SEC Proposes John Wilkes Booth Rules

On Wednesday, the Securities and Exchange Commission proposed rules disqualifying felons and other “bad actors” from Rule 506 offerings. In 2007, I submitted this comment letter arguing, among other things, that the SEC should not impose mandatory disqualification on Regulation D offerings. Now, the SEC no longer has a choice because Section 926 of the Dodd-Frank Act mandates the adoption of disqualification rules for Rule 506 offerings.

Much ado about nothing?

Although on its face it seems reasonable to bar convicted felons and other nefarious people from relying upon Rule 506, the bar actually makes little sense. Rule 506 is a non-exclusive safe harbor exemption (see Preliminary Note 3 to Regulation D). Thus, if the only deficiency is a “bad actor” disqualification, it seems that the offer and sale will be exempt under Section 4(2) of the Securities Act of 1933.

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Published In: Administrative Agency Updates, Conflict of Laws Updates, Finance & Banking Updates, Securities Updates

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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