Senators Request Pre-Filing of Form D

Form D

Securities Lawyer 101 Blog

A fundamental principle of the federal securities laws is that the purchase or sale of a security must be subject to a registration statement under the Securities Act of 1933 (“Securities Act”) or exempt from registration.  Section 4(a)(2) provides an exemption from securities registration for transactions by an issuer not involving a public offering. Rule 506 of Regulation D under the Securities Act provides an exemption for private placement offerings that do not to involve a public offering under Section 4(a)(2).   The JOBS Act amended Rule 506(c) to allow general solicitation and advertising in offerings so long as sales are made only to accredited investors.  Since Rule 506(c) became law on September 23, 2013, many critics have expressed concern that the new rule will open the floodgates to fraud not investment capital.

On December 3, 2013, seven U.S. Senators endorsed a letter to Mary Jo White, SEC Chair, recommending that the SEC require issuers conducting offerings pursuant to Rule 506(c) pre-file their Form D.  The senators signing the letter were Senators Carl Levin (D-MI), Martin Heinrich (D-NM), Tom Harkin (D-IA), Jack Reed (D-RI), Mark Pryor (D-AR), Jeff Merkley (D-OR) and Angus King (I-ME).

The Senators request stated that the advance filing of Form D will assist state securities regulators. Currently, a Form D is not required to be filed until l5 days after the first sale in a Regulation D Offering.  No distinction is made between the filing requirements for Regulation D offerings under Rule 504, Rule 505 or Rule 506.  In light of the removal of the ban on general solicitation and advertising in Rule 506(c) offerings, the SEC proposes to require issuers to file a Form D before the offering begins.

The Senators noted that while the Rule 506 exemption is used successfully by many legitimate issuers, it has also become an attractive option for fraudsters and individuals who would otherwise be prohibited from engaging in the securities business.

Prior to removal of the long-standing ban on general solicitation and advertising, state securities investigators could be assured that any securities offering relying on general solicitation was registered with the SEC if it was publicly advertised on the internet or elsewhere.  State securities regulators commonly encourage investors in their states to “investigate before they invest.”  Typically this results in communications by state regulators with investorsnotably, many local “mom and pop” investors-who are seeking information about issuers and potential investments.  With the removal of the general solicitation and advertising prohibition, a state investigator will not be able to determine whether the issuer is advertising an unregistered, and non-exempt, offering to the general public or engaging in a compliant Rule 506 offering.

According to the Senators, state securities regulatory protection is critical because the SEC does not actively monitor Rule 506 offerings and is not likely to scrutinize the many offerings using general solicitations and/or advertisements under Rule 506(c).  The letter also stated that the pre-filing of Form D would address the practical realities that will now be faced by state enforcement personnel. Simply requiring a Form D filing prior to any public solicitation or advertising will ensure that state securities regulators, and the SEC, will be able to determine an issuer’s intent to rely on general solicitation and advertising, it will enable state regulators to respond to questions from investors in their states about publicly advertised offerings, and it will further enable local investors, who can also access Form D filings, to get basic background information about “legitimate” offerings before they invest.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

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