Bad actors received no accolades at last night’s Golden Globe Awards. However, persons designated as "bad actors" under the federal securities laws are very much in the SEC’s limelight. On December 4, 2013 and January 3, 2014, the SEC issued guidance on the provisions that disqualify "bad actors" from participating in private securities offerings conducted under new Rule 506 of Regulation D of the Securities Act of 1933 (Rule 506). The guidance appeared in the form of 19 new Compliance and Disclosure Interpretations (CDIs) posted on the SEC website by its Division of Corporation Finance. The CDIs answer some of the many questions that have arisen about the proper application and interpretation of the bad actor disqualification provisions since their implementation on September 23, 2013.
As we previously reported, Rule 506 allows issuers to offer and sell securities using general solicitation provided the specific requirements of the rule are satisfied. A chief requirement for an offering to qualify for the Rule 506 registration exemption is compliance with the so-called "bad actor" disqualification provisions, which state that specified persons involved in the offering (referred to as "covered persons") must not have been subject to certain criminal convictions or judicial or administrative disciplinary orders (referred to as "disqualifying events"). Covered persons include, among others, the issuer, placement agents/underwriters, promoters, investment managers, and certain of their executives, directors, and owners.
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