Bad Actor Disqualification And Just How Do You Know Whether A Violation is Scienter-Based?


In a recently issued Compliance & Disclosure Interpretation (Question #260.21), the SEC staff unequivocally stated that “bad actor” disqualification under Rule 506(d)(1)(v) is “triggered only by orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules.”  In Kid, Did You Ever Go To Court?, I questioned whether the list of scienter based-based securities laws and regulations was readily or generally known.  Recently, I came across the following non-exclusive list, albeit partial, of scienter-based provisions:

  • Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
  • Section 17(a)(1) of the Securities Act;
  • Section 15(c)(1) of the Exchange Act; and
  • Section 206(1) of the Advisers Act.

Division of Corporation Finance, Statement on Well-Known Seasoned Issuer Waivers (July 8, 2011) at n. 6.  The staff identified the following sections as non-scienter based:

  • Sections 17(a)(2) and (3) of the Securities Act;
  • Section 14(a) of the Exchange Act and Rule 14a-9 thereunder; and
  • Sections 206(2) and 206(4) of the Advisers Act; and
  • Section 34(b) of Investment Company Act.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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