SEC Proposes Rule to Not Allow Felons and Bad Actors to Participate in Securities Offerings

May 25, 2011

The SEC proposed a rule that would deny certain securities offerings from qualifying for exemption from registration if they involve certain felons and other “bad actors.”  This rule would implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act.


Rule 506 of Regulation D provides three exemptions that an issuer can rely upon to avoid registration under the Securities Act of 1933.   If an offering qualifies for the Rule 506 exemption, an issuer can raise unlimited capital from an unlimited number of “accredited investors” and up to 35 “non-accredited investors.”

Under the proposed rule, an issuer could not rely upon the Rule 506 exemption if it or any other person covered by the rule had a “disqualifying event,” which includes criminal convictions, court injunctions and restraining orders.

Click here to access the release proposing the rule.


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Investment Companies, Regulatory