This Picture Is Worth 471 Words (More or Less)

by Allen Matkins


Monday is the big day for the SEC’s “Bad Actor” and “General Solicitation” rule amendments.   I’ve previously observed that many are likely to find the Bad Actor amendments to be bad rules when it comes to compliance.  Today’s blog is devoted to just one interpretational problem with the Bad Actor amendments.

Under the SEC’s rule, the disqualification provisions apply to various categories of persons.  The first category is the issuer, any predecessor of the issuer, or any affiliated issuer.  What exactly is an “affiliated issuer”?  The new rules don’t say.  The term is borrowed from Rule 262 which is the existing disqualification provision applicable to Regulation A.  Alack, Rule 262 offers no explanation either.  Because Rule 261 provides that all terms used in Regulation A have the same meanings as in Rule 405, one might conclude that an issuer is “affiliated” with the issuer if it directly or indirectly, through one or more intermediaries, controls, or is controlled by, or under common control with the issuer.  The term “issuer” is defined (with some exceptions and embellishments) in Section 2(a)(4) of the Securities Act to mean every person that issues or proposes to issue any security.

Now assume that an issuer is about to embark on a Rule 144A offering of notes guaranteed by some, but not all of its subsidiaries, as illustrated above.  The parent issuing its notes seems to fit nicely within the definition of ”issuer” and would therefore be a covered person for purposes of disqualification.  What about guarantor subsidiaries?  They are controlled by the issuer and thus would seem to be “affiliated” as defined by Rule 405.  They also are issuing securities, the guaranties, and satisfy Section 2(a)(4).  Put the two together and you have an affiliated issuer.  But wait, why aren’t the guarantors simply issuers in their own right?  If they are, does it make any difference?  It might.  The second category of covered persons is any director, officer (see Rule 405), general partner or managing member of the issuer.  Note that the rule doesn’t say “and any affiliated issuer”.   Thus, the plain reading of the rule seems to be that directors, officers etc. of an affiliated issuer are not covered persons.  However, if the guarantors are issuers in their own right, then their directors and officers would be covered.  However, what would be the need for a category of “affiliated issuer” if all affiliated issuers are by definition issuers?

Finally, we have the non-guarantor subsidiaries.  They are affiliates for the same reason as their brother guarantors.  But are they issuers?  Does the rule only mean issuers of a security in the same offering or are they issuers by virtue of the fact that they have issued securities?

This is just one example.  Like Lucy, I think that the SEC has a lot of explaining to do.


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.

© Allen Matkins | Attorney Advertising

Written by:

Allen Matkins

Allen Matkins on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.