SEC Updates “Bad Actor” Guidance

December 5, 2013

The SEC updated its “Disqualification of Felons and Other "Bad Actors" from Rule 506 Offerings and Related Disclosure Requirements,” originally issued on September 19, 2013. On July 10, 2013, the SEC adopted bad actor disqualification provisions for Rule 506 of Regulation D under the Securities Act of 1933, to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The disqualification and related disclosure provisions appear as paragraphs (d) and (e) of Rule 506 of Regulation D.

As a result of Rule 506(d) bad actor disqualification, an offering is disqualified from relying on Rule 506(b) and 506(c) of Regulation D if the issuer or any other person covered by Rule 506(d) has a relevant criminal conviction, regulatory or court order or other disqualifying event that occurred on or after September 23, 2013, the effective date of the rule amendments.  Under Rule 506(e), for disqualifying events that occurred before September 23, 2013, issuers may still rely on Rule 506, but will have to comply with the disclosure provisions of Rule 506(e).

The SEC’s compliance guide covers the following seven areas:

  1. Summary of Rule 506 Bad Actor Disqualification and Disclosure Requirements
  2. Covered Persons
  3. Disqualifying Events
  4. Reasonable Care Exception
  5. Waivers
  6. Disclosure of Pre-Existing Disqualifying Events
  7. Transition Issues

Please click here to access the updated compliance guide.


Investment Advisers, Investment Companies