Look Who’s Not Coming to Dinner: Felons and Bad Actors

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In its initial action to implement Section 926 of the Dodd-Frank Act, the SEC recently issued proposed amendments to Rule 506 of Regulation D of the Securities Act to disqualify private placements involving certain felons and other “bad actors” from the safe harbor of Rule 506. The proposed amendments are available here (see full newsletter below for links).

What Is The Safe Harbor of Rule 506?

Rule 506 permits the sale of an unlimited dollar amount of securities to an unlimited number of “accredited investors” and up to 35 “nonaccredited investors,” provided that the conditions of Rule 506, including the prohibition against a general solicitation of interest and the provision of a sufficient amount of information to non accredited investors, are satisfied. Rule 506 does not currently have any “bad actor” disqualification provisions which prohibit issuers and their directors, officers, shareholders, underwriters, placement agents and other finders from participating in private placements. Such "bad actor" disqualification provisions could include past convictions or court or administrative sanctions for securities fraud or other violations of certain laws, which are the crux of the proposed amendments.

Please see full newsletter below for more information.

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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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