from Rule 506 Offerings, Release No. 339414 (July 10, 2013).

16Currently, under Rule 506(b) [17 CFR230.506(b)], an issuer may sell securities, withoutany limitation on the offering amount, to anunlimited number of accredited investors, asdefined in Rule 501(a) of Regulation D, and to nomore than 35 non-accredited investors who meetcertain sophistication requirements. Theavailability of Rule 506(b) is subject to the termsand conditions of Rules 501 and 502 and isconditioned on the issuer, or any person acting onits behalf, not offering or selling securities throughany form of general solicitation or generaladvertising.

17To facilitate public input on JOBS Actrulemaking before the issuance of rule proposals,the Commission invited members of the public tomake their views known on various JOBS Actinitiatives in advance of any rulemaking bysubmitting comment letters to the CommissionsWeb site at http://www.sec.gov/spotlight/jobsactcomments.shtml. The comment lettersrelating to Section 201(a) of the JOBS Act submittedin response to this invitation are located at http://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtml. The comment letters submitted in responseto the Rule 506(c) Proposing Release are located athttp://www.sec.gov/comments/s7-07-12/s70712.shtml. Many commenters submittedcomment letters both before and after the issuance

of the Rule 506(c) Proposing Release. Our referencesto comment letters in this release that are not datedrefer to the comment letters submitted in responseto the Rule 506(c) Proposing Release. Datedcomment letters refer to those submitted before theissuance of the Rule 506(c) Proposing Release or bycommenters that submitted multiple letters.

18See, e.g., letters from Fund Democracy, Inc.(Fund Democracy); North American SecuritiesAdministrators Association, Inc. (NASAA);Consumer Federation of America (ConsumerFederation); SEC Investor Advisory Committee(Investor Advisory Committee). The InvestorAdvisory Committee was established in April 2012pursuant to Section 911 of the Dodd-Frank Act toadvise the Commission on regulatory priorities, theregulation of securities products, trading strategies,fee structures, the effectiveness of disclosure,initiatives to protect investor interests and to

promote investor confidence and the integrity of thesecurities marketplace. The Dodd-Frank Actauthorizes the Investor Advisory Committee tosubmit findings and recommendations for reviewand consideration by the Commission.

On October 12, 2012, the Investor AdvisoryCommittee unanimously approved and submittedrecommendations to the Commission titled,Recommendations of the Investor AdvisoryCommittee Regarding SEC Rulemaking to Lift theBan on General Solicitation and Advertising in Rule506 Offerings: Efficiently Balancing InvestorProtection, Capital Formation and Market Integrity.The recommendations are available at http://www.sec.gov/spotlight/investor-advisory-committee-2012/iac-general-solicitation-advertising-recommendations.pdf.

1. Mandated Legends and OtherDisclosures for Written GeneralSolicitation Materials

2. Proposed Amendments to Rule 1563. Requests for Comment on Manner and

Content Restrictions for Private FundsE. Analysis of Temporary Rule Relating to

Mandatory Submission of WrittenGeneral Solicitation Materials

F. Analysis of Potential Impacts on

Efficiency, Competition and CapitalFormationX. Small Business Regulatory Enforcement

Fairness ActXI. Initial Regulatory Flexibility Analysis

A. Reasons for, and Objectives of, theProposed Action

B. Small Entities Subject to the ProposedRule and Form Amendments

C. Projected Reporting, Recordkeeping andOther Compliance Requirements

D. Duplicative, Overlapping or ConflictingFederal Rules

E. Significant AlternativesF. General Request for Comment

XII. Statutory Authority and Text of ProposedRule and Form Amendments

I. IntroductionWe are adopting today, in separate

releases, amendments to Rule 506 ofRegulation D 8 and to Form D 9 toimplement Section 201(a)(1) of the

Jumpstart Our Business Startups Act(the JOBS Act) 10 and Section 926 ofthe Dodd-Frank Wall Street Reform andConsumer Protection Act (the Dodd-Frank Act).11 Rule 506 was originallyadopted as a non-exclusive safe harborunder Section 4(a)(2) of the SecuritiesAct of 1933 (the Securities Act), thestatutory exemption from Securities Actregistration for transactions by an issuer

not involving any public offering. 12

To implement Section 201(a)(1) of theJOBS Act, we are adding new paragraph(c) to Rule 506, which permits issuers touse general solicitation and generaladvertising (collectively, generalsolicitation) when conducting anoffering pursuant to this new paragraph,provided that all purchasers of thesecurities are accredited investors and

the issuer takes reasonable steps toverify that such purchasers areaccredited investors.13 We are alsoadding a new check box to Form D torequire issuers to indicate that they arerelying on Rule 506(c) for theiroffering.14 To implement Section 926 ofthe Dodd-Frank Act, we are adding newparagraph (d) to Rule 506, whichdisqualifies issuers and other marketparticipants from relying on Rule 506 iffelons and other bad actors areparticipating in the offering.15 We arealso amending the form of the signature

block to Form D to include a

certification whereby issuers claiming aRule 506 exemption will confirm thatthe offering is not disqualified fromreliance on Rule 506.

We anticipate that new Rule 506(c)will have a significant impact on Rule506 offerings and on current capital-raising practices. Among other things,we anticipate that issuers using Rule506(c) will be able to reach a greaternumber of potential investors than iscurrently the case in Rule 506 offerings,thereby increasing their access tosources of capital.16 As a result,accredited investors may be able to findand potentially invest in a larger and

more diverse pool of investmentopportunities, which could result in amore efficient allocation of capital byaccredited investors. On the other hand,

we recognize the concerns raised by anumber of commenters that a generalsolicitation for a Rule 506(c) offeringwould attract both accredited and non-accredited investors and could result inan increase in fraudulent activity in theRule 506 market, as well as an increasein unlawful sales of securities to non-accredited investors.

Many comments submitted on theRule 506(c) Proposing Release,including the comments submitted bythe Investor Advisory Committee, urgedthe Commission to propose or adoptother amendments to Regulation D or toForm D 17 that they believed would beappropriate in connection with theadoption of the amendments toimplement Section 201(a) of the JOBSAct.18 For example, several commenterssuggested that we amend Regulation Dto provide that the availability of thenew Rule 506(c) exemption be

conditioned on compliance with the

http://www.sec.gov/spotlight/jobsactcomments.shtmlhttp://www.sec.gov/spotlight/jobsactcomments.shtmlhttp://www.sec.gov/spotlight/jobsactcomments.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/s7-07-12/s70712.shtmlhttp://www.sec.gov/comments/s7-07-12/s70712.shtmlhttp://www.sec.gov/comments/s7-07-12/s70712.shtmlhttp://www.sec.gov/http://www.sec.gov/http://www.sec.gov/comments/s7-07-12/s70712.shtmlhttp://www.sec.gov/comments/s7-07-12/s70712.shtmlhttp://www.sec.gov/spotlight/jobsactcomments.shtmlhttp://www.sec.gov/spotlight/jobsactcomments.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtmlhttp://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtml

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19See, e.g., letters from Investor AdvisoryCommittee; NASAA; AARP; Consumer Federation.

20See, e.g., letters from Office of the Secretary ofthe Commonwealth of Massachusetts SecuritiesDivision (Massachusetts Securities Division) (July

2, 2012); NASAA; Securities Division, NevadaSecretary of State (Nevada Securities Division);Ohio Division of Securities; SecuritiesCommissioner, State of South Carolina (SouthCarolina Securities Commissioner); StateCorporation Commission, Division of Securities andRetail Franchising, Commonwealth of Virginia(Virginia Division of Securities).

21See, e.g., letters from AARP; AFLCIO andAmericans for Financial Reform (AFR);Consumer Federation; Massachusetts SecuritiesDivision (July 2, 2012); NASAA.

22See Release No. 336389. For natural persons,Rule 501(a) defines an accredited investor as aperson whose individual net worth, or joint networth with that persons spouse, exceeds $1million, excluding the value of the persons primaryresidence (the net worth test) or who had anindividual income in excess of $200,000 in each of

the two most recent years, or joint income with thatpersons spouse in excess of $300,000 in each ofthose years, and has a reasonable expectation ofreaching the same income level in the current year(the income test).

Although the Dodd-Frank Act did not change theamount of the $1 million net worth test, it didchange how that amount is to be calculatedbyexcluding the value of a persons primary residence.This change took effect upon the enactment of theDodd-Frank Act, and in December 2011, weamended Rule 501 to incorporate this change intothe definition of accredited investor. See Net WorthStandard for Accredited Investors, Release No. 339287 (Dec. 21, 2011) [76 FR 81793 (Dec. 29, 2011)].

23See, e.g., letters from AARP; ConsumerFederation; Investment Company Institute (ICI);Investor Advisory Committee; MassachusettsSecurities Division (July 2, 2012); Ohio Division of

Securities (July 3, 2012). Several commenters notedthat under the Commissions proposal in 2007 topartially lift the prohibition on general solicitationfor offerings sold only to large accreditedinvestors, such investors who were naturalpersons would have been required to have at least$400,000 in annual income or $2.5 million ininvestments. See letters from AFLCIO and AFR;Fund Democracy; AARP. One commenter, however,opposed increasing the thresholds for accreditedinvestor status. See letter from National SmallBusiness Association (June 12, 2012).

24See, e.g., letters from ICI; AFLCIO and AFR;Consumer Federation; Investor AdvisoryCommittee; Independent Directors Council (IDC);NASAA; Sens. Reed, Levin, Durbin, Harkin,Lautenberg, Franken and Akaka.

25See letters from AFLCIO and AFR;BetterInvesting (recommending that the SECrequire all public solicitation materials under Rule506 to be independently reviewed for compliance(perhaps by an independent authority such asFINRA, which already reviews broker-dealeradvertising) before or after the public solicitation(emphasis omitted)); ICI.

26See letters from Investor Advisory Committee;Consumer Federation.

27See letters from Massachusetts SecuritiesDivision (July 2, 2012); Ohio Division of Securities(July 3, 2012).

28An affiliate is defined in Rule 501(b) ofRegulation D [17 CFR 230.501(b)] as a person thatdirectly, or indirectly through one or moreintermediaries, controls or is controlled by, or isunder common control with, the person specified.

29A private fund is an issuer that would be aninvestment company, as defined in Section 3 of theInvestment Company Act, but for the exclusionfrom the definition of investment company inSection 3(c)(1) or Section 3(c)(7) of that Act. Wealso refer in this release to pooled investmentfunds because that term is used in Form D. Issuersthat rely on Section 3(c)(1) or 3(c)(7) of theInvestment Company Act are a subset of pooledinvestment funds.

Form D filing requirement,19 requireForm D to be filed in advance of anygeneral solicitation 20 and add to theinformation requirements of Form D.21In light of the fact that the financialthresholds in the definition ofaccredited investor that relate tonatural persons have not been updatedsince their adoption in 1982,22 some

commenters recommended that theCommission also amend the definitionof accredited investor as it relates tonatural persons.23 Other commenterssuggested that we propose rulesgoverning the content and manner ofgeneral solicitations used in offeringsconducted pursuant to the new Rule506(c) exemption, particularly withrespect to offerings by private funds.24

Several commenters also recommendedthat we require the filing or submissionof general solicitation materials usedpursuant to the new Rule 506(c)exemption, whether to the FinancialIndustry Regulatory Authority(FINRA),25 to an electronic drop

box to be created by the Commissionspecifically to receive general

solicitation materials 26 or as an exhibitto Form D.27

In light of these comments and themagnitude of the change that theelimination of the prohibition againstgeneral solicitation represents to theRule 506 market, we are proposingtoday a number of amendments inconjunction with the adoption of newRule 506(c). These amendments areintended to enhance the Commissionsunderstanding of the Rule 506 market

by improving compliance with Form Dfiling requirements, expanding theinformation requirements of Form D,

primarily with respect to Rule 506offerings, and requiring the submission,on a temporary basis, of written generalsolicitation materials used in Rule506(c) offerings to the Commission. We

believe that the elimination of theprohibition against general solicitationfor Rule 506(c) offerings will have asignificant impact on the Rule 506market, including the types of issuersthat raise capital using Rule 506, theinvestors who are solicited andultimately purchase securities in theofferings, the intermediaries thatparticipate in this market, the practicesemployed by issuers and intermediaries

and the amount of capital that will beraised. To review and analyze thesechanges more effectively, and tofacilitate the assessment of the effects ofsuch changes on investor protection andcapital formation, the Commission staffwill need better tools to evaluate thischanging market than are currentlyprovided by the existing filing andinformation requirements of Form D.Further, we believe that the proposedchanges to the filing and informationrequirements of Form D could assist theenforcement efforts of both federal andstate regulators, which rely on Form D

as an important source of informationabout the private offering market.

Specifically, with respect to Form Dand to Regulation D as it relates to FormD, we are proposing to:

Amend Rule 503 of Regulation D torequire: (1) The filing of a Form D nolater than 15 calendar days in advanceof the first use of general solicitation ina Rule 506(c) offering; and (2) the filingof a closing Form D amendment within

30 calendar days after the termination ofa Rule 506 offering;

amend Form D to require additionalinformation primarily in regard toofferings conducted in reliance on Rule506; and

amend Rule 507 of Regulation D todisqualify an issuer from relying onRule 506 for one year for future offeringsif the issuer, or any predecessor oraffiliate 28 of the issuer, did not comply,within the last five years, with all of theForm D filing requirements in a Rule506 offering.

In addition, in light of the ability of

issuers to publicly advertise Rule 506(c)offerings, we are concerned thatprospective investors may not besufficiently informed as to whether theyare qualified to participate in theseofferings, the type of offerings beingconducted and certain potential risksassociated with such offerings. Toaddress these concerns, we areproposing new Rule 509 of RegulationD, which would require issuers toinclude prescribed legends in anywritten communication that constitutesa general solicitation in any offeringconducted in reliance on Rule 506(c)

(written general solicitationmaterials). Private funds would also berequired to include a legend disclosingthat the securities being offered are notsubject to the protections of theInvestment Company Act of 1940(Investment Company Act) andadditional disclosures in written generalsolicitation materials that includeperformance data so that potentialinvestors are aware that there arelimitations on the usefulness of suchdata and provide context to understandthe data presented.29 We are proposingto disqualify an issuer from relying onRule 506 for future offerings if such


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3017 CFR 230.156.

31OCIE currently examines multiple types ofmarket participants that have involvement inprivate offerings, including registered broker-dealers that advise issuers on private placementsand registered investment advisers that adviseclients investing in private placements or adviseprivate funds that offer fund interests pursuant toprivate offerings.

32Regulation D contains separate exemptions forlimited offerings in Rules 504, 505 and 506. Rule504 [17 CFR 230.504] exempts the offer and sale ofup to $1 million of securities in a 12-month period

by issuers that are not subject to reportingrequirements under the Securities Exchange Act of1934 (the Exchange Act). Rule 505 [17 CFR230.505] exempts offerings by issuers of up to $5million of securities in a 12-month period. Form Dalso applies to offerings of securities withoutregistration in reliance on the exemption containedin Section 4(a)(5) of the Securities Act [15 U.S.C.77d(a)(5)].

33This 15-day time frame has remainedunchanged since the adoption of Regulation D in1982. In 2008, we revised Rule 503 to provide thatwhen a Form D filing otherwise would be due ona weekend or holiday it will be deemed due on thenext business day. Electronic Filing and Revision ofForm D, Release No. 338891 (Feb. 6, 2008) [73 FR10592 (Feb. 27, 2008)].

issuer, or any predecessor or affiliate ofthe issuer, has been subject to any order,judgment or court decree enjoining suchperson for failure to comply withproposed Rule 509.

We are also proposing to amend Rule156 under the Securities Act,30 whichinterprets the antifraud provisions of thefederal securities laws in connection

with sales literature used by investmentcompanies, to apply to the salesliterature of private funds because we

believe it is important for private fundsto consider the Commissions views onthe applicability of the antifraudprovisions to their sales literature. Weare also soliciting comment on arecommendation made by commenterson the Rule 506(c) Proposing Release tomandate additional manner and contentrestrictions on written generalsolicitation materials used by privatefunds.

As the Commission will need to beaware of developments in the Rule 506market after the effectiveness of Rule506(c), we are proposing Rule 510T torequire issuers, on a temporary basis, tosubmit any written general solicitationmaterials used in their Rule 506(c)offerings to the Commission no laterthan the date of the first use of thesematerials. Such materials would berequired to be submitted through anintake page on the Commissions Website. We are not proposing, at this time,that these materials would be availableto the public; therefore, issuers wouldnot file their written general solicitationmaterials through the Commissions

EDGAR system. We are proposing todisqualify an issuer from relying onRule 506 for future offerings if suchissuer, or any predecessor or affiliate ofthe issuer, has been subject to any order,judgment or court decree enjoining suchperson for failure to comply withproposed Rule 510T.

We also appreciate the need toundertake a broader effort to review andanalyze the market impact anddeveloping market practices resultingfrom permitting general solicitation inconnection with offerings relying onnew Rule 506(c). Accordingly, we will

evaluate the use of Rule 506(c) byissuers and market participants, and, inparticular, the steps they take to verifythat the purchasers of the offeredsecurities are accredited investors. Wehave directed the Commission staff toexecute a comprehensive work planupon the effectiveness of Rule 506(c) toreview and analyze the use of Rule506(c) (the Rule 506(c) Work Plan),which will involve a coordinated effortof staff from the Division of Corporation

Finance, the Division of Economic andRisk Analysis (DERA), the Division ofInvestment Management, the Division ofTrading and Markets, the Office ofCompliance Inspections andExaminations (OCIE) and the Divisionof Enforcement. The Commission staffwill, among other things:

Evaluate the range of purchaser

verification practices used by issuersand other participants in these offerings,including whether these verificationpractices are excluding or identifyingnon-accredited investors;

evaluate whether the absence of theprohibition against general solicitationhas been accompanied by an increase insales to non-accredited investors;

assess whether the availability ofRule 506(c) has facilitated new capitalformation or has shifted capitalformation from registered offerings andunregistered non-Rule 506(c) offeringsto Rule 506(c) offerings;

examine the information submittedor available to the Commission on Rule506(c) offerings, including theinformation in Form D filings and theform and content of written generalsolicitation materials submitted to theCommission;

monitor the market for Rule 506(c)offerings for increased incidence offraud and develop risk characteristicsregarding the types of issuers andmarket participants that conduct orparticipate in Rule 506(c) offerings andthe types of investors targeted in theseofferings to assist with this effort;

incorporate an evaluation of thepractices in Rule 506(c) offerings in thestaffs examinations of registered broker-dealers and registered investmentadvisers; 31 and

coordinate with state securitiesregulators on sharing information aboutRule 506(c) offerings.

Implementation of the Rule 506(c)Work Plan will assist the Commission inevaluating the development of marketpractices in Rule 506(c) offerings. Theamendments we propose today would,if adopted, support the Rule 506(c)Work Plan by enhancing the timeliness,quality and completeness of information

on the issuers, investors and financialintermediaries that participate in theRule 506 market and by requiring thesubmission of written generalsolicitation materials to theCommission. The proposed

amendments would also assist theCommissions efforts to protectinvestors and to evaluate thedevelopment of market practices in Rule506(c) offerings and would supportfuture Commission consideration of anyadditional changes related to Rule506(c), consistent with theCommissions mission of protecting

investors, maintaining fair, orderly, andefficient markets, and facilitating capitalformation.

In addition, many commenters stated,and we agree, that the definition ofaccredited investor as it relates tonatural persons should be reviewed and,if necessary or appropriate, amended.The Commission staff has begun areview of the definition of accreditedinvestor as it relates to natural persons,including the need for any changes tothis definition following theeffectiveness of Rule 506(c). We furtherdiscuss the definition of accredited

investor, and request comment on thedefinition, in Section V of this release.

II. Proposed Amendments Relating toForm D

A. Background

Form D is the notice of an offering ofsecurities conducted withoutregistration under the Securities Act inreliance on Rule 504, 505 or 506 ofRegulation D.32 Under Rule 503 ofRegulation D, an issuer offering orselling securities in reliance on Rule504, 505 or 506 of Regulation D mustfile a notice of sales on Form D with the

Commission for each new offering ofsecurities no later than 15 calendar daysafter the first sale of securities in theoffering.33 Form D is currentlyorganized around 16 numbered items orcategories of information. Theinformation required to be provided ina Form D filing includes basicidentifying information, such as thename of the issuer of the securities andthe issuers year and place of


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34 In 1988, the Commission proposed to eliminatethe requirement to file a Form D as a condition tothe availability of the Regulation D exemptions,noting that [c]ommenters have frequentlycriticized this condition. Regulation D, Release No.336759 (Mar. 3, 1988) [53 FR 7870 (Mar. 10,1988)]; Regulation D, Release No. 336812 (Dec. 20,1988) [54 FR 309 (Jan. 5, 1989)] (reproposing theelimination of Rule 503 as a condition of theRegulation D exemptions after commentersexpressed concern over the effect of the proposalson enforcement efforts and potential impairment ofprivate rights of action). In 1989, the Commissionremoved the filing of Form D as a condition to theRegulation D exemptions. Regulation D, Release No.336825 (Mar. 15, 1989) [54 FR 11369 (Mar. 20,1989)].

35See Release No. 336759 (As proposed, thefiling obligation under Rule 503 would continue butwould no longer be a condition to the exemption.In order to provide an incentive for filing the FormD in a timely manner, the Commission is proposingnew Rule 507, which would disqualify an issuerfrom the use of the Regulation D exemptions if ithad been found to have violated Rule 503.);Release No. 336825 (adopting Rule 507 asproposed).

36Rule 507(b) [17 CFR 230.507(b)].37We stated in the proposing release for

Regulation D:

An important purpose of the notice * * * is tocollect empirical data which will provide a basis forfurther action by the Commission either in terms ofamending existing rules and regulations orproposing new ones. * * * Further, the proposedForm will allow the Commission to elicitinformation necessary in assessing the effectivenessof Regulation D as a capital raising device for smallbusinesses.

Proposed Revision of Certain Exemptions fromthe Registration Provisions of the Securities Act of1933 for Transactions Involving Limited Offers andSales, Release No. 336339 (Aug. 7, 1981) [46 FR41791, 41799 (Aug. 18, 1981)].

38 In 1996, we proposed to eliminate the Form Dfiling requirement entirely and replace it with anissuer obligation to complete a Form D and retainit for a period of time. Phase TwoRecommendations of Task Force on DisclosureSimplification, Release No. 337301 (May 31, 1996)[61 FR 30405 (June 14, 1996)]. After reviewing

comments on the proposal, we decided to retain therequirement because the information collected inForm D filings was still useful to us in conductingeconomic and other analyses of the privateplacement market. Phase Two Recommendationsof Task Force on Disclosure Simplification, ReleaseNo. 337431 (July 18, 1997) [62 FR 39755, 39756(July 24, 1997)].

39See Release No. 338891. At that time, wesubstantially revised Form D to simplify andrestructure the form, eliminate outdatedinformation requirements and update andsupplement other information requirements. Forexample, we added requirements to providerevenue range information for the issuer, or netasset value range information in the case of pooledinvestment funds (subject to an option in both casesto decline to disclose); more specific information onthe registration exemption claimed as well as

information on any exclusion claimed from thedefinition of investment company under theInvestment Company Act; information on the dateof first sale in the offering; and information onwhether the offering is expected to last over a year.

40 Id. (noting that the Commissions Web siteadvises potential investors in Regulation Dofferings to check whether the company making theoffering has filed a Form D notice and advises that[i]f the company has not filed a Form D, thisshould alert you that the company might not be incompliance with the federal securities laws ).

41 Id. (stating that [t]he staffs of state securitiesregulators and [FINRA] also use Form Dinformation to enforce securities laws and the rulesof securities self-regulatory organizations).

4215 U.S.C. 77r(b)(4)(D). Although Securities ActSection 18 preempts state registration and review ofofferings of covered securities, the states haveinvestigated and brought a number of enforcementactions alleging fraud and deceit in Rule 506offerings. See, e.g., letter from NASAA (stating that,in 2011, state regulators took more than 200enforcement actions related specifically to Rule 506offerings).

incorporation or organization;information about related persons(executive officers, directors andpromoters); the exemption orexemptions being claimed for theoffering; and factual information aboutthe offering, such as the duration of theoffering, the type of securities offeredand the total offering amount. Although

the requirement to file a Form Dpursuant to Rule 503 was a condition ofRules 504, 505 and 506 when all ofthese rules were originally adopted,34 itis currently not a condition of thoserules. Instead, under Rule 507 ofRegulation D, an issuer will bedisqualified from using Regulation D ifit, or a predecessor or affiliate, isenjoined by a court for failure to complywith Rule 503.35 The Commission canwaive any such disqualification upon ashowing of good cause.36

At the time the Commission adoptedRegulation D and Form D in 1982, the

Form D filing requirements in Rule 503were intended to serve an importantdata collection function, including,among other things, for theCommissions rulemaking efforts.37Until 2008, however, issuers made FormD filings in paper format, making theextraction of information for large-scale

statistical analysis problematic.38 In2008, we adopted rule and formamendments that mandated theelectronic filing of Form D on theCommissions Electronic DataGathering, Analysis and Retrieval(EDGAR) system in a structuredformat.39 As a result of theseamendments, which were phased infrom September 2008 to March 2009,Form D filings are now machine-readable, and the Commission, its staff,other securities regulators and thepublic at large now have a greater abilityto analyze the Regulation D offeringmarket through the informationsupplied in electronic Form D filings. Inaddition, the information in Form Dfilings has been useful for a number ofother purposes, such as serving as asource of information for investors 40and facilitating the enforcement of thefederal securities laws and the

enforcement efforts of state securitiesregulators and FINRA.41 For example,state securities regulators typically relyon Form D as their sole notice that aRule 506 offering is being conducted

because securities issued in Rule 506offerings are covered securities underSection 18(b)(4)(D) of the Securities

Act 42 and therefore are exempt fromstate blue sky registration requirements.

We understand that some issuers arenot making a Form D filing for Rule 506offerings because the filing of Form D isnot a condition of Rule 506. In addition,we are limited in our ability to gatherinformation about Rule 506 offerings atthe commencement of these offerings

because Form D currently is notrequired to be filed until 15 calendardays after the first sale of securities inthe offerings; and the absence of aclosing filing requirement means thatthe Commission does not have acomplete picture of Rule 506 offerings,such as the total amount of capitalactually raised in these offerings. Otherthan the newly adopted requirement forissuers to indicate in Form D whetherthey are relying on Rule 506(c), Form Ddoes not require information specific toRule 506(c) offerings, such asinformation about the issuers plans to

engage in general solicitation, anypractices used to satisfy the verificationrequirement in Rule 506(c) and thetypes of investors participating in Rule506(c) offerings.

Accordingly, we are proposing anumber of amendments to Regulation Dand Form D. These amendments wouldrequire the advance filing of Form D forRule 506(c) offerings, require the filingof an amendment to Form D aftertermination of a Rule 506 offering,expand the information requirements inForm D for offerings conducted underRule 506 and disqualify issuers from

using Rule 506 for future offerings untilone year has elapsed after the requiredForm D filings are made if they, or theirpredecessors or affiliates, failed tocomply, within the past five years, withthe Form D filing requirements for aRule 506 offering.

B. Timing of the Filing of Form D

We are proposing to amend Rule 503to require issuers that intend to engagein general solicitation for a Rule 506(c)offering to file an initial Form D inadvance of conducting any generalsolicitation activities. Currently, Rule503 requires an issuer to file a Form D

not later than 15 calendar days after thefirst sale of securities in a Regulation Doffering. Under the proposedamendment, if an issuer has nototherwise filed a Form D for a Rule


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43An issuer would be required to include theinformation required by Item 9 only to the extentthat the information is known at the time of filingthe Advance Form D.

44An issuer would be required to include theinformation required by Item 12 only to the extentthat the information is known at the time of filingthe Advance Form D.

45An issuer that has already filed a Form Dcontaining complete information with respect to aRule 506(c) offering would not be required to filean Advance Form D. This could occur, for example,

when the use of general solicitation begins after theoffering is underway and the first sale of securitieshas occurred for which a Form D has been filedmore than 15 calendar days before thecommencement of general solicitation in theoffering.

46See, e.g., letters from AARP; AFLCIO andAFR; Consumer Federation; Commissioner ofSecurities, State of Hawaii (Hawaii Commissionerof Securities); Indiana Securities Division;Massachusetts Securities Division (July 2, 2012)(noting that an advance filing requirement for FormD will notify federal and state regulators that theseofferings are in the marketplace, and they will givepotential investors an opportunity to obtain basicinformation about the issuer and the offering);Commissioner of Securities, State of Missouri

(Missouri Commissioner of Securities);Commissioner of Securities and Insurance, State ofMontana (Montana Commissioner of Securities);NASAA (noting that without an advance filingrequirement for Form D and a filing requirementthat is a condition of the exemption, [a]ninvestigator who sees an advertised offering willhave no simple way of knowing whether the issueris engaged in a compliant Rule 506 offering or ismerely advertising an unregistered, non-exemptpublic offering); Fund Democracy, ConsumerAction, Consumer Federation, AFLCIO and AFR(May 24, 2012); Nevada Securities Division; OhioDivision of Securities; South Carolina SecuritiesCommissioner; Virginia Division of Securities.

The Investor Advisory Committee recommendedthat the Commission require issuers to file either anew Form GS or a revised version of Form D asa precondition for relying on Rule 506(c). See letter

from Investor Advisory Committee.47See, e.g., letters from NASAA; Missouri

Commissioner of Securities; Nevada SecuritiesDivision.

48See letter from NASAA. See also letter fromMissouri Commissioner of Securities (stating thatfiling the Form D better equips the state securitiesregulators to ensure compliance with Federal andstate securities laws).

49See letter from Ohio Division of Securities (July3, 2012).

50See, e.g., letters from Missouri Commissioner ofSecurities; NASAA.

51See letter from Managed Funds Association(MFA) (Mar. 22, 2013).

52See letter from MFA (Sept. 28, 2012).

506(c) offering, it would be required, atleast 15 calendar days beforecommencing general solicitation for theoffering, to file an initial Form D thatincludes the information required by thefollowing items of Form D (theAdvance Form D):

Item 1. Basic identifyinginformation on the issuer;

Item 2. Information on the issuersprincipal place of business and contactinformation;

Item 3. Information on relatedpersons;

Item 4. Information on the issuersindustry group;

Item 6. Identification of theexemption or exemptions being claimedfor the offering;

Item 7. Indication of whether thefiling is a new filing or an amendment;

Item 9. Information on the type(s) ofsecurity to be offered; 43

Item 10. Indication of whether the

offering is related to a businesscombination; Item 12. Information on persons

receiving sales compensation; 44 and Item 16. Information on the use of

proceeds from the offering.After the filing of an Advance Form

D, the issuer would be required to filean amendment providing the remaininginformation required by Form D within15 calendar days after the date of firstsale of securities in the offering, as iscurrently required by Rule 503.45

A number of commenters on the Rule506(c) Proposing Release, includingnumerous state securities regulators and

several investor organizations, suggestedthat the Commission require Form D to

be filed in advance of any generalsolicitation in Rule 506(c) offerings.46

Some of these commenters stated thatthe advance filing of Form D wouldenable state securities regulators andinvestors, after seeing an advertisementor other notice for an offering, to moreeasily determine whether an issuer is atleast attempting to comply with Rule506(c).47 One commenter noted thatstate securities regulators routinely

review Form D filings to ensure that theofferings actually qualify for anexemption under Rule 506 and to lookfor red flags that may indicate that anoffering may be fraudulent.48 Othercommenters stated that, with theadvance filing of Form D, statesecurities regulators would be in a betterposition to ensure that no bad actors areparticipating in a Rule 506 offering 49and to answer questions from investorswho contact them after seeing anadvertised offering.50

On the other hand, one commenterstated that the current 15-calendar day

time frame to file a Form D following asale provides a reasonable period for anissuer to prepare and submit the formwhile providing appropriate notice toregulators of a new Regulation Doffering.51 This commenter also arguedthat an issuer may not be certain ofwhether it will rely on Rule 506(b) orRule 506(c) ahead of time.52

We appreciate theserecommendations and recognize theconcerns as well. We believe thatrequiring issuers to file an AdvanceForm D would assist the Commissionsefforts to evaluate the use of Rule 506(c).

Although the Commission does notanticipate that its staff will review eachAdvance Form D filing as it is beingmade, the Advance Form D would beuseful to the Commission and theCommission staff, as it would enhancethe information available to theCommission to analyze offeringsinitiated under Rule 506(c), including

issuers that initiated Rule 506(c)offerings but were unsuccessful inselling any securities through theseofferings or chose alternative forms ofraising capital. Currently, Form D isrequired to be filed only after the firstsale of securities, which means thatissuers that offered securities, but didnot complete a sale, are not required tofile a Form D, thereby limiting theCommissions ability to determinewhich issuers are facing challengesraising capital under Rule 506(c) andwhether further steps by theCommission are needed to facilitate

issuers ability to raise capital underRule 506(c). We also understand that theAdvance Form D would be useful tostate securities regulators and toinvestors in gathering timelyinformation about Rule 506(c) offeringsand the use of Rule 506(c).

We appreciate the sensitivity thatsome issuers may have regarding thedisclosure of detailed information abouta contemplated offering before theissuer has made a final decision to raisecapital in a Rule 506(c) offering or

before the first sale of securities hasoccurred. For this reason, we propose

that the Advance Form D for Rule 506(c)offerings require only the informationset forth above, with a requirement tofile an amendment to the Form D thatincludes the remainder of theinformation required by Form D(including information regarding theterms of the offering that may not have

been known at the time of the filing ofthe Advance Form D and thereforeomitted from the Advance Form D, suchas those called for by Item 9 and Item12 of Form D) following the completionof a sale of securities in a Rule 506(c)offering on the timetable currently

required under Rule 503. An issuer thatwishes to provide all of the informationrequired by Form D in the AdvanceForm D may do so, obviating the needto file an additional amendment unlessotherwise required under Rule 503. Anissuer could also file an Advance FormD without contemplating a specificoffering, in order to have the flexibilityto conduct an offering using generalsolicitation. We believe that thisapproach would allow the Commissionto gather the information that it needsthrough Advance Form D filings


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5317 CFR 243.100(a)(2).

54See Release No. 336389.55We noted at the time that [ t]he information

contained in the original notification has provedsufficient for the Commissions enforcementsurveillance for compliance with the requirementsof Regulation D. Form D and Regulation D, ReleaseNo. 336663 (Oct. 2, 1986) [51 FR 36385, 36386(Oct. 10, 1986)].

56See letters from NASAA; Ohio Division ofSecurities (July 3, 2012); Massachusetts SecuritiesDivision (July 2, 2012).

57Letter from Ohio Division of Securities (July 3,2012).

without unnecessarily burdening issuersor requiring issuers to disclose specificinformation about capital-raising plans

before these plans have beendetermined.

Request for Comment

1. We are proposing that issuers filean Advance Form D no later than 15

calendar days before thecommencement of general solicitationin a Rule 506(c) offering. Is such anadvance filing useful and appropriatefor an effective analysis of the Rule506(c) market? Should the 15-calendarday period be increased or decreased?Why or why not? Should the filingdeadline be tied to the commencementof general solicitation or thecommencement of the offering, whetheror not general solicitation is used?

2. What should the consequences befor failing to timely file an AdvanceForm D for a Rule 506(c) offering?Should the filing of the Advance FormD be a condition to Rule 506(c) so thatfailure to file results in the immediateloss of Rule 506(c) as an exemption fromSecurities Act registration for theoffering at issue?

3. We are proposing to require thefiling of an Advance Form D no laterthan 15 calendar days before the firstuse of general solicitation in a Rule506(c) offering. We recognize, however,the possibility that a communicationcould be inadvertently disseminated

beyond the intended audience withoutthe issuers knowledge or authorization.What should be the consequences for

the issuer under such circumstances?Should there be a different filingdeadline for the Advance Form D whenthere is an inadvertent generalsolicitation? For example, under Rule100(a)(2) of Regulation FD,53 theinformation in a non-intentionalselective disclosure must be publiclydisclosed promptly after the issuerknows (or is reckless in not knowing)that the information selectivelydisclosed was both material and non-public. Should a similar filing deadline

be considered for an inadvertent generalsolicitation?

4. Should issuers be permitted to filean Advance Form D even if no specificoffering is contemplated? Why or whynot? How would this impact theusefulness of the Advance Form D data?We have identified certain informationthat we believe should be included inthe Advance Form D. Is the informationproposed for the Advance Form D theappropriate information to be providedat that point of the offering? Is thereother information that issuers should

provide in the Advance Form D? Wouldit be more difficult for issuers to providecertain information in an Advance FormD? If so, which information?

5. We are proposing that an issuerhave the option of either filing anAdvance Form D for Rule 506(c)offerings to provide certain informationrequired by Form D, with the complete

Form D information provided in asubsequent amendment to Form D filedno later than 15 calendar days after thefirst sale of securities, or providing allof the required Form D information inthe Advance Form D, if known at thatpoint in the offering. Should issuers beprovided this option? Or should issuers

be limited to providing certain specifiedinformation in the Advance Form D andrequired to file a subsequentamendment, after the first sale ofsecurities, to provide the remainder ofthe information required by Form D?Would allowing issuers to have the

option of providing all of theinformation required by Form D no laterthan 15 calendar days before theycommence general solicitation (ascompared to the current requirement ofno later than 15 calendar days after thefirst sale of securities) affect the qualityor usefulness of the Form D informationfor purposes of the Commissions effortsto analyze the Rule 506 market? Forexample, what is the likelihood thatissuers will be in a position to provideall of the information required by FormD no later than 15 calendar days beforethe commencement of generalsolicitation?

6. What would be the benefits ofrequiring the Advance Form D for Rule506(c) offerings? What would be thecosts to issuers, market participants andother parties? Would the requirement tofile an Advance Form D deter issuersfrom conducting Rule 506(c) offerings?Would the requirement to file anAdvance Form D have differing orunique effects on certain types ofissuers, such as Exchange Act reportingcompanies, non-reporting companies,foreign companies or private funds?

7. Would potential investors or othermarket participants review Advance

Form D filings on a real-time basis? Ifso, how would they use the informationin the filings? How would statesecurities regulators use the AdvanceForm D filings?

8. Are there situations in which anAdvance Form D filing should not berequired? If so, what are thesesituations?

9. Should an Advance Form D filingbe required before or at thecommencement of all offerings underRule 506, or all offerings underRegulation D? If not, why?

10. Are any other rule amendmentsnecessary if the Commission were torequire the advance filing of Form D forRule 506(c) offerings, as proposed?

C. Form D Closing Amendment forRule 506 Offerings

We are also proposing to amend Rule503 to require the filing of a final

amendment to Form D within 30calendar days after the termination ofany offering conducted in reliance onRule 506. Regulation D does notcurrently contain a requirement to file afinal amendment to Form D. WhenRegulation D was originally adopted,issuers were required to amend theForm D filing every six months duringthe course of an ongoing offering andwere required to make a final Form Dfiling within 30 days of the final sale ofsecurities in the offering.54 In 1986, weeliminated these requirements,anticipating that removing the finalForm D filing requirement would havenegligible consequences for investorsand would result in some savings for

both issuers and the Commission.55A number of commenters on the Rule

506(c) Proposing Release suggested thatthe Commission reinstate a closingForm D filing requirement to enhancethe flow of information to theCommission, other regulators andinvestors, and to improve the ability ofthe Commission and others to track theuse of Rule 506.56 For example, onecommenter stated that the informationprovided in a closing amendment will

be invaluable to the Commission and

states in determining the extent towhich issuers are making exempt publicofferings.57

In order to gather more completeinformation about the size andcharacteristics of the Rule 506 offeringmarket, we believe that it would beappropriate to propose requiring thefiling of a closing amendment forofferings conducted in reliance on Rule506. The proposed requirement would

be in addition to the existing provisionsof Rule 503 that require the filing of anamendment to Form D to correct amaterial mistake of fact or error in a

previously filed Form D, to reflect achange in information provided in a


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58See Vladimir Ivanov and Scott Bauguess,Capital Raising in the U.S.: An Analysis ofUnregistered Offerings Using the Regulation DExemption, 20092012 (July 2013), available athttp://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdf(Ivanov/Bauguess Study).

59See id. (in 2012, approximately 95% ofRegulation D offerings claimed reliance on Rule506; these offerings accounted for approximately99% of capital reported as being raised underRegulation D for the year).

60For example, in 2010, issuers sought to raise$1.2 trillion in reported Regulation D offerings, butonly $905 billion was reported as sold at the t imeof the initial filing. See id.

61See Proposed Rule 503(a)(4)(v).62See Release No. 336389.6317 CFR 230.503(a)(3).

previously filed Form D except incertain instances, and on an annual

basis for offerings that are ongoing. Thefiling of a separate closing amendmentwithin 30 days after termination of theoffering would not be required if all ofthe information that would be includedin such an amendment has already beenprovided in a Form D filing and the

issuer has checked the box for a closingfiling in such filing.

As noted above, the Commissiontoday has a greater ability to analyze theRegulation D offering market due toelectronically-filed Forms D. In recentyears, the Regulation D market has alsogrown considerably in size andsignificance.58 These factors suggest thatcollecting information upon thetermination of Rule 506 offerings wouldprovide greater benefits than it did in1986, when this requirement waseliminated.

We propose to require the filing of aclosing amendment to Form D forofferings under both Rule 506(b) andRule 506(c). This is, in part, to enablemore complete analysis and comparisonof the use of long-standing Rule 506(b)and new Rule 506(c). In addition,

because the overwhelming majority ofRegulation D offerings are conducted inreliance on Rule 506, and these offeringsaccount for substantially all of thecapital reported as being raised underRegulation D, this approach shouldprovide the Commission withsubstantially complete informationabout the Regulation D market withoutimposing additional compliance

burdens on smaller offerings conductedin reliance on Rule 504 or Rule 505.59

A closing Form D amendment, inconjunction with changes to Form D torequire additional information on Rule506 offerings, as discussed below,would provide the Commission withmore complete information about Rule506 offerings. For example, undercurrent rules, information about theamount of capital raised in a RegulationD offering is limited to the totalamount sold as of the date of the lastForm D filing. Any amounts sold

between the date of the last Form D

filing and the date the offering isterminated are not currently required tobe reported on Form D. As a result, the

actual amount of capital raised at thetime the offering is terminated cannot beconclusively determined.60

Under our proposal, the closingamendment would be due no later than30 calendar days after termination of theoffering; 61 in contrast, Rule 503formerly required a closing amendmentto be made no later than 30 days after

the last sale of securities in theoffering.62 Our proposed changeaddresses the potential concern thatissuers may not know, at the time a saleis made, that such sale will be the lastsale of securities in the offering. Asproposed, the closing amendment must

be filed when the issuer terminates theoffering, whether after the final sale ofsecurities in the offering or upon theissuers determination to abandon theoffering. Until the closing amendment isfiled, the offering is deemed to beongoing and the issuer would be subjectto the current Rule 503 requirements to

file amendments to Form D at leastannually and otherwise as needed toreflect changes in previously filedinformation and to correct materialmistakes and errors.63

Request for Comment

11. Should we require a closing FormD amendment for Rule 506 offerings, asproposed? Why or why not? Should theclosing amendment requirement applyto all Regulation D offerings, as was thecase when Regulation D was originallyadopted? Alternatively, should theclosing amendment requirement applyonly to offerings under new Rule 506(c)?

Are there situations where a closingamendment to Form D should not berequired? If so, what are thesesituations? For example, should noclosing amendment be required if nosales of securities have been made?

12. As proposed, a closing Form Damendment would be required to befiled not later than 30 calendar daysafter the termination of a Rule 506offering. Should we use a different timeframe for the filing of the closing FormD amendment? If so, why and how long?

13. We have not proposed that thefiling of a closing amendment be acondition of Rule 506. If the closingamendment were a condition of Rule506 and an issuer failed to make therequired filing, the issuer would lose theexemption for the entire offering atissue, including sales that were madewhile the issuer was in compliance with

Rule 503. Should the filing of a closingForm D amendment be a condition toRule 506(b) or Rule 506(c)?

14. As proposed, the closingamendment must be filed within 30calendar days after the issuer terminatesthe offering. Should we provide a moredetailed explanation of what constitutesthe termination of an offering?

15. What would be the costs to issuersof filing a closing Form D amendment?Would a requirement to file a closingForm D amendment deter issuers fromconducting Rule 506 offerings? Arethere any costs or benefits that we havenot discussed? If so, please specify.

16. What are the alternatives torequiring a closing amendment to FormD? For example, rather than requiring aclosing amendment to Form D for allRule 506 offerings, should theCommission only require anamendment when an issuer sells anamount of securities in excess of acertain percentage (for example, 10%)above the amount reported as sold inthe last Form D or Form D amendmentpreviously filed for the offering?

17. Rule 503(a)(3)(ii) currentlyrequires issuers to file an amendment toa previously filed Form D to reflectchanges in the information provided,subject to certain enumeratedexceptions. Should the proposed closingamendment to Form D serve as asubstitute for this type of Form Damendment? If the proposed closingamendment requirement is adopted,should Rule 503(a)(3)(ii) be eliminatedor simplified, so that only certain

changes (e.g., the size of the offering)would trigger the obligation to amendForm D?

18. Alternatively, in light of theproposal to impose disqualificationfrom reliance on Rule 506 for failures tocomply with Rule 503, as discussed inSection II.E below, should theCommission further amend Rule503(a)(3)(ii), or provide additionalguidance, in regard to the circumstancesin which an amendment to Form D is oris not required? For example, should theCommission amend Rule 503 to set forthadditional situations in which an

amendment to Form D would not berequired to reflect a change in theinformation provided in a previouslyfiled Form D? Conversely, should theCommission amend Rule 503 to requirethe filing of an amendment to Form Dto reflect a change in information wheresuch amendment is not currentlyrequired under Rule 503?

19. As discussed in Section II.Dbelow, we are proposing amendments toForm D to require additionalinformation, primarily with respect toRule 506 offerings. After an issuer files

http://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdfhttp://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdfhttp://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdfhttp://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdf

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64 In April 2010, we proposed numerous changesto our rules related to offerings of asset-backedsecurities. See Asset-Backed Securities, Release No.339117 (Apr. 7, 2010) [75 FR 23328 (May 3, 2010)].That proposal included proposed revisions to FormD for offerings of structured finance products.Those proposed changes are still outstanding andare not being addressed in this release.

65We also revised Item 6 of Form D by renamingthe check box for Rule 506, which will berenamed Rule 506(b), and the check box forSection 4(5), which will be renamed Section4(a)(5) to update the reference to former Section4(5) of the Securities Act.

66See, e.g., letters from AARP; AFLCIO andAFR; Consumer Federation; Investor AdvisoryCommittee; NASAA (referring to therecommendations in its July 3, 2012 letter);Massachusetts Securities Division (referring to therecommendations in its July 2, 2012 letter).

67See letters from AARP; AFLCIO and AFR(stating that the Commission should . . . expandForm D to require additional information regardingboth planned general solicitation and advertisingactivities and plans for verification of accreditedinvestor status); Consumer Federation (stating that[i]f the Commission wishes to monitor [accreditedinvestor verification] practices, and we believe itmust, it can best achieve that by requestinginformation on Form D regarding the issuersverification plans.).

68See letter from Investor Advisory Committee.69See letter from NASAA (referring to suggested

revisions to Form D in its July 3, 2012 letter).70See letter from Massachusetts Securities

Division (July 2, 2012).

a Form D that includes this additionalinformation, any change to thisinformation (for example, a change inthe number of purchasers who qualifiedas accredited investors or the methodsused to verify accredited investor),would generally require the filing of anamendment to Form D under currentRule 503. Should the Commission

amend Rule 503 so that an amendmentto Form D would not be required whenthere is a change to some or any of thisinformation? If so, which informationand why?

20. Should issuers conductingongoing offerings pursuant to Rule506(c) be required to amend their FormD filings more frequently than on anannual basis to provide, to the extentthat such information has not already

been provided in a previous Form Dfiling, updated information regardingthe dollar amount of any securities soldduring such period pursuant to such

offering, and any other securities of thesame class (or any securities convertibleinto or exercisable or exchangeable forsecurities of the same class) sold duringsuch period pursuant to an exemptionfrom the registration requirements of theSecurities Act? If yes, how frequently?For example, on a semi-annual basis ora quarterly basis?

21. Rule 503 requires an amendmentto a previously filed Form D to correcta material mistake of fact or error assoon as practicable after discovery of themistake or error and an amendment toa Form D to reflect a change in theinformation previously provided, except

in certain situations, as soon aspracticable after the change. Wouldsuch non-specific filing deadlines makeit difficult for market participants todetermine whether an issuer isdisqualified from reliance on Rule 506for failure to comply with Form D filingobligations, including the determinationof when a cure period expires? Shouldthe Commission consider amendingRule 503 to set forth more specific timeframes for filing these amendments toForm D?

22. Should the Commission amendRule 503 so that an annual amendment

for an ongoing offering is required to befiled on a specified date, such as theone-year anniversary of the initial filingof a Form D or Advance Form D?

23. Should the Commission provideadditional guidance on what constitutesa material mistake of fact or error thatwould necessitate the filing of a Form Damendment?

24. Rule 503(a)(4) currently requiresan issuer that files an amendment to apreviously filed Form D to providecurrent information in response to allrequirements of the form regardless of

why the amendment is filed. Should theCommission amend this requirement inRule 503? If so, how? What are the costsand benefits associated with thisrequirement?

25. Should the presentation ofinformation in a closing Form Damendment be different than in aninitial Form D filing or in other Form D

amendments? If so, how?26. If an issuer filed an Advance Form

D but subsequently terminated theoffering without selling any securities,what information should the issuer berequired to provide regarding theoffering in its closing amendment?

27. Are any other rule amendmentsnecessary if the Commission were torequire the filing of a closingamendment, as proposed? If so, pleasespecify.

D. Proposed Amendments to theContent Requirements of Form D

We are proposing revisions to Form Dto add information requirementsprimarily for Rule 506 offerings, whichwould enable the Commission to gatheradditional information on the use ofRule 506 and thereby assist theCommission in evaluating the impact ofRule 506(c) on the existing Rule 506market.64 We believe that suchadditional information may also beuseful to state securities regulators andto investors. In the Rule 506(c) AdoptingRelease, we adopted a revision to FormD to add a separate field or check boxin Item 6 of Form D for issuers toindicate whether they are relying onRule 506(b) or Rule 506(c).65 We believethat requiring issuers to indicate inForm D that they are relying on Rule506(c) will provide importantinformation to assist in our efforts toevaluate the use of general solicitationin Rule 506(c) offerings and the size ofthis offering market as well as providenotice to state regulators and investorsabout issuers seeking to rely on Rule506(c). The proposed revisions to FormD set forth below would requireadditional information on Rule 506offerings, including information specificto Rule 506(c) offerings, such as the

types of general solicitation used and

the methods used to verify theaccredited investor status of purchasers,which we also believe will be useful.

A number of commenters on the Rule506(c) Proposing Release recommendedthat the Commission further expand theinformation requirements of Form D inregard to offerings under Rule 506(c).66Some commenters stated that they

supported amending Form D to requiremore information about the issuersplans to engage in general solicitationand how the issuer plans to verify thatpurchasers are accredited investors.67The Investor Advisory Committeerecommended that the Commissionadopt either a new form or a revisedversion of Form D that would elicitinformation on, among other things, thecontrol persons of the issuer, counselrepresenting the issuer (if any), theissuers accountants or auditors (if any),the amount sought to be raised, a briefdescription of the issuers general

solicitation plans and a brief descriptionof the issuers proposed business anduse of proceeds.68 Another commenterproposed a list of expanded informationrequirements for Form D, includingdisclosure of the issuers Web site; if theissuer is selling interests in a pooledinvestment fund, disclosure of anyadviser to the fund and whether theadviser is registered as an investmentadviser or is otherwise exempt; awarning that finders fees may triggerstate and federal salesperson and

broker-dealer registration requirements;and certification that the offering is not

disqualified under the proposed badactor rules.69 One commenter stated thatForm D should be revised to indicatewhether an offering will be conducted

by means of an Internet platform, and ifso, the identity of the Internetplatform.70 A number of commentersstated that the Commission shouldconsider requiring additionalinformation in Form D about the issuers


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71See, e.g., letters from Consumer Federation(stating that [t]he Form D filing requirement couldprovide greater benefit to investors as well if its

content was expanded to include basic informationabout the issuer); Fund Democracy, ConsumerAction, Consumer Federation, AFLCIO and AFR(May 24, 2012) (stating that [t]he Commissionshould also consider requiring disclosure ofadditional information in Form D about issuers thatpropose to engage in [general solicitation]activities).

72See letter from MFA (Mar. 22, 2013). Thiscommenter also recommended that investmentadvisers be permitted to comply with anyinformation requirement on Form D by eitherproviding a reference to a publicly available FormADV applicable to a private fund or to any publiclyavailable information filed with a state regulator,depending on whether the investment adviser isregistered with the Commission or with a state.

73See, e.g., Commission Guidance on the Use ofCompany Web sites, Release No. 3458288 (Aug. 1,2008) [73 FR 45862 (Aug. 7, 2008)].

74Release No. 338891.75 Id.

that propose to engage in generalsolicitation activities under Rule 506.71

In contrast, one commenter urged theCommission not to require additionaldisclosures in Form D on the issuersproposed business and use of proceeds.This commenter asserted that Form Dcurrently requires appropriateinformation on the identity of the issuer

and a factual description of theofferings.72

We believe that amending Form D torequire additional information on Rule506 offerings would enable theCommission to better analyze theimpact on the existing Rule 506 marketof eliminating the prohibition againstgeneral solicitation in Rule 506(c)offerings. This information wouldenhance the ability of the Commissionto evaluate the use of Rule 506(c) byrequiring information in Form D on thetypes of investors that participate inRule 506(c) offerings, the issuers plans

to engage in general solicitation andmethods used to satisfy the verificationrequirement in Rule 506(c). Thisinformation may also be useful toinvestors seeking to learn more about anoffering being conducted pursuant toRule 506(c) or about the types of issuersconducting these offerings. Finally, thisinformation may be useful in facilitatingenforcement efforts should any fraud orother securities law violations occur inthese offerings. As discussed below, wepropose to revise existing Item 2, Item3, Item 4, Item 5, Item 7, Item 9, Item14 and Item 16 of Form D and to add

new Items 17 through 22 to Form D.Item 2, which requires the issuer toprovide principal place of business andtelephone contact information, would

be amended to require the identificationof the issuers publicly accessible(Internet) Web site address, if any. Weare proposing this change becauseissuers are increasingly using theirpublic Web sites as vehicles for thedissemination of information toinvestors, while many investors are

turning to company Web sites as sourcesof information to aid in their investmentdecisions.73 We believe that theidentification of the issuers public Website address in Form D would be usefulin gathering additional information onthe issuers that conduct offerings underRegulation D. This proposedamendment would apply to offeringsunder Rule 504, Rule 505, Rule 506 andSection 4(a)(5).

Item 3, which requires informationabout related persons (executiveofficers, directors, and personsperforming similar functions for theissuer, as well as persons who havefunctioned as a promoter of the issuerwithin the prior five years), would beamended to require, when the issuer isconducting a Rule 506(c) offering, thename and address of any person whodirectly or indirectly controls the issuerin addition to the information currently

required for related persons. Webelieve that more comprehensiveinformation about persons who exercisecontrol over the issuer would be helpfulin obtaining a more complete picture ofthe issuers and other marketparticipants that are involved in Rule506(c) offerings.

In 2008, we deleted the requirementin Item 3 to identify as relatedpersons owners of 10% or more of aclass of the issuers equity securities. Inproposing this change to Item 3, westated, among other things, that we

believe we can collect sufficient

information to satisfy the regulatoryobjectives of Form D by requiring onlythe identification of executive officers,directors, and promoters. 74 We alsonoted that issuers that are not reportingcompanies have raised privacy concernswith respect to the requirement toidentify 10% equity owners who are notexecutive officers, directors, orpromoters because they do not alreadyhave to disclose this information, andthe widespread availability of theinformation on our Web site may raiseadditional privacy concerns for thesecompanies as they seek to raise capital

through a private offering.75

While wecontinue to recognize these privacyconcerns for issuers that conductofferings under Rules 504, 505 and506(b), we believe that this additionalinformation on controlling persons whoare not related persons could assist usin developing a more comprehensive

understanding of the marketparticipants in the Rule 506(c) market.

Item 4, which requires the issuer toidentify its industry group from aspecified list, would be amended torequire the issuer to fill in aclarification field if the issuer checksthe Other box. Though Item 4currently includes a number of different

industry group classifications, webelieve that requiring the issuer tofurther describe its industry group whenit is not included in the pre-establishedlist will enhance our understanding ofthe types of issuers that are seeking torely on Regulation D, while imposing aminimal burden on the issuer. Thisinformation will assist us in havingmore complete information regardingthe range of industries of the companiesusing Rule 506. Without this additionalrequirement, conclusions drawnregarding industry trends wouldexclude all those issuers who checked

Other. This proposed amendmentwould apply to offerings under Rules504, Rule 505, Rule 506 and Section4(a)(5).

Item 5, which requires information onissuer size, would be amended toreplace the Decline to Disclose optionwith a Not Available to Public option.We are proposing this change becausewe believe that an operating companythat includes information about itsrevenues, or a hedge fund or otherinvestment fund that includesinformation about its net asset value, ingeneral solicitation materials for a Rule506(c) offering, or that otherwise makes

such information publicly available,should be required to provide revenuerange or net asset value rangeinformation, as applicable, in Form D.If, however, the issuer does not includethis information in general solicitationmaterials for a Rule 506(c) offering, doesnot otherwise make the informationpublicly available and otherwise usesreasonable efforts to maintain theconfidentiality of such information, we

believe that the issuer should have theoption of not providing suchinformation by choosing a NotAvailable to Public checkbox. This

proposed amendment would also applyto Rule 504 and Rule 505 offerings, aswell as offerings under Section 4(a)(5).Requiring issuers to include thisinformation, to the extent theyotherwise publicly disclose it, would beuseful to the Commissions staff inevaluating the type or size of issuersusing these exemptions.

Item 7, which requires the issuer tostate whether a Form D is an initialfiling or an amendment to a previouslyfiled Form D, would be amended to addseparate fields or check boxes for issuers


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81A Central Registration Depository (CRD)number is a system identification number assignedto each investment adviser that registers or filesreports with the SEC or a state through theInvestment Adviser Registration Depository Website. The Web site facilitates registration ofinvestment advisers and reporting by exemptreporting advisers. CRD numbers also are assignedto broker-dealers. 82See Release No. 336825.

offerings, we note that the proposedrevisions to Item 2, Item 4, Item 5 andItem 9 would require additionalinformation on offerings under Rule504, Rule 505 and Securities ActSection 4(a)(5). For the same reasonsstated above, we believe that if an issuerhas made information on its sizepublicly available, or does not take

reasonable efforts to maintain suchinformation as confidential, the issuershould be required to provide thisinformation under Item 5 of Form D forofferings under the other Regulation Dexemptions or under Section 4(a)(5).Similarly, we believe that the proposedadditional information in Item 2, Item 4and Item 9 would provide usefulinformation on the nature of the issuersand the offered securities in regard toofferings under Rule 504, Rule 505 orSection 4(a)(5), while any additional

burden on issuers in providing thisinformation would be minimal.

Request for Comment

28. Should we require issuers toprovide additional information in FormD filings as we have proposed? Shouldthis additional information be requiredonly for Rule 506(c) offerings? If so, whyand what should that information be?For example, should the Commissionrequire issuers to provide information inForm D about counsel representing theissuer (if any) or the issuersaccountants or auditors (if any), as somehave suggested? If the additionalinformation were required only for Rule

506(c) offerings, what impact would thisrequirement have on the use of Rule506(c) as compared to the use of Rule506(b)? Are there particular items ofinformation that do not providesufficiently useful information or would

be especially burdensome for issuers toprovide? Should some of the additionalinformation that we propose to requirein Form D not be required for offeringsunder Rule 506(b)? If so, whichrequirements and why? Would theadditional information that we proposeto request in Form D provide usefulinformation to state securities regulatorsin responding to inquiries fromconstituents about offerings conductedunder Rule 506 and in enforcementefforts?

29. What are the costs or burdens onissuers in providing the additionalinformation in Form D, as proposed?Are there ways to reduce any costs or

burdens on issuers? Would therequirement to provide this additionalinformation result in issuers choosingnot to rely on Rule 506 to raise capital?

30. Should some of the additionalinformation that we propose to require

in Form D be required only in theclosing amendment to Form D?

31. Should the Commission definewhat it means for an issuer to makeinformation publicly available forpurposes of Item 5, or to take reasonableefforts to maintain such information asconfidential? For instance, wouldconfidential information about an issuer

that is publicly disseminated by a thirdparty in violation of a duty to keep suchinformation confidential be deemed to

be publicly available?32. Should the Commission amend

Item 5 to require an issuer that conductsa Rule 506(c) offering to provideinformation on its revenue range oraggregate net asset value range, asapplicable, regardless of whether theissuer has otherwise made thisinformation publicly available (forexample, by including this informationin general solicitation materials)?

33. Should the Commission amend

Form D to include a check box forissuers to indicate whether they arefiling an Advance Form D or a closingamendment to Form D, as proposed?Should there be other changes to FormD to indicate that an issuer is filing anAdvance Form D or a closingamendment?

34. Should the Commission amendForm D to provide a checkbox toindicate that the issuer is required toprovide disclosure of prior bad actorevents under Rule 506(b)(2)(iii)?

35. Should pooled investment fundsbe required to provide additional ordifferent information in connection withRule 506(c) offerings? Should theCommission require a pooledinvestment fund to disclose itsinvestment advisers CRD 81 numberrather than (or in addition to) itsadvisers SEC registration number? Item3 of Form D asks for the identity of theissuers promoter. Should informationon a pooled investment fundsinvestment adviser be added to Item 3,rather than the proposed Item 20? Doesthe proposed amendment to Item 3,requiring disclosure of any controllingpersons, raise any particular concernsfor pooled investment funds?

36. Should the Commission requireissuers to provide more or less specificinformation in Form D about themethods of general solicitation used inRule 506(c) offerings? Do certain

methods of general solicitation raiseparticular concerns from an investorprotection standpoint? For example, aresome methods of general solicitationmore likely to result in an increased riskof fraud or manipulation or more likelyto reach non-accredited investors?Should we require additionalinformation in Form D with respect to

these methods of general solicitation? Ifso, what inform

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2013-16884