Amendments to Regulation D, Form D and Rule 156

Federal RegisterJul 24, 2013

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 239

[Release No. 33-9416; Release No. 34-69960; Release No. IC-30595; File No. S7-06-13]

RIN 3235-AL46

Amendments to Regulation D, Form D and Rule 156

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rules.

SUMMARY:

The Securities and Exchange Commission, which today in separate releases amended Rule 506 of Regulation D, Form D and Rule 144A under the Securities Act of 1933 to implement Section 201(a) of the Jumpstart Our Business Startups Act and Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is publishing for comment a number of proposed amendments to Regulation D, Form D and Rule 156 under the Securities Act. These proposed amendments are intended to enhance the Commission's ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation and general advertising under new paragraph (c) of Rule 506. Specifically, the proposed amendments to Regulation D would require the filing of a Form D in Rule 506(c) offerings before the issuer engages in general solicitation; require the filing of a closing amendment to Form D after the termination of any Rule 506 offering; require written general solicitation materials used in Rule 506(c) offerings to include certain legends and other disclosures; require the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission; and disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the last five years, with Form D filing requirements in a Rule 506 offering. The proposed amendments to Form D would require an issuer to include additional information about offerings conducted in reliance on Regulation D. Finally, the proposed amendments to Rule 156 would extend the antifraud guidance contained in the rule to the sales literature of private funds.

DATES:

Comments should be received on or before September 23, 2013.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's Internet comment form (

http://www.sec.gov/rules/proposed.shtml

);

• Send an email to

rule-comments@sec.gov

. Please include File Number S7-06-13 on the subject line; or

• Use the Federal eRulemaking Portal (

http://www.regulations.gov

). Follow the instructions for submitting comments.

Paper Comments

• Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number S7-06-13. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's Internet Web site (

http://www.sec.gov/rules/proposed.shtml

). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F Street, NE., Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. All comments received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT:

Charles Kwon, Special Counsel or Ted Yu, Senior Special Counsel, Office of Chief Counsel, or Karen C. Wiedemann, Attorney Fellow, Office of Small Business Policy, Division of Corporation Finance, at (202) 551-3500; or, with respect to private funds, Melissa Gainor or Alpa Patel, Senior Counsels, Investment Adviser Regulation Office, Division of Investment Management, at (202) 551-6787, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

We are proposing amendments to Rule 156,

Rules 503,

506

and 507

of Regulation D,

and Form D

under the Securities Act of 1933.

We are proposing to add Rule 509 and Rule 510T of Regulation D under the Securities Act.

17 CFR 230.156.

17 CFR 230.503.

17 CFR 230.506.

17 CFR 230.507.

17 CFR 230.500 through 230.508.

17 CFR 239.500.

15 U.S.C. 77a

et seq.

Table of Contents

I. Introduction

II. Proposed Amendments Relating to Form D

A. Background

B. Timing of the Filing of Form D

C. Form D Closing Amendment for Rule 506 Offerings

D. Proposed Amendments to the Content Requirements of Form D

E. Proposed Amendment to Rule 507

III. Proposed Rule and Rule Amendments Relating to General Solicitation Materials

A. Mandated Legends and Other Disclosures for Written General Solicitation Materials

B. Proposed Amendments to Rule 156

C. Request for Comment on Manner and Content Restrictions for Private Funds

IV. Proposed Temporary Rule for Mandatory Submission of Written General Solicitation Materials

V. Request for Comment on the Definition of “Accredited Investor”

VI. Additional Requests for Comment

VII. General Request for Comment

VIII. Paperwork Reduction Act

A. Background

B. Burden and Cost Estimates Related to the Proposed Amendments

1. Proposed Amendments Relating to Form D

2. Rule 506(c) General Solicitation Materials

C. Request for Comment

IX. Economic Analysis

A. Broad Economic Considerations

B. Economic Baseline

1. Size of the Exempt Offering Market

2. Affected Market Participants

a. Issuers

b. Investors

c. Investment Advisers

d. Broker-Dealers

3. Incidence of Fraud in Securities Offerings

4. Current Practices

a. Missing Form D Filings

b. Legends and Other Disclosures in Regulation D Offering Materials

C. Analysis of the Amendments Relating to Form D

1. Advance Filing of Form D for Rule 506(c) Offerings

2. Form D Closing Amendment for Rule 506 Offerings

3. Amendments to the Content Requirements of Form D

a. Investor Types

b. Issuer Size

c. Issuer Industry Group

d. Control Persons

e. Trading Venue and Security Identifiers

f. Use of Proceeds

g. Issuer Web Site

h. Types of General Solicitation Used

i. Verification Methods

4. Proposed Amendment to Rule 507

D. Analysis of the Proposed Rule and Rule Amendments Relating to General Solicitation Materials

1. Mandated Legends and Other Disclosures for Written General Solicitation Materials

2. Proposed Amendments to Rule 156

3. Requests for Comment on Manner and Content Restrictions for Private Funds

E. Analysis of Temporary Rule Relating to Mandatory Submission of Written General Solicitation Materials

F. Analysis of Potential Impacts on Efficiency, Competition and Capital Formation

X. Small Business Regulatory Enforcement Fairness Act

XI. Initial Regulatory Flexibility Analysis

A. Reasons for, and Objectives of, the Proposed Action

B. Small Entities Subject to the Proposed Rule and Form Amendments

C. Projected Reporting, Recordkeeping and Other Compliance Requirements

D. Duplicative, Overlapping or Conflicting Federal Rules

E. Significant Alternatives

F. General Request for Comment

XII. Statutory Authority and Text of Proposed Rule and Form Amendments

I. Introduction

We are adopting today, in separate releases, amendments to Rule 506 of Regulation D

and to Form D

to implement Section 201(a)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”)

and Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

Rule 506 was originally adopted as a non-exclusive safe harbor under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”), the statutory exemption from Securities Act registration for transactions by an issuer “not involving any public offering.”

To implement Section 201(a)(1) of the JOBS Act, we are adding new paragraph (c) to Rule 506, which permits issuers to use general solicitation and general advertising (collectively, “general solicitation”) when conducting an offering pursuant to this new paragraph, provided that all purchasers of the securities are accredited investors and the issuer takes reasonable steps to verify that such purchasers are accredited investors.

We are also adding a new check box to Form D to require issuers to indicate that they are relying on Rule 506(c) for their offering.

To implement Section 926 of the Dodd-Frank Act, we are adding new paragraph (d) to Rule 506, which disqualifies issuers and other market participants from relying on Rule 506 if “felons and other `bad actors' ” are participating in the offering.

We are also amending the form of the signature block to Form D to include a certification whereby issuers claiming a Rule 506 exemption will confirm that the offering is not disqualified from reliance on Rule 506.

17 CFR 230.506. The Commission adopted Rule 506 and Regulation D in 1982 as a result of the Commission's evaluation of the impact of its rules on the ability of small businesses to raise capital.

See Revision of Certain Exemptions From Registration for Transactions Involving Limited Offers and Sales,

Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251 (Mar. 16, 1982)]. Over the years, the Commission has revised various provisions of Regulation D in order to address, among other things, specific concerns relating to facilitating capital raising as well as abuses that have arisen under Regulation D.

See, e.g.,

Additional Small Business Initiatives,

Release No. 33-6996 (Apr. 28, 1993) [58 FR 26509 (May 4, 1993)] and

Revision of Rule 504 of Regulation D, the “Seed Capital” Exemption,

Release No. 33-7644 (Feb. 25, 1999) [64 FR 11090 (Mar. 8, 1999)].

17 CFR 239.500.

Public Law 112-106, sec. 201(a), 126 Stat. 306, 313 (Apr. 5, 2012).

See Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings,

Release No. 33-9354 (Aug. 29, 2012) [77 FR 54464 (Sept. 5, 2012)] (“Rule 506(c) Proposing Release”).

Public Law 111-203, sec. 926, 124 Stat. 1376, 1851 (July 21, 2010) (codified at 15 U.S.C. 77d note).

15 U.S.C. 77d(a)(2). As with the Section 4(a)(2) statutory exemption, Rule 506 is available only to the issuer of the securities and not to any affiliate of the issuer or to any other person for resales of the issuer's securities.

See

17 CFR 230.500(d).

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings,

Release No. 33-9415 (July 10, 2013) (“Rule 506(c) Adopting Release”). In addition to these requirements, under new Rule 506(c), all terms and conditions of Rule 501 and Rules 502(a) and 502(d) of Regulation D [17 CFR 230.501 and 502(a) and (d)] must be satisfied.

As discussed in Section II.A of this release, Form D is the notice of an offering of securities made without registration under the Securities Act in reliance on an exemption provided by Regulation D or Section 4(a)(5) of the Securities Act.

Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings,

Release No. 33-9414 (July 10, 2013).

We anticipate that new Rule 506(c) will have a significant impact on Rule 506 offerings and on current capital-raising practices. Among other things, we anticipate that issuers using Rule 506(c) will be able to reach a greater number of potential investors than is currently the case in Rule 506 offerings, thereby increasing their access to sources of capital.

As a result, accredited investors may be able to find and potentially invest in a larger and more diverse pool of investment opportunities, which could result in a more efficient allocation of capital by accredited investors. On the other hand, we recognize the concerns raised by a number of commenters that a general solicitation for a Rule 506(c) offering would attract both accredited and non-accredited investors and could result in an increase in fraudulent activity in the Rule 506 market, as well as an increase in unlawful sales of securities to non-accredited investors.

Currently, under Rule 506(b) [17 CFR 230.506(b)], an issuer may sell securities, without any limitation on the offering amount, to an unlimited number of “accredited investors,” as defined in Rule 501(a) of Regulation D, and to no more than 35 non-accredited investors who meet certain “sophistication” requirements. The availability of Rule 506(b) is subject to the terms and conditions of Rules 501 and 502 and is conditioned on the issuer, or any person acting on its behalf, not offering or selling securities through any form of “general solicitation or general advertising.”

Many comments submitted on the Rule 506(c) Proposing Release, including the comments submitted by the Investor Advisory Committee, urged the Commission to propose or adopt other amendments to Regulation D or to Form D

that they believed would be appropriate in connection with the adoption of the amendments to implement Section 201(a) of the JOBS Act.

For example, several commenters suggested that we amend Regulation D to provide that the availability of the new Rule 506(c) exemption be conditioned on compliance with the

Form D filing requirement,

require Form D to be filed in advance of any general solicitation

and add to the information requirements of Form D.

In light of the fact that the financial thresholds in the definition of “accredited investor” that relate to natural persons have not been updated since their adoption in 1982,

some commenters recommended that the Commission also amend the definition of “accredited investor” as it relates to natural persons.

Other commenters suggested that we propose rules governing the content and manner of general solicitations used in offerings conducted pursuant to the new Rule 506(c) exemption, particularly with respect to offerings by private funds.

Several commenters also recommended that we require the filing or submission of general solicitation materials used pursuant to the new Rule 506(c) exemption, whether to the Financial Industry Regulatory Authority (“FINRA”),

to an electronic “drop box” to be created by the Commission specifically to receive general solicitation materials

or as an exhibit to Form D.

To facilitate public input on JOBS Act rulemaking before the issuance of rule proposals, the Commission invited members of the public to make their views known on various JOBS Act initiatives in advance of any rulemaking by submitting comment letters to the Commission's Web site at

http://www.sec.gov/spotlight/jobsactcomments.shtml

. The comment letters relating to Section 201(a) of the JOBS Act submitted in response to this invitation are located at

http://www.sec.gov/comments/jobs-title-ii/jobs-title-ii.shtml

. The comment letters submitted in response to the Rule 506(c) Proposing Release are located at

http://www.sec.gov/comments/s7-07-12/s70712.shtml

. Many commenters submitted comment letters both before and after the issuance of the Rule 506(c) Proposing Release. Our references to comment letters in this release that are not dated refer to the comment letters submitted in response to the Rule 506(c) Proposing Release. Dated comment letters refer to those submitted before the issuance of the Rule 506(c) Proposing Release or by commenters that submitted multiple letters.

See, e.g.,

letters from Fund Democracy, Inc. (“Fund Democracy”); North American Securities Administrators Association, Inc. (“NASAA”); Consumer Federation of America (“Consumer Federation”); SEC Investor Advisory Committee (“Investor Advisory Committee”). The Investor Advisory Committee was established in April 2012 pursuant to Section 911 of the Dodd-Frank Act to advise the Commission on regulatory priorities, the regulation of securities products, trading strategies, fee structures, the effectiveness of disclosure, initiatives to protect investor interests and to promote investor confidence and the integrity of the securities marketplace. The Dodd-Frank Act authorizes the Investor Advisory Committee to submit findings and recommendations for review and consideration by the Commission.

On October 12, 2012, the Investor Advisory Committee unanimously approved and submitted recommendations to the Commission titled,

Recommendations of the Investor Advisory Committee Regarding SEC Rulemaking to Lift the Ban on General Solicitation and Advertising in Rule 506 Offerings: Efficiently Balancing Investor Protection, Capital Formation and Market Integrity.

The recommendations are available at

http://www.sec.gov/spotlight/investor-advisory-committee-2012/iac-general-solicitation-advertising-recommendations.pdf

See, e.g.,

letters from Investor Advisory Committee; NASAA; AARP; Consumer Federation.

See, e.g.,

letters from Office of the Secretary of the Commonwealth of Massachusetts Securities Division (“Massachusetts Securities Division”) (July 2, 2012); NASAA; Securities Division, Nevada Secretary of State (“Nevada Securities Division”); Ohio Division of Securities; Securities Commissioner, State of South Carolina (“South Carolina Securities Commissioner”); State Corporation Commission, Division of Securities and Retail Franchising, Commonwealth of Virginia (“Virginia Division of Securities”).

See, e.g.,

letters from AARP; AFL-CIO and Americans for Financial Reform (“AFR”); Consumer Federation; Massachusetts Securities Division (July 2, 2012); NASAA.

See

Release No. 33-6389. For natural persons, Rule 501(a) defines an accredited investor as a person whose individual net worth, or joint net worth with that person's spouse, exceeds $1 million, excluding the value of the person's primary residence (the “net worth test”) or who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year (the “income test”).

Although the Dodd-Frank Act did not change the amount of the $1 million net worth test, it did change how that amount is to be calculated—by excluding the value of a person's primary residence. This change took effect upon the enactment of the Dodd-Frank Act, and in December 2011, we amended Rule 501 to incorporate this change into the definition of accredited investor.

See Net Worth Standard for Accredited Investors,

Release No. 33-9287 (Dec. 21, 2011) [76 FR 81793 (Dec. 29, 2011)].

See, e.g.,

letters from AARP; Consumer Federation; Investment Company Institute (“ICI”); Investor Advisory Committee; Massachusetts Securities Division (July 2, 2012); Ohio Division of Securities (July 3, 2012). Several commenters noted that under the Commission's proposal in 2007 to partially lift the prohibition on general solicitation for offerings sold only to “large accredited investors,” such investors who were natural persons would have been required to have at least $400,000 in annual income or $2.5 million in investments.

See

letters from AFL-CIO and AFR; Fund Democracy; AARP. One commenter, however, opposed increasing the thresholds for accredited investor status.

See

letter from National Small Business Association (June 12, 2012).

See, e.g.,

letters from ICI; AFL-CIO and AFR; Consumer Federation; Investor Advisory Committee; Independent Directors Council (“IDC”); NASAA; Sens. Reed, Levin, Durbin, Harkin, Lautenberg, Franken and Akaka.

See

letters from AFL-CIO and AFR; BetterInvesting (recommending that “the SEC require all public solicitation materials under Rule 506 to be independently reviewed for compliance (perhaps by an independent authority such as FINRA, which already reviews broker-dealer advertising) before or after the public solicitation” (emphasis omitted)); ICI.

See

letters from Investor Advisory Committee; Consumer Federation.

See

letters from Massachusetts Securities Division (July 2, 2012); Ohio Division of Securities (July 3, 2012).

In light of these comments and the magnitude of the change that the elimination of the prohibition against general solicitation represents to the Rule 506 market, we are proposing today a number of amendments in conjunction with the adoption of new Rule 506(c). These amendments are intended to enhance the Commission's understanding of the Rule 506 market by improving compliance with Form D filing requirements, expanding the information requirements of Form D, primarily with respect to Rule 506 offerings, and requiring the submission, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings to the Commission. We believe that the elimination of the prohibition against general solicitation for Rule 506(c) offerings will have a significant impact on the Rule 506 market, including the types of issuers that raise capital using Rule 506, the investors who are solicited and ultimately purchase securities in the offerings, the intermediaries that participate in this market, the practices employed by issuers and intermediaries and the amount of capital that will be raised. To review and analyze these changes more effectively, and to facilitate the assessment of the effects of such changes on investor protection and capital formation, the Commission staff will need better tools to evaluate this changing market than are currently provided by the existing filing and information requirements of Form D. Further, we believe that the proposed changes to the filing and information requirements of Form D could assist the enforcement efforts of both federal and state regulators, which rely on Form D as an important source of information about the private offering market.

Specifically, with respect to Form D and to Regulation D as it relates to Form D, we are proposing to:

• Amend Rule 503 of Regulation D to require: (1) The filing of a Form D no later than 15 calendar days in advance of the first use of general solicitation in a Rule 506(c) offering; and (2) the filing of a closing Form D amendment within 30 calendar days after the termination of a Rule 506 offering;

• amend Form D to require additional information primarily in regard to offerings conducted in reliance on Rule 506; and

• amend Rule 507 of Regulation D to disqualify an issuer from relying on Rule 506 for one year for future offerings if the issuer, or any predecessor or affiliate

of the issuer, did not comply, within the last five years, with all of the Form D filing requirements in a Rule 506 offering.

An “affiliate” is defined in Rule 501(b) of Regulation D [17 CFR 230.501(b)] as a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified.

In addition, in light of the ability of issuers to publicly advertise Rule 506(c) offerings, we are concerned that prospective investors may not be sufficiently informed as to whether they are qualified to participate in these offerings, the type of offerings being conducted and certain potential risks associated with such offerings. To address these concerns, we are proposing new Rule 509 of Regulation D, which would require issuers to include prescribed legends in any written communication that constitutes a general solicitation in any offering conducted in reliance on Rule 506(c) (“written general solicitation materials”). Private funds would also be required to include a legend disclosing that the securities being offered are not subject to the protections of the Investment Company Act of 1940 (“Investment Company Act”) and additional disclosures in written general solicitation materials that include performance data so that potential investors are aware that there are limitations on the usefulness of such data and provide context to understand the data presented.

We are proposing to disqualify an issuer from relying on Rule 506 for future offerings if such

issuer, or any predecessor or affiliate of the issuer, has been subject to any order, judgment or court decree enjoining such person for failure to comply with proposed Rule 509.

A private fund is an issuer that would be an investment company, as defined in Section 3 of the Investment Company Act, but for the exclusion from the definition of “investment company” in Section 3(c)(1) or Section 3(c)(7) of that Act. We also refer in this release to “pooled investment funds” because that term is used in Form D. Issuers that rely on Section 3(c)(1) or 3(c)(7) of the Investment Company Act are a subset of pooled investment funds.

We are also proposing to amend Rule 156 under the Securities Act,

which interprets the antifraud provisions of the federal securities laws in connection with sales literature used by investment companies, to apply to the sales literature of private funds because we believe it is important for private funds to consider the Commission's views on the applicability of the antifraud provisions to their sales literature. We are also soliciting comment on a recommendation made by commenters on the Rule 506(c) Proposing Release to mandate additional manner and content restrictions on written general solicitation materials used by private funds.

17 CFR 230.156.

As the Commission will need to be aware of developments in the Rule 506 market after the effectiveness of Rule 506(c), we are proposing Rule 510T to require issuers, on a temporary basis, to submit any written general solicitation materials used in their Rule 506(c) offerings to the Commission no later than the date of the first use of these materials. Such materials would be required to be submitted through an intake page on the Commission's Web site. We are not proposing, at this time, that these materials would be available to the public; therefore, issuers would not file their written general solicitation materials through the Commission's EDGAR system. We are proposing to disqualify an issuer from relying on Rule 506 for future offerings if such issuer, or any predecessor or affiliate of the issuer, has been subject to any order, judgment or court decree enjoining such person for failure to comply with proposed Rule 510T.

We also appreciate the need to undertake a broader effort to review and analyze the market impact and developing market practices resulting from permitting general solicitation in connection with offerings relying on new Rule 506(c). Accordingly, we will evaluate the use of Rule 506(c) by issuers and market participants, and, in particular, the steps they take to verify that the purchasers of the offered securities are accredited investors. We have directed the Commission staff to execute a comprehensive work plan upon the effectiveness of Rule 506(c) to review and analyze the use of Rule 506(c) (the “Rule 506(c) Work Plan”), which will involve a coordinated effort of staff from the Division of Corporation Finance, the Division of Economic and Risk Analysis (“DERA”), the Division of Investment Management, the Division of Trading and Markets, the Office of Compliance Inspections and Examinations (“OCIE”) and the Division of Enforcement. The Commission staff will, among other things:

• Evaluate the range of purchaser verification practices used by issuers and other participants in these offerings, including whether these verification practices are excluding or identifying non-accredited investors;

• evaluate whether the absence of the prohibition against general solicitation has been accompanied by an increase in sales to non-accredited investors;

• assess whether the availability of Rule 506(c) has facilitated new capital formation or has shifted capital formation from registered offerings and unregistered non-Rule 506(c) offerings to Rule 506(c) offerings;

• examine the information submitted or available to the Commission on Rule 506(c) offerings, including the information in Form D filings and the form and content of written general solicitation materials submitted to the Commission;

• monitor the market for Rule 506(c) offerings for increased incidence of fraud and develop risk characteristics regarding the types of issuers and market participants that conduct or participate in Rule 506(c) offerings and the types of investors targeted in these offerings to assist with this effort;

• incorporate an evaluation of the practices in Rule 506(c) offerings in the staff's examinations of registered broker-dealers and registered investment advisers;

and

OCIE currently examines multiple types of market participants that have involvement in private offerings, including registered broker-dealers that advise issuers on private placements and registered investment advisers that advise clients investing in private placements or advise private funds that offer fund interests pursuant to private offerings.

• coordinate with state securities regulators on sharing information about Rule 506(c) offerings.

Implementation of the Rule 506(c) Work Plan will assist the Commission in evaluating the development of market practices in Rule 506(c) offerings. The amendments we propose today would, if adopted, support the Rule 506(c) Work Plan by enhancing the timeliness, quality and completeness of information on the issuers, investors and financial intermediaries that participate in the Rule 506 market and by requiring the submission of written general solicitation materials to the Commission. The proposed amendments would also assist the Commission's efforts to protect investors and to evaluate the development of market practices in Rule 506(c) offerings and would support future Commission consideration of any additional changes related to Rule 506(c), consistent with the Commission's mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.

In addition, many commenters stated, and we agree, that the definition of accredited investor as it relates to natural persons should be reviewed and, if necessary or appropriate, amended. The Commission staff has begun a review of the definition of accredited investor as it relates to natural persons, including the need for any changes to this definition following the effectiveness of Rule 506(c). We further discuss the definition of accredited investor, and request comment on the definition, in Section V of this release.

II. Proposed Amendments Relating to Form D

A. Background

Form D is the notice of an offering of securities conducted without registration under the Securities Act in reliance on Rule 504, 505 or 506 of Regulation D.

Under Rule 503 of Regulation D, an issuer offering or selling securities in reliance on Rule 504, 505 or 506 of Regulation D must file a notice of sales on Form D with the Commission for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering.

Form D is currently organized around 16 numbered items or categories of information. The information required to be provided in a Form D filing includes basic identifying information, such as the name of the issuer of the securities and the issuer's year and place of

incorporation or organization; information about related persons (executive officers, directors and promoters); the exemption or exemptions being claimed for the offering; and factual information about the offering, such as the duration of the offering, the type of securities offered and the total offering amount. Although the requirement to file a Form D pursuant to Rule 503 was a condition of Rules 504, 505 and 506 when all of these rules were originally adopted,

it is currently not a condition of those rules. Instead, under Rule 507 of Regulation D, an issuer will be disqualified from using Regulation D if it, or a predecessor or affiliate, is enjoined by a court for failure to comply with Rule 503.

The Commission can waive any such disqualification upon a showing of good cause.

Regulation D contains separate exemptions for limited offerings in Rules 504, 505 and 506. Rule 504 [17 CFR 230.504] exempts the offer and sale of up to $1 million of securities in a 12-month period by issuers that are not subject to reporting requirements under the Securities Exchange Act of 1934 (the “Exchange Act”). Rule 505 [17 CFR 230.505] exempts offerings by issuers of up to $5 million of securities in a 12-month period. Form D also applies to offerings of securities without registration in reliance on the exemption contained in Section 4(a)(5) of the Securities Act [15 U.S.C. 77d(a)(5)].

This 15-day time frame has remained unchanged since the adoption of Regulation D in 1982. In 2008, we revised Rule 503 to provide that when a Form D filing otherwise would be due on a weekend or holiday it will be deemed due on the next business day.

Electronic Filing and Revision of Form D,

Release No. 33-8891 (Feb. 6, 2008) [73 FR 10592 (Feb. 27, 2008)].

In 1988, the Commission proposed to eliminate the requirement to file a Form D as a condition to the availability of the Regulation D exemptions, noting that “[c]ommenters have frequently criticized” this condition.

Regulation D,

Release No. 33-6759 (Mar. 3, 1988) [53 FR 7870 (Mar. 10, 1988)];

Regulation D,

Release No. 33-6812 (Dec. 20, 1988) [54 FR 309 (Jan. 5, 1989)] (reproposing the elimination of Rule 503 as a condition of the Regulation D exemptions after commenters expressed concern over the effect of the proposals on enforcement efforts and potential impairment of private rights of action). In 1989, the Commission removed the filing of Form D as a condition to the Regulation D exemptions.

Regulation D,

Release No. 33-6825 (Mar. 15, 1989) [54 FR 11369 (Mar. 20, 1989)].

See

Release No. 33-6759 (“As proposed, the filing obligation under Rule 503 would continue but would no longer be a condition to the exemption. In order to provide an incentive for filing the Form D in a timely manner, the Commission is proposing new Rule 507, which would disqualify an issuer from the use of the Regulation D exemptions if it had been found to have violated Rule 503.”); Release No. 33-6825 (adopting Rule 507 as proposed).

Rule 507(b) [17 CFR 230.507(b)].

At the time the Commission adopted Regulation D and Form D in 1982, the Form D filing requirements in Rule 503 were intended to serve an important data collection function, including, among other things, for the Commission's rulemaking efforts.

Until 2008, however, issuers made Form D filings in paper format, making the extraction of information for large-scale statistical analysis problematic.

In 2008, we adopted rule and form amendments that mandated the electronic filing of Form D on the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system in a structured format.

As a result of these amendments, which were phased in from September 2008 to March 2009, Form D filings are now machine-readable, and the Commission, its staff, other securities regulators and the public at large now have a greater ability to analyze the Regulation D offering market through the information supplied in electronic Form D filings. In addition, the information in Form D filings has been useful for a number of other purposes, such as serving as a source of information for investors

and facilitating the enforcement of the federal securities laws and the enforcement efforts of state securities regulators and FINRA.

For example, state securities regulators typically rely on Form D as their sole notice that a Rule 506 offering is being conducted because securities issued in Rule 506 offerings are “covered securities” under Section 18(b)(4)(D) of the Securities Act

and therefore are exempt from state blue sky registration requirements.

We stated in the proposing release for Regulation D:

An important purpose of the notice * * * is to collect empirical data which will provide a basis for further action by the Commission either in terms of amending existing rules and regulations or proposing new ones. * * * Further, the proposed Form will allow the Commission to elicit information necessary in assessing the effectiveness of Regulation D as a capital raising device for small businesses.

Proposed Revision of Certain Exemptions from the Registration Provisions of the Securities Act of 1933 for Transactions Involving Limited Offers and Sales,

Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791, 41799 (Aug. 18, 1981)].

In 1996, we proposed to eliminate the Form D filing requirement entirely and replace it with an issuer obligation to complete a Form D and retain it for a period of time.

Phase Two Recommendations of Task Force on Disclosure Simplification,

Release No. 33-7301 (May 31, 1996) [61 FR 30405 (June 14, 1996)]. After reviewing comments on the proposal, we decided to retain the requirement because the information collected in Form D filings was still useful to us “in conducting economic and other analyses of the private placement market.”

Phase Two Recommendations of Task Force on Disclosure Simplification,

Release No. 33-7431 (July 18, 1997) [62 FR 39755, 39756 (July 24, 1997)].

See

Release No. 33-8891. At that time, we substantially revised Form D to simplify and restructure the form, eliminate outdated information requirements and update and supplement other information requirements. For example, we added requirements to provide revenue range information for the issuer, or net asset value range information in the case of pooled investment funds (subject to an option in both cases to decline to disclose); more specific information on the registration exemption claimed as well as information on any exclusion claimed from the definition of “investment company” under the Investment Company Act; information on the date of first sale in the offering; and information on whether the offering is expected to last over a year.

Id.

(noting that the Commission's Web site “advises potential investors in Regulation D offerings to check whether the company making the offering has filed a Form D notice and advises that `[i]f the company has not filed a Form D, this should alert you that the company might not be in compliance with the federal securities laws' ”).

Id.

(stating that “[t]he staffs of state securities regulators and [FINRA] also use Form D information to enforce securities laws and the rules of securities self-regulatory organizations”).

15 U.S.C. 77r(b)(4)(D). Although Securities Act Section 18 preempts state registration and review of offerings of “covered securities,” the states have investigated and brought a number of enforcement actions alleging fraud and deceit in Rule 506 offerings.

See, e.g.,

letter from NASAA (stating that, in 2011, “state regulators took more than 200 enforcement actions related specifically to Rule 506 offerings”).

We understand that some issuers are not making a Form D filing for Rule 506 offerings because the filing of Form D is not a condition of Rule 506. In addition, we are limited in our ability to gather information about Rule 506 offerings at the commencement of these offerings because Form D currently is not required to be filed until 15 calendar days after the first sale of securities in the offerings; and the absence of a closing filing requirement means that the Commission does not have a complete picture of Rule 506 offerings, such as the total amount of capital actually raised in these offerings. Other than the newly adopted requirement for issuers to indicate in Form D whether they are relying on Rule 506(c), Form D does not require information specific to Rule 506(c) offerings, such as information about the issuer's plans to engage in general solicitation, any practices used to satisfy the verification requirement in Rule 506(c) and the types of investors participating in Rule 506(c) offerings.

Accordingly, we are proposing a number of amendments to Regulation D and Form D. These amendments would require the advance filing of Form D for Rule 506(c) offerings, require the filing of an amendment to Form D after termination of a Rule 506 offering, expand the information requirements in Form D for offerings conducted under Rule 506 and disqualify issuers from using Rule 506 for future offerings until one year has elapsed after the required Form D filings are made if they, or their predecessors or affiliates, failed to comply, within the past five years, with the Form D filing requirements for a Rule 506 offering.

B. Timing of the Filing of Form D

We are proposing to amend Rule 503 to require issuers that intend to engage in general solicitation for a Rule 506(c) offering to file an initial Form D in advance of conducting any general solicitation activities. Currently, Rule 503 requires an issuer to file a Form D not later than 15 calendar days after the first sale of securities in a Regulation D offering. Under the proposed amendment, if an issuer has not otherwise filed a Form D for a Rule

506(c) offering, it would be required, at least 15 calendar days before commencing general solicitation for the offering, to file an initial Form D that includes the information required by the following items of Form D (the “Advance Form D”):

• Item 1. Basic identifying information on the issuer;

• Item 2. Information on the issuer's principal place of business and contact information;

• Item 3. Information on related persons;

• Item 4. Information on the issuer's industry group;

• Item 6. Identification of the exemption or exemptions being claimed for the offering;

• Item 7. Indication of whether the filing is a new filing or an amendment;

• Item 9. Information on the type(s) of security to be offered;

An issuer would be required to include the information required by Item 9 only to the extent that the information is known at the time of filing the Advance Form D.

• Item 10. Indication of whether the offering is related to a business combination;

• Item 12. Information on persons receiving sales compensation;

and

An issuer would be required to include the information required by Item 12 only to the extent that the information is known at the time of filing the Advance Form D.

• Item 16. Information on the use of proceeds from the offering.

After the filing of an Advance Form D, the issuer would be required to file an amendment providing the remaining information required by Form D within 15 calendar days after the date of first sale of securities in the offering, as is currently required by Rule 503.

An issuer that has already filed a Form D containing complete information with respect to a Rule 506(c) offering would not be required to file an Advance Form D. This could occur, for example, when the use of general solicitation begins after the offering is underway and the first sale of securities has occurred for which a Form D has been filed more than 15 calendar days before the commencement of general solicitation in the offering.

A number of commenters on the Rule 506(c) Proposing Release, including numerous state securities regulators and several investor organizations, suggested that the Commission require Form D to be filed in advance of any general solicitation in Rule 506(c) offerings.

Some of these commenters stated that the advance filing of Form D would enable state securities regulators and investors, after seeing an advertisement or other notice for an offering, to more easily determine whether an issuer is at least attempting to comply with Rule 506(c).

One commenter noted that state securities regulators routinely review Form D filings to ensure that the offerings actually qualify for an exemption under Rule 506 and to look for “red flags” that may indicate that an offering may be fraudulent.

Other commenters stated that, with the advance filing of Form D, state securities regulators would be in a better position to ensure that no bad actors are participating in a Rule 506 offering

and to answer questions from investors who contact them after seeing an advertised offering.

See, e.g.,

letters from AARP; AFL-CIO and AFR; Consumer Federation; Commissioner of Securities, State of Hawaii (“Hawaii Commissioner of Securities”); Indiana Securities Division; Massachusetts Securities Division (July 2, 2012) (noting that an advance filing requirement for Form D “will notify federal and state regulators that these offerings are in the marketplace, and they will give potential investors an opportunity to obtain basic information about the issuer and the offering”); Commissioner of Securities, State of Missouri (“Missouri Commissioner of Securities”); Commissioner of Securities and Insurance, State of Montana (“Montana Commissioner of Securities”); NASAA (noting that without an advance filing requirement for Form D and a filing requirement that is a condition of the exemption, “[a]n investigator who sees an advertised offering will have no simple way of knowing whether the issuer is engaged in a compliant Rule 506 offering or is merely advertising an unregistered, non-exempt public offering”); Fund Democracy, Consumer Action, Consumer Federation, AFL-CIO and AFR (May 24, 2012); Nevada Securities Division; Ohio Division of Securities; South Carolina Securities Commissioner; Virginia Division of Securities.

The Investor Advisory Committee recommended that the Commission require issuers to file either a new “Form GS” or a revised version of Form D as a precondition for relying on Rule 506(c).

See

letter from Investor Advisory Committee.

See, e.g.,

letters from NASAA; Missouri Commissioner of Securities; Nevada Securities Division.

See

letter from NASAA.

See also

letter from Missouri Commissioner of Securities (stating that “filing the Form D better equips the state securities regulators to ensure compliance with Federal and state securities laws”).

See

letter from Ohio Division of Securities (July 3, 2012).

See, e.g.,

letters from Missouri Commissioner of Securities; NASAA.

On the other hand, one commenter stated that the current 15-calendar day time frame to file a Form D following a sale provides a reasonable period for an issuer to prepare and submit the form while providing appropriate notice to regulators of a new Regulation D offering.

This commenter also argued that an issuer may not be certain of whether it will rely on Rule 506(b) or Rule 506(c) ahead of time.

See

letter from Managed Funds Association (“MFA”) (Mar. 22, 2013).

See

letter from MFA (Sept. 28, 2012).

We appreciate these recommendations and recognize the concerns as well. We believe that requiring issuers to file an Advance Form D would assist the Commission's efforts to evaluate the use of Rule 506(c). Although the Commission does not anticipate that its staff will review each Advance Form D filing as it is being made, the Advance Form D would be useful to the Commission and the Commission staff, as it would enhance the information available to the Commission to analyze offerings initiated under Rule 506(c), including issuers that initiated Rule 506(c) offerings but were unsuccessful in selling any securities through these offerings or chose alternative forms of raising capital. Currently, Form D is required to be filed only after the first sale of securities, which means that issuers that offered securities, but did not complete a sale, are not required to file a Form D, thereby limiting the Commission's ability to determine which issuers are facing challenges raising capital under Rule 506(c) and whether further steps by the Commission are needed to facilitate issuers' ability to raise capital under Rule 506(c). We also understand that the Advance Form D would be useful to state securities regulators and to investors in gathering timely information about Rule 506(c) offerings and the use of Rule 506(c).

We appreciate the sensitivity that some issuers may have regarding the disclosure of detailed information about a contemplated offering before the issuer has made a final decision to raise capital in a Rule 506(c) offering or before the first sale of securities has occurred. For this reason, we propose that the Advance Form D for Rule 506(c) offerings require only the information set forth above, with a requirement to file an amendment to the Form D that includes the remainder of the information required by Form D (including information regarding the terms of the offering that may not have been known at the time of the filing of the Advance Form D and therefore omitted from the Advance Form D, such as those called for by Item 9 and Item 12 of Form D) following the completion of a sale of securities in a Rule 506(c) offering on the timetable currently required under Rule 503. An issuer that wishes to provide all of the information required by Form D in the Advance Form D may do so, obviating the need to file an additional amendment unless otherwise required under Rule 503. An issuer could also file an Advance Form D without contemplating a specific offering, in order to have the flexibility to conduct an offering using general solicitation. We believe that this approach would allow the Commission to gather the information that it needs through Advance Form D filings

without unnecessarily burdening issuers or requiring issuers to disclose specific information about capital-raising plans before these plans have been determined.

Request for Comment

1. We are proposing that issuers file an Advance Form D no later than 15 calendar days before the commencement of general solicitation in a Rule 506(c) offering. Is such an advance filing useful and appropriate for an effective analysis of the Rule 506(c) market? Should the 15-calendar day period be increased or decreased? Why or why not? Should the filing deadline be tied to the commencement of general solicitation or the commencement of the offering, whether or not general solicitation is used?

2. What should the consequences be for failing to timely file an Advance Form D for a Rule 506(c) offering? Should the filing of the Advance Form D be a condition to Rule 506(c) so that failure to file results in the immediate loss of Rule 506(c) as an exemption from Securities Act registration for the offering at issue?

3. We are proposing to require the filing of an Advance Form D no later than 15 calendar days before the first use of general solicitation in a Rule 506(c) offering. We recognize, however, the possibility that a communication could be inadvertently disseminated beyond the intended audience without the issuer's knowledge or authorization. What should be the consequences for the issuer under such circumstances? Should there be a different filing deadline for the Advance Form D when there is an inadvertent general solicitation? For example, under Rule 100(a)(2) of Regulation FD,

the information in a non-intentional selective disclosure must be publicly disclosed “promptly” after the issuer knows (or is reckless in not knowing) that the information selectively disclosed was both material and non-public. Should a similar filing deadline be considered for an inadvertent general solicitation?

17 CFR 243.100(a)(2).

4. Should issuers be permitted to file an Advance Form D even if no specific offering is contemplated? Why or why not? How would this impact the usefulness of the Advance Form D data? We have identified certain information that we believe should be included in the Advance Form D. Is the information proposed for the Advance Form D the appropriate information to be provided at that point of the offering? Is there other information that issuers should provide in the Advance Form D? Would it be more difficult for issuers to provide certain information in an Advance Form D? If so, which information?

5. We are proposing that an issuer have the option of either filing an Advance Form D for Rule 506(c) offerings to provide certain information required by Form D, with the complete Form D information provided in a subsequent amendment to Form D filed no later than 15 calendar days after the first sale of securities, or providing all of the required Form D information in the Advance Form D, if known at that point in the offering. Should issuers be provided this option? Or should issuers be limited to providing certain specified information in the Advance Form D and required to file a subsequent amendment, after the first sale of securities, to provide the remainder of the information required by Form D? Would allowing issuers to have the option of providing all of the information required by Form D no later than 15 calendar days before they commence general solicitation (as compared to the current requirement of no later than 15 calendar days after the first sale of securities) affect the quality or usefulness of the Form D information for purposes of the Commission's efforts to analyze the Rule 506 market? For example, what is the likelihood that issuers will be in a position to provide all of the information required by Form D no later than 15 calendar days before the commencement of general solicitation?

6. What would be the benefits of requiring the Advance Form D for Rule 506(c) offerings? What would be the costs to issuers, market participants and other parties? Would the requirement to file an Advance Form D deter issuers from conducting Rule 506(c) offerings? Would the requirement to file an Advance Form D have differing or unique effects on certain types of issuers, such as Exchange Act reporting companies, non-reporting companies, foreign companies or private funds?

7. Would potential investors or other market participants review Advance Form D filings on a real-time basis? If so, how would they use the information in the filings? How would state securities regulators use the Advance Form D filings?

8. Are there situations in which an Advance Form D filing should not be required? If so, what are these situations?

9. Should an Advance Form D filing be required before or at the commencement of all offerings under Rule 506, or all offerings under Regulation D? If not, why?

10. Are any other rule amendments necessary if the Commission were to require the advance filing of Form D for Rule 506(c) offerings, as proposed?

C. Form D Closing Amendment for Rule 506 Offerings

We are also proposing to amend Rule 503 to require the filing of a final amendment to Form D within 30 calendar days after the termination of any offering conducted in reliance on Rule 506. Regulation D does not currently contain a requirement to file a final amendment to Form D. When Regulation D was originally adopted, issuers were required to amend the Form D filing every six months during the course of an ongoing offering and were required to make a final Form D filing within 30 days of the final sale of securities in the offering.

In 1986, we eliminated these requirements, anticipating that removing the final Form D filing requirement would have negligible consequences for investors and would result in some savings for both issuers and the Commission.

See

Release No. 33-6389.

We noted at the time that “[t]he information contained in the original notification has proved sufficient for the Commission's enforcement surveillance for compliance with the requirements of Regulation D.”

Form D and Regulation D,

Release No. 33-6663 (Oct. 2, 1986) [51 FR 36385, 36386 (Oct. 10, 1986)].

A number of commenters on the Rule 506(c) Proposing Release suggested that the Commission reinstate a closing Form D filing requirement to enhance the flow of information to the Commission, other regulators and investors, and to improve the ability of the Commission and others to track the use of Rule 506.

For example, one commenter stated that the “information provided in a closing amendment will be invaluable to the Commission and states in determining the extent to which issuers are making exempt public offerings.”

See

letters from NASAA; Ohio Division of Securities (July 3, 2012); Massachusetts Securities Division (July 2, 2012).

Letter from Ohio Division of Securities (July 3, 2012).

In order to gather more complete information about the size and characteristics of the Rule 506 offering market, we believe that it would be appropriate to propose requiring the filing of a closing amendment for offerings conducted in reliance on Rule 506. The proposed requirement would be in addition to the existing provisions of Rule 503 that require the filing of an amendment to Form D to correct a material mistake of fact or error in a previously filed Form D, to reflect a change in information provided in a

previously filed Form D except in certain instances, and on an annual basis for offerings that are ongoing. The filing of a separate closing amendment within 30 days after termination of the offering would not be required if all of the information that would be included in such an amendment has already been provided in a Form D filing and the issuer has checked the box for a closing filing in such filing.

As noted above, the Commission today has a greater ability to analyze the Regulation D offering market due to electronically-filed Forms D. In recent years, the Regulation D market has also grown considerably in size and significance.

These factors suggest that collecting information upon the termination of Rule 506 offerings would provide greater benefits than it did in 1986, when this requirement was eliminated.

See

Vladimir Ivanov and Scott Bauguess,

Capital Raising in the U.S.: An Analysis of Unregistered Offerings Using the Regulation D Exemption, 2009-2012

(July 2013),

available at

http://www.sec.gov/divisions/riskfin/whitepapers/dera-unregistered-offerings-reg-d.pdf

(“Ivanov/Bauguess Study”).

We propose to require the filing of a closing amendment to Form D for offerings under both Rule 506(b) and Rule 506(c). This is, in part, to enable more complete analysis and comparison of the use of long-standing Rule 506(b) and new Rule 506(c). In addition, because the overwhelming majority of Regulation D offerings are conducted in reliance on Rule 506, and these offerings account for substantially all of the capital reported as being raised under Regulation D, this approach should provide the Commission with substantially complete information about the Regulation D market without imposing additional compliance burdens on smaller offerings conducted in reliance on Rule 504 or Rule 505.

See id.

(in 2012, approximately 95% of Regulation D offerings claimed reliance on Rule 506; these offerings accounted for approximately 99% of capital reported as being raised under Regulation D for the year).

A closing Form D amendment, in conjunction with changes to Form D to require additional information on Rule 506 offerings, as discussed below, would provide the Commission with more complete information about Rule 506 offerings. For example, under current rules, information about the amount of capital raised in a Regulation D offering is limited to the “total amount sold” as of the date of the last Form D filing. Any amounts sold between the date of the last Form D filing and the date the offering is terminated are not currently required to be reported on Form D. As a result, the actual amount of capital raised at the time the offering is terminated cannot be conclusively determined.

For example, in 2010, issuers sought to raise $1.2 trillion in reported Regulation D offerings, but only $905 billion was reported as sold at the time of the initial filing.

See id.

Under our proposal, the closing amendment would be due no later than 30 calendar days after termination of the offering;

in contrast, Rule 503 formerly required a closing amendment to be made no later than 30 days “after the last sale of securities” in the offering.

Our proposed change addresses the potential concern that issuers may not know, at the time a sale is made, that such sale will be the last sale of securities in the offering. As proposed, the closing amendment must be filed when the issuer terminates the offering, whether after the final sale of securities in the offering or upon the issuer's determination to abandon the offering. Until the closing amendment is filed, the offering is deemed to be ongoing and the issuer would be subject to the current Rule 503 requirements to file amendments to Form D at least annually and otherwise as needed to reflect changes in previously filed information and to correct material mistakes and errors.

See

Proposed Rule 503(a)(4)(v).

See

Release No. 33-6389.

17 CFR 230.503(a)(3).

Request for Comment

11. Should we require a closing Form D amendment for Rule 506 offerings, as proposed? Why or why not? Should the closing amendment requirement apply to all Regulation D offerings, as was the case when Regulation D was originally adopted? Alternatively, should the closing amendment requirement apply only to offerings under new Rule 506(c)? Are there situations where a closing amendment to Form D should not be required? If so, what are these situations? For example, should no closing amendment be required if no sales of securities have been made?

12. As proposed, a closing Form D amendment would be required to be filed not later than 30 calendar days after the termination of a Rule 506 offering. Should we use a different time frame for the filing of the closing Form D amendment? If so, why and how long?

13. We have not proposed that the filing of a closing amendment be a condition of Rule 506. If the closing amendment were a condition of Rule 506 and an issuer failed to make the required filing, the issuer would lose the exemption for the entire offering at issue, including sales that were made while the issuer was in compliance with Rule 503. Should the filing of a closing Form D amendment be a condition to Rule 506(b) or Rule 506(c)?

14. As proposed, the closing amendment must be filed within 30 calendar days after the issuer terminates the offering. Should we provide a more detailed explanation of what constitutes the termination of an offering?

15. What would be the costs to issuers of filing a closing Form D amendment? Would a requirement to file a closing Form D amendment deter issuers from conducting Rule 506 offerings? Are there any costs or benefits that we have not discussed? If so, please specify.

16. What are the alternatives to requiring a closing amendment to Form D? For example, rather than requiring a closing amendment to Form D for all Rule 506 offerings, should the Commission only require an amendment when an issuer sells an amount of securities in excess of a certain percentage (for example, 10%) above the amount reported as sold in the last Form D or Form D amendment previously filed for the offering?

17. Rule 503(a)(3)(ii) currently requires issuers to file an amendment to a previously filed Form D to reflect changes in the information provided, subject to certain enumerated exceptions. Should the proposed closing amendment to Form D serve as a substitute for this type of Form D amendment? If the proposed closing amendment requirement is adopted, should Rule 503(a)(3)(ii) be eliminated or simplified, so that only certain changes (

e.g.,

the size of the offering) would trigger the obligation to amend Form D?

18. Alternatively, in light of the proposal to impose disqualification from reliance on Rule 506 for failures to comply with Rule 503, as discussed in Section II.E below, should the Commission further amend Rule 503(a)(3)(ii), or provide additional guidance, in regard to the circumstances in which an amendment to Form D is or is not required? For example, should the Commission amend Rule 503 to set forth additional situations in which an amendment to Form D would not be required to reflect a change in the information provided in a previously filed Form D? Conversely, should the Commission amend Rule 503 to require the filing of an amendment to Form D to reflect a change in information where such amendment is not currently required under Rule 503?

19. As discussed in Section II.D below, we are proposing amendments to Form D to require additional information, primarily with respect to Rule 506 offerings. After an issuer files

a Form D that includes this additional information, any change to this information (for example, a change in the number of purchasers who qualified as accredited investors or the methods used to verify accredited investor), would generally require the filing of an amendment to Form D under current Rule 503. Should the Commission amend Rule 503 so that an amendment to Form D would not be required when there is a change to some or any of this information? If so, which information and why?

20. Should issuers conducting ongoing offerings pursuant to Rule 506(c) be required to amend their Form D filings more frequently than on an annual basis to provide, to the extent that such information has not already been provided in a previous Form D filing, updated information regarding the dollar amount of any securities sold during such period pursuant to such offering, and any other securities of the same class (or any securities convertible into or exercisable or exchangeable for securities of the same class) sold during such period pursuant to an exemption from the registration requirements of the Securities Act? If yes, how frequently? For example, on a semi-annual basis or a quarterly basis?

21. Rule 503 requires an amendment to a previously filed Form D to correct a material mistake of fact or error “as soon as practicable after discovery of the mistake or error” and an amendment to a Form D to reflect a change in the information previously provided, except in certain situations, “as soon as practicable after the change.” Would such non-specific filing deadlines make it difficult for market participants to determine whether an issuer is disqualified from reliance on Rule 506 for failure to comply with Form D filing obligations, including the determination of when a cure period expires? Should the Commission consider amending Rule 503 to set forth more specific time frames for filing these amendments to Form D?

22. Should the Commission amend Rule 503 so that an annual amendment for an ongoing offering is required to be filed on a specified date, such as the one-year anniversary of the initial filing of a Form D or Advance Form D?

23. Should the Commission provide additional guidance on what constitutes a “material mistake of fact or error” that would necessitate the filing of a Form D amendment?

24. Rule 503(a)(4) currently requires an issuer that files an amendment to a previously filed Form D to provide current information in response to all requirements of the form regardless of why the amendment is filed. Should the Commission amend this requirement in Rule 503? If so, how? What are the costs and benefits associated with this requirement?

25. Should the presentation of information in a closing Form D amendment be different than in an initial Form D filing or in other Form D amendments? If so, how?

26. If an issuer filed an Advance Form D but subsequently terminated the offering without selling any securities, what information should the issuer be required to provide regarding the offering in its closing amendment?

27. Are any other rule amendments necessary if the Commission were to require the filing of a closing amendment, as proposed? If so, please specify.

D. Proposed Amendments to the Content Requirements of Form D

We are proposing revisions to Form D to add information requirements primarily for Rule 506 offerings, which would enable the Commission to gather additional information on the use of Rule 506 and thereby assist the Commission in evaluating the impact of Rule 506(c) on the existing Rule 506 market.

We believe that such additional information may also be useful to state securities regulators and to investors. In the Rule 506(c) Adopting Release, we adopted a revision to Form D to add a separate field or check box in Item 6 of Form D for issuers to indicate whether they are relying on Rule 506(b) or Rule 506(c).

We believe that requiring issuers to indicate in Form D that they are relying on Rule 506(c) will provide important information to assist in our efforts to evaluate the use of general solicitation in Rule 506(c) offerings and the size of this offering market as well as provide notice to state regulators and investors about issuers seeking to rely on Rule 506(c). The proposed revisions to Form D set forth below would require additional information on Rule 506 offerings, including information specific to Rule 506(c) offerings, such as the types of general solicitation used and the methods used to verify the accredited investor status of purchasers, which we also believe will be useful.

In April 2010, we proposed numerous changes to our rules related to offerings of asset-backed securities.

See Asset-Backed Securities,

Release No. 33-9117 (Apr. 7, 2010) [75 FR 23328 (May 3, 2010)]. That proposal included proposed revisions to Form D for offerings of structured finance products. Those proposed changes are still outstanding and are not being addressed in this release.

We also revised Item 6 of Form D by renaming the check box for “Rule 506,” which will be renamed “Rule 506(b),” and the check box for “Section 4(5),” which will be renamed “Section 4(a)(5)” to update the reference to former Section 4(5) of the Securities Act.

A number of commenters on the Rule 506(c) Proposing Release recommended that the Commission further expand the information requirements of Form D in regard to offerings under Rule 506(c).

Some commenters stated that they supported amending Form D to require more information about the issuer's plans to engage in general solicitation and how the issuer plans to verify that purchasers are accredited investors.

The Investor Advisory Committee recommended that the Commission adopt either a new form or a revised version of Form D that would elicit information on, among other things, the control persons of the issuer, counsel representing the issuer (if any), the issuer's accountants or auditors (if any), the amount sought to be raised, a brief description of the issuer's general solicitation plans and a brief description of the issuer's proposed business and use of proceeds.

Another commenter proposed a list of expanded information requirements for Form D, including disclosure of the issuer's Web site; if the issuer is selling interests in a pooled investment fund, disclosure of any adviser to the fund and whether the adviser is registered as an investment adviser or is otherwise exempt; a warning that finder's fees may trigger state and federal salesperson and broker-dealer registration requirements; and certification that the offering is not disqualified under the proposed bad actor rules.

One commenter stated that Form D should be revised to indicate whether an offering will be conducted by means of an Internet platform, and if so, the identity of the Internet platform.

A number of commenters stated that the Commission should consider requiring additional information in Form D about the issuers

that propose to engage in general solicitation activities under Rule 506.

See, e.g.,

letters from AARP; AFL-CIO and AFR; Consumer Federation; Investor Advisory Committee; NASAA (referring to the recommendations in its July 3, 2012 letter); Massachusetts Securities Division (referring to the recommendations in its July 2, 2012 letter).

See

letters from AARP; AFL-CIO and AFR (stating that “the Commission should . . . expand Form D to require additional information regarding both planned general solicitation and advertising activities and plans for verification of accredited investor status”); Consumer Federation (stating that “[i]f the Commission wishes to monitor [accredited investor verification] practices, and we believe it must, it can best achieve that by requesting information on Form D regarding the issuer's verification plans.”).

See

letter from Investor Advisory Committee.

See

letter from NASAA (referring to suggested revisions to Form D in its July 3, 2012 letter).

See

letter from Massachusetts Securities Division (July 2, 2012).

See, e.g.,

letters from Consumer Federation (stating that “[t]he Form D filing requirement could provide greater benefit to investors as well if its content was expanded to include basic information about the issuer”); Fund Democracy, Consumer Action, Consumer Federation, AFL-CIO and AFR (May 24, 2012) (stating that “[t]he Commission should also consider requiring disclosure of additional information in Form D about issuers that propose to engage in [general solicitation] activities”).

In contrast, one commenter urged the Commission not to require additional disclosures in Form D on the issuer's proposed business and use of proceeds. This commenter asserted that Form D currently requires appropriate information on the identity of the issuer and a factual description of the offerings.

See

letter from MFA (Mar. 22, 2013). This commenter also recommended that investment advisers be permitted to comply with any information requirement on Form D by either providing a reference to a publicly available Form ADV applicable to a private fund or to any publicly available information filed with a state regulator, depending on whether the investment adviser is registered with the Commission or with a state.

We believe that amending Form D to require additional information on Rule 506 offerings would enable the Commission to better analyze the impact on the existing Rule 506 market of eliminating the prohibition against general solicitation in Rule 506(c) offerings. This information would enhance the ability of the Commission to evaluate the use of Rule 506(c) by requiring information in Form D on the types of investors that participate in Rule 506(c) offerings, the issuer's plans to engage in general solicitation and methods used to satisfy the verification requirement in Rule 506(c). This information may also be useful to investors seeking to learn more about an offering being conducted pursuant to Rule 506(c) or about the types of issuers conducting these offerings. Finally, this information may be useful in facilitating enforcement efforts should any fraud or other securities law violations occur in these offerings. As discussed below, we propose to revise existing Item 2, Item 3, Item 4, Item 5, Item 7, Item 9, Item 14 and Item 16 of Form D and to add new Items 17 through 22 to Form D.

Item 2, which requires the issuer to provide principal place of business and telephone contact information, would be amended to require the identification of the issuer's publicly accessible (Internet) Web site address, if any. We are proposing this change because issuers are increasingly using their public Web sites as vehicles for the dissemination of information to investors, while many investors are turning to company Web sites as sources of information to aid in their investment decisions.

We believe that the identification of the issuer's public Web site address in Form D would be useful in gathering additional information on the issuers that conduct offerings under Regulation D. This proposed amendment would apply to offerings under Rule 504, Rule 505, Rule 506 and Section 4(a)(5).

See, e.g.,

Commission Guidance on the Use of Company Web sites,

Release No. 34-58288 (Aug. 1, 2008) [73 FR 45862 (Aug. 7, 2008)].

Item 3, which requires information about “related persons” (executive officers, directors, and persons performing similar functions for the issuer, as well as persons who have functioned as a promoter of the issuer within the prior five years), would be amended to require, when the issuer is conducting a Rule 506(c) offering, the name and address of any person who directly or indirectly controls the issuer in addition to the information currently required for “related persons.” We believe that more comprehensive information about persons who exercise control over the issuer would be helpful in obtaining a more complete picture of the issuers and other market participants that are involved in Rule 506(c) offerings.

In 2008, we deleted the requirement in Item 3 to identify as “related persons” owners of 10% or more of a class of the issuer's equity securities. In proposing this change to Item 3, we stated, among other things, that “we believe we can collect sufficient information to satisfy the regulatory objectives of Form D by requiring only the identification of executive officers, directors, and promoters.”

We also noted that “issuers that are not reporting companies have raised privacy concerns with respect to the requirement to identify 10% equity owners who are not executive officers, directors, or promoters because they do not already have to disclose this information, and the widespread availability of the information on our Web site may raise additional privacy concerns for these companies as they seek to raise capital through a private offering.”

While we continue to recognize these privacy concerns for issuers that conduct offerings under Rules 504, 505 and 506(b), we believe that this additional information on controlling persons who are not “related persons” could assist us in developing a more comprehensive understanding of the market participants in the Rule 506(c) market.

Release No. 33-8891.

Id.

Item 4, which requires the issuer to identify its industry group from a specified list, would be amended to require the issuer to fill in a “clarification” field if the issuer checks the “Other” box. Though Item 4 currently includes a number of different industry group classifications, we believe that requiring the issuer to further describe its industry group when it is not included in the pre-established list will enhance our understanding of the types of issuers that are seeking to rely on Regulation D, while imposing a minimal burden on the issuer. This information will assist us in having more complete information regarding the range of industries of the companies using Rule 506. Without this additional requirement, conclusions drawn regarding industry trends would exclude all those issuers who checked “Other.” This proposed amendment would apply to offerings under Rules 504, Rule 505, Rule 506 and Section 4(a)(5).

Item 5, which requires information on issuer size, would be amended to replace the “Decline to Disclose” option with a “Not Available to Public” option. We are proposing this change because we believe that an operating company that includes information about its revenues, or a hedge fund or other investment fund that includes information about its net asset value, in general solicitation materials for a Rule 506(c) offering, or that otherwise makes such information publicly available, should be required to provide revenue range or net asset value range information, as applicable, in Form D. If, however, the issuer does not include this information in general solicitation materials for a Rule 506(c) offering, does not otherwise make the information publicly available and otherwise uses reasonable efforts to maintain the confidentiality of such information, we believe that the issuer should have the option of not providing such information by choosing a “Not Available to Public” checkbox. This proposed amendment would also apply to Rule 504 and Rule 505 offerings, as well as offerings under Section 4(a)(5). Requiring issuers to include this information, to the extent they otherwise publicly disclose it, would be useful to the Commission's staff in evaluating the type or size of issuers using these exemptions.

Item 7, which requires the issuer to state whether a Form D is an initial filing or an amendment to a previously filed Form D, would be amended to add separate fields or check boxes for issuers

to indicate whether they are filing an Advance Form D or a closing Form D amendment. We are proposing this change in connection with our proposals to require the filing of an Advance Form D for Rule 506(c) offerings and the filing of a final amendment to Form D after the termination of any offering conducted in reliance on Rule 506. The addition of these check boxes would require issuers to identify clearly in a Form D whether the Form D is an Advance Form D or a closing Form D amendment and could provide information about the beginning and ending of offerings that could be useful in analyzing the market.

Item 9, which requires information on the types of securities offered, would be amended to require information, to the extent applicable, on the trading symbol and a generally available security identifier (“security identifier”) for the offered securities.

In general, this amendment would be relevant only to issuers that have securities of the same class as the offered securities traded on a national securities exchange, alternative trading system (“ATS”) or any other organized trading venue. We are proposing this change because we believe that requiring these types of issuers to provide the trading symbol and security identifier for the securities being offered, if any, would provide useful information on the nature of the securities being offered in Rule 506 offerings, as well as assist us in additional data gathering with respect to these offerings, without placing an undue burden on issuers.

This proposed amendment would also apply to offerings under Rule 504, Rule 505 and Section 4(a)(5).

We recognize that the CUSIP number is in common use domestically for this purpose, but anticipate that other suitable identifiers may become available in the future.

We note that, in 2007, we requested comment on whether it would be appropriate to require information on CUSIP numbers and trading symbols in Form D and that we did not require this information in Form D in connection with the Form D amendments we adopted in 2008.

See Electronic Filing and Simplification of Form D,

Release No. 33-8814 (June 29, 2007) [72 FR 37376 (July 9, 2007)] and Release No. 33-8891. In light of the adoption of Rule 506(c), we are proposing to require this information in Form D at this time because we believe that this information would enable us to engage in expanded analysis of the Form D data for Rule 506 offerings.

Item 14, which elicits information on whether securities have been or may be sold to non-accredited investors and the number of investors who have already invested in the offering, would be amended to add a table requiring, with respect to Rule 506 offerings, information on the number of accredited investors and non-accredited investors that have purchased in the offering, whether they are natural persons or legal entities and the amount raised from each category of investors. We believe that this additional information would be useful in determining, among other things, the composition of investors who invest in Rule 506 offerings, the respective amounts they have invested, and the types of offerings and issuers in which each category of investors invests.

Item 16, which requires information on the amount of the gross proceeds of the offering that the issuer used or proposes to use for payments to related persons, would be amended to require information on the percentage of the offering proceeds from a Rule 506 offering that was or will be used: (1) To repurchase or retire the issuer's existing securities; (2) to pay offering expenses; (3) to acquire assets, otherwise than in the ordinary course of business; (4) to finance acquisitions of other businesses; (5) for working capital; and (6) to discharge indebtedness. This additional information requirement would apply only to Rule 506 offerings by issuers that are not pooled investment funds. This information would enable the Commission and investors to better understand why issuers are seeking to raise capital using Rule 506.

The proposed new items of Form D—Items 17 through 22—would require issuers to provide the following additional information with respect to offerings conducted pursuant to Rule 506:

• The number and types of accredited investors that purchased securities in the offering (

e.g.,

natural persons who qualified as accredited investors on the basis of income or net worth);

• if a class of the issuer's securities is traded on a national securities exchange, ATS or any other organized trading venue, and/or is registered under the Exchange Act, the name of the exchange, ATS or trading venue and/or the Exchange Act file number and whether the securities being offered under Rule 506 are of the same class or are convertible into or exercisable or exchangeable for such class;

• if the issuer used a registered broker-dealer in connection with the offering, whether any general solicitation materials were filed with FINRA;

• in the case of a pooled investment fund advised by investment advisers registered with, or reporting as exempt reporting advisers

to, the Commission, the name and SEC file number for each investment adviser who functions directly or indirectly as a promoter

of the issuer;

An exempt reporting adviser is an investment adviser that qualifies for the exemption from registration under Section 203(l) of the Investment Advisers Act of 1940 (the “Advisers Act”) [15 U.S.C. 80b-3(l)] because it is an adviser solely to one or more venture capital funds, or under Rule 203(m)-1 under the Advisers Act [17 CFR 275.203(m)-1] because it is an adviser solely to private funds and has assets under management in the United States of less than $150 million.

See

Glossary of Terms to Form ADV.

The definition of promoter in Rule 405 [17 CFR 230.405] includes any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer or any person who, in connection with the founding and organizing of the business or enterprise of an issuer, directly or indirectly receives in consideration of services or property, or both services and property, 10 percent or more of any class of securities of the issuer or 10 percent or more of the proceeds from the sale of any class of such securities. However, a person who receives such securities or proceeds either solely as underwriting commissions or solely in consideration of property shall not be deemed a promoter within the meaning of this paragraph if such person does not otherwise take part in founding and organizing the enterprise.

• for Rule 506(c) offerings, the types of general solicitation used or to be used (

e.g.,

mass mailings, emails, public Web sites, social media, print media and broadcast media);

and

We expect that the categories of social media, print media and broadcast media would be limited to efforts by the issuer, or an agent of the issuer, to directly communicate to potential investors, such as paid advertisements.

• for Rule 506(c) offerings, the methods used or to be used to verify accredited investor status (

e.g.,

principles-based method using publicly available information, documentation provided by the purchaser or a third party, reliance on verification by a third party, or other sources of information; one of the methods in the non-exclusive list of verification methods in Rule 506(c)(2)(ii); or another method).

Some of this additional information would be specific to Rule 506(c) offerings and would enable the Commission to develop a greater understanding of the new Rule 506(c) market. Other additional information requirements would apply to all Rule 506 offerings. As stated above, the adoption of Rule 506(c) has increased the need for information on Rule 506 offerings in general, in order to assess not only the nature and characteristics of the new Rule 506(c) market but also the changing nature of the Rule 506 market as a whole. We believe that requiring this additional information for all Rule 506 offerings would be useful to the Commission, investors and state regulators.

Although the proposed revisions to Form D primarily require additional information with respect to Rule 506

offerings, we note that the proposed revisions to Item 2, Item 4, Item 5 and Item 9 would require additional information on offerings under Rule 504, Rule 505 and Securities Act Section 4(a)(5). For the same reasons stated above, we believe that if an issuer has made information on its size publicly available, or does not take reasonable efforts to maintain such information as confidential, the issuer should be required to provide this information under Item 5 of Form D for offerings under the other Regulation D exemptions or under Section 4(a)(5). Similarly, we believe that the proposed additional information in Item 2, Item 4 and Item 9 would provide useful information on the nature of the issuers and the offered securities in regard to offerings under Rule 504, Rule 505 or Section 4(a)(5), while any additional burden on issuers in providing this information would be minimal.

Request for Comment

28. Should we require issuers to provide additional information in Form D filings as we have proposed? Should this additional information be required only for Rule 506(c) offerings? If so, why and what should that information be? For example, should the Commission require issuers to provide information in Form D about counsel representing the issuer (if any) or the issuer's accountants or auditors (if any), as some have suggested? If the additional information were required only for Rule 506(c) offerings, what impact would this requirement have on the use of Rule 506(c) as compared to the use of Rule 506(b)? Are there particular items of information that do not provide sufficiently useful information or would be especially burdensome for issuers to provide? Should some of the additional information that we propose to require in Form D not be required for offerings under Rule 506(b)? If so, which requirements and why? Would the additional information that we propose to request in Form D provide useful information to state securities regulators in responding to inquiries from constituents about offerings conducted under Rule 506 and in enforcement efforts?

29. What are the costs or burdens on issuers in providing the additional information in Form D, as proposed? Are there ways to reduce any costs or burdens on issuers? Would the requirement to provide this additional information result in issuers choosing not to rely on Rule 506 to raise capital?

30. Should some of the additional information that we propose to require in Form D be required only in the closing amendment to Form D?

31. Should the Commission define what it means for an issuer to make information publicly available for purposes of Item 5, or to take reasonable efforts to maintain such information as confidential? For instance, would confidential information about an issuer that is publicly disseminated by a third party in violation of a duty to keep such information confidential be deemed to be publicly available?

32. Should the Commission amend Item 5 to require an issuer that conducts a Rule 506(c) offering to provide information on its revenue range or aggregate net asset value range, as applicable, regardless of whether the issuer has otherwise made this information publicly available (for example, by including this information in general solicitation materials)?

33. Should the Commission amend Form D to include a check box for issuers to indicate whether they are filing an Advance Form D or a closing amendment to Form D, as proposed? Should there be other changes to Form D to indicate that an issuer is filing an Advance Form D or a closing amendment?

34. Should the Commission amend Form D to provide a checkbox to indicate that the issuer is required to provide disclosure of prior “bad actor” events under Rule 506(b)(2)(iii)?

35. Should pooled investment funds be required to provide additional or different information in connection with Rule 506(c) offerings? Should the Commission require a pooled investment fund to disclose its investment adviser's CRD

number rather than (or in addition to) its adviser's SEC registration number? Item 3 of Form D asks for the identity of the issuer's promoter. Should information on a pooled investment fund's investment adviser be added to Item 3, rather than the proposed Item 20? Does the proposed amendment to Item 3, requiring disclosure of any controlling persons, raise any particular concerns for pooled investment funds?

A Central Registration Depository (“CRD”) number is a system identification number assigned to each investment adviser that registers or files reports with the SEC or a state through the Investment Adviser Registration Depository Web site. The Web site facilitates registration of investment advisers and reporting by exempt reporting advisers. CRD numbers also are assigned to broker-dealers.

36. Should the Commission require issuers to provide more or less specific information in Form D about the methods of general solicitation used in Rule 506(c) offerings? Do certain methods of general solicitation raise particular concerns from an investor protection standpoint? For example, are some methods of general solicitation more likely to result in an increased risk of fraud or manipulation or more likely to reach non-accredited investors? Should we require additional information in Form D with respect to these methods of general solicitation? If so, what information should we require issuers to provide regarding these solicitation methods?

37. Should the Commission require issuers to provide more or less specific information on Form D about the methods used to verify accredited investor status? If so, what information should the Commission require issuers to provide regarding verification practices? For example, should we require issuers to identify any registered broker-dealers, registered investment advisers, attorneys, certified public accountants or other third parties that assisted the issuer with the verification process?

E. Proposed Amendment to Rule 507

We are proposing an amendment to Rule 507 of Regulation D that is intended to improve Form D filing compliance in connection with Rule 506 offerings. Rule 507 currently only disqualifies an issuer from using Regulation D if the issuer, or a predecessor or affiliate, has been enjoined by a court for violating the filing requirements in Rule 503. We propose to amend Rule 507 so that, in addition to the existing disqualification from Rules 504, 505 and 506 of Regulation D that arises from a court injunction, an issuer would be disqualified automatically from using Rule 506 in any new offering for one year if the issuer, or any predecessor or affiliate of the issuer, did not comply, within the past five years, with Form D filing requirements in a Rule 506 offering; provided that such one-year period would commence following the filing of all required Form D filings or, if the offering has been terminated, following the filing of a closing amendment.

When Regulation D was originally adopted in 1982, compliance with Form D filing obligations was a condition of Rules 504, 505 and 506. In 1989, the Commission amended Regulation D to eliminate the filing of Form D as a condition to those rules.

The Commission did so with the expectation that the concurrent adoption of Rule 507 would provide an incentive for issuers

to file Form D.

In fact, the disqualification provision of Rule 507 has rarely been invoked since its adoption,

and we understand that some issuers are not filing a Form D for Rule 506 offerings.

See

Release No. 33-6825.

See id.

In order to invoke the Rule 507 disqualification provision, the Commission must first bring a civil injunctive action in a federal district court and receive a court order enjoining the defendant from future violations of Rule 503. The Commission has brought few such enforcement actions.

See SEC v. Printz Capital Management,

No. 10-7379 (E.D. Pa. Mar. 15, 2011) (order enjoining defendants from, among other things, failing to file a Form D for a Regulation D offering).

Many commenters have asserted that non-compliance with Form D filing obligations is widespread.

See, e.g.,

letters from Investor Advisory Committee (stating that “[i]t is generally acknowledged that a significant number of issuers do not currently file Form D . . .”); AARP (stating that “[s]imply adding a checkbox to a form that too often goes unfiled and then only after the fact is inadequate to the task at hand.”); AFL-CIO and AFR (stating that “many issuers today flout the Form D filing requirement for such offerings, further limiting the Commission's ability to provide effective oversight”).

See also

Securities and Exchange Commission, Office of Inspector General,

Regulation D Exemption Process

(Mar. 31, 2009) (“OIG Report”),

available at

http://www.sec-oig.gov/Reports/AuditsInspections/2009/459.pdf

(stating that while the Commission staff “strongly encourage companies to comply with Rule 503, they are aware of instances in which issuers have failed to comply with Rule 503 . . .”). Based on its analysis of the filings required by FINRA Rules 5122 and 5123 during the period of December 3, 2012 to February 5, 2013, DERA estimates that as much as 9% of the offerings represented in the FINRA filings for Regulation D or other private offerings that used a registered broker-dealer did not have a corresponding Form D filing.

See

Section IX.B.4.a of this release.

A number of commenters on the Rule 506(c) Proposing Release, including the Investor Advisory Committee, urged us to require the filing of Form D as a condition to Rule 506(c), so that the failure to file a Form D would result in the loss of the exemption for the offering.

One commenter stated that it generally supported conditioning the availability of Regulation D on the filing of Form D, provided that an issuer that filed a Form D in good faith but with inadvertent technical errors would have an adequate opportunity to cure its mistake while relying on Regulation D.

See

letters from Investor Advisory Committee (stating that “[t]he filing of Form D should be made a condition for relying on the Regulation D exemption.”); Massachusetts Securities Division (referring to the recommendations in its July 2, 2012 letter); NASAA; Consumer Federation; AARP.

See

letter from MFA (Mar. 22, 2013).

Other commenters argued against conditioning Rule 506(c) on the filing of a Form D.

One commenter stated that such a condition would have potential negative effects on the private placement market.

Another commenter argued that if Rule 506(c) were conditioned on the filing of a Form D, the consequences of losing the exemption would be significantly disproportionate to the harm of failing to file the Form D, including the loss of “covered security” status under Section 18 of the Securities Act.

One commenter maintained that conditioning the availability of the exemption on the filing of a Form D would be inappropriate in light of the purpose of Form D to enable the Commission to better understand and analyze how Regulation D is being used.

See

letters from Committee on Securities Regulation of the New York City Bar Association; Federal Regulation of Securities Committee, Business Law Section of the American Bar Association (“ABA Fed. Reg. Comm.”); Securities Regulation Committee, Business Law Section of the New York State Bar Association (“SRC of NYSBA”); Linklaters LLP.

See

letter from Linklaters LLP.

See

letter from SRC of NYSBA.

See

letter from ABA Fed. Reg. Comm.

We believe it is appropriate to strengthen the incentives for issuers to comply with Rule 503, which would make it more likely that the Commission will obtain Form D data that provides a more complete perspective on Rule 506(c) offerings and the Rule 506 marketplace as a whole, thereby facilitating efforts by both the Commission and state securities regulators to analyze developments in that marketplace. Further, we believe that an effective incentive for issuers to comply with the Form D filing requirement is one that results in meaningful consequences for failing to file the form, without requiring action on the part of the Commission or the courts. We are nonetheless mindful that the incentive should be commensurate to the obligation so that the failure to comply does not give rise to disproportionate consequences.

Although we considered requiring compliance with Rule 503 as a condition of Rule 506, or at least Rule 506(c), we have determined not to propose making Form D filing a condition of Rule 506. We are reluctant to impose a sanction on an issuer as severe as the loss of a Securities Act exemption, which would give purchasers rescission rights and result in loss of “blue sky” pre-emption,

for failure to file a form that is intended primarily to provide information to the Commission. If compliance with Rule 503 were reinstated as a condition to Rule 506, then non-compliance at any stage of an offering could result in the entire offering being held to violate Section 5 of the Securities Act and applicable state securities laws. For example, in the case of a continuous or long-lived offering, this could mean that an issuer's failure to file an annual amendment or closing amendment would trigger loss of the Securities Act exemption, which would give purchasers rescission rights and result in loss of blue sky pre-emption for offers and sales that occurred, in certain cases, years before the failure to file a Form D triggered the loss of an exemption. We believe that the consequences of a Section 5 violation would be disproportionate in those circumstances. More generally, we are concerned about possible disruptions in the Rule 506 market if market participants could not be certain of the availability of Rule 506 for an offering until after the offering was terminated and all filings required under Rule 503 were made. We are, however, soliciting comment on whether Rule 506 should be conditioned on Form D filing compliance.

Section 18 of the Securities Act exempts “covered securities” from state review and registration requirements. Under Section 18(b)(4)(D), “covered securities” is defined to include securities offered or sold in transactions pursuant to Commission rules issued under Section 4(a)(2). Thus, if an offering fails to comply with Rule 506, the securities offered and sold in the offering would not be “covered securities,” and the issuer would violate state law unless it had complied with applicable review and registration requirements or could avail itself of a state law exemption.

Instead of making the Form D filing a condition to Rule 506, we propose to amend Rule 507 by adding new paragraph (b), under which issuers would be disqualified from using Rule 506 for future offerings if they, or their predecessors or affiliates, had failed to comply within the past five years with the Form D filing requirements of Rule 503 in connection with an offering under Rule 506.

Under proposed Rule 507(b), disqualification would end one year after the required Form D filings are made or, if the offering has been terminated, one year after a closing amendment is made.

We believe that a one-year disqualification period, which would not commence until the required filings are made, should create a significant incentive to file Form D on a timely basis without unduly burdening market participants.

Existing Rule 507(b) would be redesignated as Rule 507(c).

See

Proposed Rule 507(b).

The proposed disqualification would not affect offerings of an issuer or an affiliate that are ongoing at the time of the filing non-compliance, including the offering for which the issuer failed to make a required filing, and these offerings could continue to rely on Rule

506 as long as the conditions of Rule 506 continue to be met. Disqualification would apply only to future offerings. We further propose that disqualification from using Rule 506 for future offerings would be subject to a cure period and the waiver provisions in Rule 507, as discussed below. As with the proposed closing amendment requirement and for the same reasons, we propose to apply new Rule 507(b) to all offerings under Rule 506.

Under the proposal, disqualification would arise only with respect to non-compliance with Rule 503 that occurred after the effectiveness of new Rule 507(b). We considered whether to apply the disqualification for failure to comply with the filing requirement before the effective date of the rule. We are not proposing such a requirement. We are proposing to include a five-year look-back period, so that non-compliance that occurred more than five years before the commencement of a Rule 506 offering would not trigger disqualification, even if the required Form D filings had not been made. We believe that this limitation would avoid potential burdens on market participants that might otherwise be created, such as the possibility of indefinite disqualification in situations where it is not possible for the required Form D filings for a previous offering to be made, without undermining the incentive for issuers in Rule 506 offerings to comply with their Form D filing obligations. A look-back period would also reduce the cost of confirming whether an issuer is disqualified from reliance on Rule 506, and could reduce the number of delinquent filings required to be made before the one-year disqualification period starts to run. The look-back period would not extend past the effective date of the rule, so issuers seeking to conduct a Rule 506 offering would assess compliance with Rule 503 by looking back only to the effective date of the disqualification rule.

Disqualification would arise based on non-compliance with Rule 503 by the issuer and its predecessors and affiliates, as provided in current Rule 507. We believe that proposed Rule 507(b) should be structured in this manner so that an issuer cannot avoid disqualification by simply conducting future offerings through a successor or other affiliated entity. We are soliciting comment on whether this approach is appropriate for all issuers.

Because this approach creates potentially significant consequences for an issuer's future capital-raising activities based on its failure to file or amend the form for a current or prior offering, we anticipate that proposed Rule 507(b), if adopted, could significantly reduce non-compliance with Form D filing requirements for Rule 506 offerings. We further believe that disqualification from using Rule 506 for a one-year period after all required Form D filings have been made is a sufficient period of time to incentivize compliance with Rule 503 while at the same time not serving as a disproportionate penalty for the failure to file or amend Form D.

When we amended Regulation D to remove Rule 503 compliance as a condition to Rules 504, 505 and 506, we noted that the Form D filing condition was subject to frequent criticism.

As discussed above, however, the usefulness of Form D filings has increased significantly since we required them to be filed in electronic form on EDGAR. In addition, the proposed amendment differs from the prior Rule 503 condition in that the amendment would impose disqualification only prospectively and would not apply to any offerings that are ongoing at the time of filing non-compliance. Disqualification would also be limited to one year after all Form D filing requirements have been satisfied, and the look-back period for Rule 506 offerings that were not in compliance with Rule 503 would be limited to five years and would not extend to non-compliance that occurred prior to the effective date of proposed Rule 507(b).

See

Release No. 33-6759.

The proposed amendment also includes mitigating provisions that were not applicable when compliance with Rule 503 was a condition to Regulation D. As discussed below, under the proposal, there would be a cure period for late filings, as well as recourse to the waiver provision of Rule 507, under which disqualification may be waived by the Commission for good cause shown. We believe that these provisions should help address concerns regarding the disproportionality and consequences of inadvertent failures to file or amend Form D.

Cure period.

We propose that, solely for purposes of determining whether disqualification under Rule 507 would arise, issuers would generally be regarded as having complied with the Rule 503 filing deadlines for a Form D or Form D amendment if they filed the relevant filing within a cure period after the filing is due under Rule 503.

A number of commenters expressed concern about the possibility that an issuer could be unfairly penalized for inadvertent technical errors relating to its Form D filing and recommended that the Commission provide an opportunity for the issuer to correct such errors.

We recognize this concern and therefore propose a cure period of 30 calendar days, which would be available in the case of an issuer's failure to file a Form D or Form D amendment on a timely basis. This provision is intended to allow an additional period of time in which issuers could detect a failure to file or amend Form D (for example, due to clerical error or technological problem) and make the requisite filing. We believe that 30 calendar days is a sufficient period of time for issuers to address an inadvertent error and that a longer period may have the effect of encouraging a greater degree of non-compliance with the deadlines for Form D filings. By including a cure period of 30 calendar days, we would provide issuers with certainty that the benefits of Rule 506 would remain available so long as a failure to file Form D was corrected during the specified time frame.

See, e.g.,

letters from MFA (Mar. 22, 2013) (stating that “[w]e generally support the filing of Form D being made a condition to relying on Regulation D, provided that an issuer that filed the Form in good faith but with inadvertent technical errors in the Form would have sufficient opportunity to cure its mistake while maintaining its reliance on Regulation D. * * * Upon notice of such an error, a fund manager or issuer should be provided a reasonable period of time to file a corrected Form D.”); Investor Advisory Committee (stating that “[i]n implementing this recommendation [to condition a Regulation D exemption on the filing of Form D], which is intended to encourage broad compliance with the filing requirement, the Committee encourages the Commission also to consider incorporating measures to ensure that it does not impose undue penalties for inadvertent violations by small, unsophisticated issuers.”).

The proposed cure period would be available only for an issuer's first failure to file timely a Form D or Form D amendment in connection with a particular offering. We believe that permitting issuers to repeatedly rely on the 30-day cure period for Form D filings for the same offering would undermine incentives to comply with the filing deadlines specified in Rule 503.

Waiver.

Rule 507 currently provides that disqualification under the rule may be waived by the Commission if the Commission determines “upon a showing of good cause, that it is not necessary under the circumstances that exemption be denied.”

This formulation is substantially the same as the waiver provision included in new Rule 506(d), the bad actor disqualification provisions for Rule 506 adopted today.

We believe that the

Commission should have the ability to waive disqualification in situations where an issuer or its predecessors or affiliates have failed to comply with Rule 503, provided that the issuer can demonstrate good cause that it is not necessary to deny the exemption. For example, a waiver may be appropriate if an issuer can show that the persons who controlled the issuer at the time of the failure to file no longer exercise influence over it, or if curing the failure is impossible (for example, because a defaulting affiliate no longer exists and therefore cannot make the missing Form D filings or amendments) and good cause can otherwise be shown that it is not necessary in the circumstances to deny the exemption.

Rule 507(b).

See

Rule 506(d)(2)(ii).

Under current rules, the Commission has delegated authority to the Director of the Division of Corporation Finance to grant disqualification waivers under Rule 507.

We anticipate that, if the proposal were adopted, we would similarly delegate authority for waivers of disqualification under new Rule 507(b).

See

Rule 30-1(c) of the Commission's Rules of Organization and Program Management [17 CFR 200.30-1(c)].

Request for Comment

38. Is disqualifying issuers and their affiliates and successors from reliance on Rule 506 for future offerings an appropriate sanction to incentivize compliance with Form D filing requirements? Why or why not? How would these amendments affect the Rule 506 market?

39. Proposed Rule 507(b) would not impose any consequences with respect to the offering for which an issuer failed to file or amend a Form D as required, or for other offerings that were ongoing at the time of the failure to file. Would disqualification from reliance on Rule 506 for future offerings be a sufficient incentive for issuers to comply with Form D filing requirements? Why or why not? Should an issuer engaged in an ongoing offering be permitted to continue relying on Rule 506 if it or an affiliate failed to comply with the filing requirements of Rule 503?

40. Should the result be the same for failure to comply with all parts of Rule 503? For example, should the result be the same when the issuer does not file an amendment to a Form D as it would when the issuer does not make an Advance Form D filing or an initial Form D filing? Should there be a distinction between annual amendments to Form D and amendments required to correct a material mistake of fact or error or to reflect a change in information?

41. As proposed, outside of the cure period, disqualification under Rule 507(b) would not be lifted until one year after all required Form D filings are made or, in the case of offerings that had been terminated, a closing amendment is made. Is this an appropriate requirement? If not, what are the alternatives?

42. What would be an appropriate disqualification period as an alternative to the proposal, such that issuers would be sufficiently incentivized to comply with Form D filing obligations without unduly burdening capital formation under Regulation D? Is the proposed one-year disqualification period appropriate, or should the disqualification period be shorter or longer? Why?

43. Under the proposal, disqualification would not be triggered by any failure to comply with Rule 503 that occurred more than five years before the offering. Is it appropriate to include a look-back period in this way? Why or why not? If so, is the five-year period proposed appropriate, or should it be shorter or longer? If so, why?

44. The look-back period would not extend to the period prior to the effective date of proposed Rule 507(b). Is it appropriate not to consider these filings before the effective date of the rule? Why or why not?

45. Are there particular situations where disqualification under Rule 507(b) should not be triggered for failure to file a required Form D or Form D amendment?

46. As proposed, issuers would be disqualified from using Rule 506 based on noncompliance with Rule 503 within the past five years in connection with a Rule 506 offering by their predecessors and affiliates. Is it appropriate to disqualify issuers for non-compliance by their predecessors and affiliates? If not, would it be too easy to avoid disqualification by using an affiliate or successor entity to conduct a Rule 506 offering? How should the Commission address this concern?

47. Would portfolio companies that are affiliates of a private fund be unduly affected by any disqualification triggered by noncompliance of the private fund, its predecessors and its affiliates with Rule 503? If so, should the Commission treat portfolio companies of private funds differently for disqualification purposes? If yes, how?

48. Is it appropriate to prohibit a private fund or its successors or affiliates from engaging in a subsequent offering under Rule 506 if the private fund failed to comply with Rule 503? For instance, if a private fund issuer fails to file its Form D or the appropriate amendments in accordance with the filing requirements of Rule 503, is it a disproportionate response to prohibit any private funds affiliated with the private fund from relying on Rule 506? Should proposed Rule 507(b) contain an express provision that excludes affiliated private funds from such consequences?

49. Is it appropriate to include a cure period for noncompliance with Rule 503? Would the benefits of including a cure period justify the potential detriments, such as undercutting issuers' incentive to comply with the existing Rule 503 filing deadlines? If a cure period is included, should it apply to all required Form D filings, or only some? For example, should there be a cure period for the closing amendment only? Or for amendments, but not the initial filing? Should the Advance Form D have a cure period? Instead of providing a cure period, should we move back the deadlines for Form D filings? Are there other alternatives to a cure period or further provisions that the Commission should consider?

50. The cure period is not available if the issuer has previously failed to comply with a Form D filing deadline in connection with the same offering. Is this condition appropriate? Why or why not? Should the cure period be available if the issuer has failed to timely file a Form D or Form D amendment more than once in connection with the same offering? If so, how many times in a single offering or otherwise how frequently should an issuer be able to invoke the cure period? Should the cure period become available again after a certain amount of time, such as five years, has elapsed since the issuer previously failed to comply with a Form D filing deadline?

100

Should we impose additional requirements or conditions on an issuer's ability to take advantage of the cure period? For example, should the cure period be unavailable if the failure to file Form D was intentional? Would additional guidance be necessary to explain what constitutes intentional or repeated failures to file? Should the issuer have to indicate that the filing is late and state the reason for its being late? Should there be more specific requirements to rely on the cure, such as the issuer suffered an intervening event (for example, a clerical or technological problem)? Alternatively,

should the cure period be automatically available to all issuers without other conditions or qualifications? Are there other events that should make the cure period unavailable to an issuer?

100

For example, should an issuer, such as a private fund, that is conducting a continuous offering be permitted to have a cure period if five or more years have elapsed since the initial failure to timely file a Form D?

51. Should a cure period be available for repeated or intentional failures to comply with Rule 503? If yes, should there be a look-back period for determining whether failures to comply with Rule 503 are repeated?

52. If a cure period is included, is the 30-day period we propose appropriate? Should the cure period be shorter or longer? Should it be the same for all types of filings, or should the Commission vary the cure period for different filings? For example, should there be a shorter or longer cure period provided for the Advance Form D filing, the closing amendment or other amendments, compared to other Form D filings?

53. As an alternative or in addition to a cure period, should we amend Rule 507 so that disqualification can be triggered by a Commission cease-and-desist order as well as court injunction? Should we add a provision similar to existing Rule 508,

101

under which insignificant deviations from the requirements of Rule 503 would not result in disqualification under proposed Rule 507(b) if the issuer could demonstrate good faith and a reasonable attempt to comply with filing requirements?

101

17 CFR 230.508. Under Rule 508, the failure to comply with a term, condition or requirement of Rule 504, Rule 505 or Rule 506 will not result in the loss of the exemption from the registration requirements of Section 5 for any offer or sale of securities to a particular individual or entity, if the person relying on the exemption shows the failure to comply did not pertain to a term, condition or requirement directly intended to protect that particular individual or entity; the failure to comply was insignificant with respect to the offering as a whole; and a good faith and reasonable attempt was made to comply with all applicable terms, conditions and requirements of Rule 504, Rule 505 or Rule 506.

Id.

54. Should we amend Rule 507 to disqualify an issuer from relying on Rule 506 for future offerings if such issuer, or any predecessor or affiliate of the issuer, has been subject to a Commission order requiring such person to cease-and-desist from committing or causing any violation or future violation of proposed Rule 509 or proposed Rule 510T, both of which are discussed below?

55. Should the Commission amend Form D to provide a checkbox to indicate that the issuer is relying on the proposed cure period?

56. Is it appropriate to amend Rule 507's existing waiver provision so it applies to proposed Rule 507(b)? Should we provide guidance regarding factors that the Commission may take into account when considering whether to grant a waiver?

57. Are there other methods for improving compliance with Rule 503 that the Commission should consider? For example, should there be other consequences for non-compliance with Form D filing requirements? Would the combination of proposed Rule 507(b) and increased enforcement of existing Rule 503, which could result in monetary penalties or imposition of disqualification under existing Rule 507, provide a sufficient incentive to comply with these requirements?

58. As an alternative to proposed Rule 507(b), should the availability of Rule 506 be conditioned on compliance with Rule 503, as was the case when Regulation D was originally adopted? If so, should compliance with Rule 503 be a condition to both Rule 506(b) and Rule 506(c), as well as to Rules 504 and 505? Alternatively, should compliance with Rule 503 be a condition to reliance on new Rule 506(c) only? Should the availability of Rule 506 be conditioned on compliance with all of the filing requirements of Rule 503 or should it be conditioned on compliance with only some of the filing requirements of Rule 503 (and if so which filing requirements)? If compliance with Rule 503 is a condition to Rule 506, should there be a mechanism for issuers to request a waiver from Form D filing requirements? If so, how should that mechanism work? Are any other rule amendments necessary if the Commission were to require compliance with Form D filing requirements as a condition to reliance on Rule 506? If so, what amendments?

III. Proposed Rule and Rule Amendments Relating to General Solicitation Materials

We are proposing new requirements and amendments to address investor protection concerns arising from the ability of issuers, including private funds, to generally solicit for their Rule 506(c) offerings. First, we propose to add new Rule 509 to require all issuers to include: (i) Legends in any written general solicitation materials used in a Rule 506(c) offering; and (ii) additional disclosures for private funds if such materials include performance data. Second, we propose amendments to Rule 156 under the Securities Act that would extend the guidance contained in the rule to the sales literature of private funds. Each of these proposals is discussed in greater detail below. Finally, we request comment on manner and content restrictions for general solicitation materials of private funds, a subject on which we received a number of comments and suggestions.

A. Mandated Legends and Other Disclosures for Written General Solicitation Materials

In light of issuers' ability to generally solicit their Rule 506(c) offerings, we are proposing requirements for issuers to better inform potential investors as to whether they are qualified to participate in these offerings, the type of offerings being conducted and certain potential risks associated with such offerings. A number of commenters on the Rule 506(c) Proposing Release recommended that the Commission adopt content restrictions or other requirements with respect to general solicitation materials used by issuers, such as private funds, in Rule 506(c) offerings.

102

For example, the Investor Advisory Committee recommended that the Commission “take steps to ensure that any performance claims in materials used as part of general solicitations are based on appropriate performance reporting standards.”

103

Some commenters also recommended that the Commission require the inclusion of legends, warning labels or mandatory risk disclosures in general solicitation materials used in these offerings.

104

102

See, e.g.,

letters from AFL-CIO and AFR; Investor Advisory Committee; Sen. Levin; CFA Institute; Consumer Federation; Hawaii Commissioner of Securities; ICI; IDC; L. Neumann; Montana Commissioner of Securities; NASAA; Nevada Securities Division; Ohio Division of Securities; P. Turney; Sens. Reed, Levin, Durbin, Harkin, Lautenberg, Franken and Akaka; South Carolina Securities Commissioner; Virginia Division of Securities.

103

Letter from Investor Advisory Committee.

104

See

letters from P. Rutledge (recommending a legend stating that all sales in the offering will be to accredited investors); CFA Institute (recommending a prominent “surgeon's general”-type warning label and mandated disclosures that address the potential risks of Rule 506(c) offerings); BetterInvesting (recommending mandatory risk disclosure language that would appear at the beginning of all general solicitation materials).

While we believe that further consideration following experience with offerings under new Rule 506(c) is needed with respect to potential content restrictions for issuers' general solicitation materials, we are proposing new Rule 509, which would require all issuers to include the following prominent legends in all written general solicitation materials:

• The securities may be sold only to accredited investors, which for natural persons, are investors who meet certain minimum annual income or net worth thresholds;

105

This part of the legend may be modified in accordance with any higher standards that may be applicable to the issuer, such as qualified clients (as

defined by Rule 205-3 under the Advisers Act [17 CFR 275.205-3]) or qualified purchasers (as defined by Section 2(a)(51) of the Investment Company Act [15 U.S.C. 80a-2(a)(51)]).

• The securities are being offered in reliance on an exemption from the registration requirements of the Securities Act and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act;

• The Commission has not passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials;

• The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell their securities; and

• Investing in securities involves risk, and investors should be able to bear the loss of their investment.

We believe that such legends would better inform potential investors as to whether they are qualified to participate in Rule 506(c) offerings and certain potential risks that may be associated with such offerings. Written general solicitation materials may combine two or more of these required statements in a single sentence, provided that each of the required disclosures is clear and easy to understand. Similarly, written general solicitation materials may use any wording that clearly communicates the information required to be disclosed. Compliance with the proposed legend requirements, however, does not relieve an issuer from the requirement to take reasonable steps to verify that purchasers in a Rule 506(c) offering are accredited investors.

We also recognize the specific concerns that commenters have expressed regarding private funds' ability to advertise to the general public, especially in light of the fact that private funds raise a significant amount of capital in Rule 506 offerings.

106

Under Rule 506(c), private funds, such as hedge funds, venture capital funds and private equity funds, will be permitted to engage in general solicitation in compliance with the rule without losing the exclusions from the definition of “investment company” under Section 3(c)(1)

107

or Section 3(c)(7)

108

of the Investment Company Act.

109

Several commenters on the Rule 506(c) Proposing Release recommended that we impose additional conditions on private funds that rely on Rule 506(c). In particular, these commenters believed that general solicitation materials of private funds should be subject to some form of content requirements and/or restrictions.

110

For example, some believed that private funds engaging in general solicitation should be held to performance and advertising standards that are analogous to mutual fund standards.

111

One of these commenters suggested that the Commission develop a rule tailored to the manner in which private funds calculate and present performance, rather than extending mutual fund performance rules to private funds.

112

Some commenters made other suggestions, such as requiring each private fund relying on Rule 506(c) to disclose that the private fund is not registered with the Commission and should not be confused with a registered fund, such as a mutual fund.

113

106

See

Ivanov/Bauguess Study.

107

15 U.S.C. 80a-3(c)(1) (excluding from the definition of “investment company” any “issuer whose outstanding securities (other than short-term paper) are beneficially owned by not more than one hundred persons and which is not making and does not presently propose to make a public offering of its securities”).

108

15 U.S.C. 80a-3(c)(7) (excluding from the definition of “investment company” any “issuer, the outstanding securities of which are owned exclusively by persons who, at the time of acquisition of such securities, are qualified purchasers, and which is not making and does not at that time propose to make a public offering of such securities”). The term “qualified purchaser” is defined in Section 2(a)(51) of the Investment Company Act [15 U.S.C. 80a-2(a)(51)] and the rules thereunder.

109

See

Rule 506(c) Adopting Release, at Section II.E (discussing the effect of Section 201(b) of the JOBS Act, which provides that “[o]ffers and sales exempt under [amended Rule 506] shall not be deemed public offerings under the Federal securities laws as a result of general advertising or general solicitation”).

110

See, e.g.,

letters from AFL-CIO and AFR; Consumer Federation; Rep. Waters (supporting the establishment of standards for reporting performance and fees by private funds); ICI (recommending the imposition of content restrictions on private fund advertising and requiring certain disclosures in private fund advertisements to avoid investor confusion with mutual funds).

111

See, e.g.,

letters from Fund Democracy; ICI; IDC; Sen. Levin; NASAA.

112

See

letter from ICI (stating that “[w]e do not recommend that the content rule applicable to mutual fund performance advertisements . . . be extended to private funds. We strongly recommend, rather, that the Commission develop a rule tailored to the ways private funds calculate and present performance.”).

113

See, e.g.,

letters from Consumer Federation (stating that the Commission should require private fund advertisements to include “a clear, prominent warning that they are not mutual funds and carry special risks.”); Fund Democracy (stating that the Commission should “require explicit, large-font disclaimers that hedge funds are not mutual funds and present special risks.”); ICI (recommending that the Commission require disclaimers regarding the performance figures or measures displayed in any private fund advertisements).

In response to these concerns, we are proposing that an additional legend and disclosures be required for private fund written general solicitation materials. First, we propose that private funds include a legend on any written general solicitation materials that the securities offered are not subject to the protections of the Investment Company Act.

114

We believe it is appropriate to include a legend regarding a private fund's status under the Investment Company Act because the Act provides important protections that are not applicable to private funds or their investors. For example, the Investment Company Act includes limitations on self-dealing, affiliated transactions and leverage and requirements regarding independent board members, none of which apply to private funds, and the proposed legend would serve to alert investors and the broader general public to this fact. The legend also may help address any misimpression regarding the level of statutory and regulatory protections that apply to investors in a private fund.

114

Private funds could combine the legend regarding the Investment Company Act with the legend regarding disclosure obligations under the Securities Act to simply state that the securities offered are not subject to the protections of the Investment Company Act or required to comply with specific disclosure requirements that apply to registration under the Securities Act.

Second, we propose that Rule 509 require private funds to include certain disclosures in any written general solicitation materials that include performance data. These disclosures are similar to certain disclosures required by Rule 482 under the Securities Act for advertisements and other sales materials of registered investment companies.

115

Specifically, proposed Rule 509(c) would require any private fund written general solicitation materials that include performance data to include a legend disclosing that:

115

17 CFR 230.482. We note that the Commission proposed amendments to Rule 482, which have not yet been adopted, as part of its recent money market fund reform proposals. The proposed amendments would require money market funds to include certain disclosure statements on advertisements and sales materials designed to inform investors about the risks of investing in money market funds and the risks of a floating net asset value, if applicable.

See Money Market Fund Reform; Amendments to Form PF,

Release No. 33-9408 (June 5, 2013) [78 FR 36834 (June 19, 2013)].

We are requesting comment on the extent to which “liquidity funds,” which are private funds that seek to maintain a stable net asset value (or minimize fluctuations in their net asset values) and thus can resemble money market funds, should be required to include similar disclosure statements in written general solicitation materials.

• Performance data represents past performance;

• past performance does not guarantee future results;

• current performance may be lower or higher than the performance data presented;

• the private fund is not required by law to follow any standard methodology

when calculating and representing performance data; and

• the performance of the fund may not be directly comparable to the performance of other private or registered funds.

The proposed rule would also require the legend to identify either a telephone number or a Web site where an investor may obtain current performance data.

We believe that many investors, both sophisticated and unsophisticated, consider performance to be a significant factor when selecting investments, including when selecting private funds.

116

As such, we believe that the proposed disclosures are a meaningful way to highlight that there are limitations on the usefulness of past performance data, as well as the inherent difficulty of comparing performance of a private fund with other private funds and with registered products, such as mutual funds.

116

See Study Regarding Financial Literacy Among Investors

(Aug. 30, 2012),

available at http://www.sec.gov/news/studies/2012/917-financial-literacy-study-part1.pdf

(Commission staff study indicating that retail investors find information regarding investment performance to be useful and relevant before purchasing an investment product);

see also Proposed Amendments to Investment Company Advertising Rules,

Release No. 33-8101 (May 17, 2002) [67 FR 36712 (May 24, 2002)].

Further, we are proposing to require that if a private fund's written general solicitation materials include performance data, then such data must be as of the most recent practicable date considering the type of private fund and the media through which the data will be conveyed, and the private fund would be required to disclose the period for which performance is presented.

117

Because investors consider performance to be one of the most significant factors when evaluating investments, we are concerned that private funds presenting non-current performance data may confuse, and even mislead, investors regarding the fund's current performance, particularly if the fund's performance has changed significantly after the period reflected in the advertisement. In addition, by proposing to require disclosure of either a telephone number or a Web site where an investor may obtain current performance data, we seek to address the concern that a potential investor may be reviewing written general solicitation materials with performance data that, although at the time it was published was as of the most recent practicable date, could now be considered non-current because more current performance data is available.

118

117

We are not proposing that private funds provide performance data for a specific period (

e.g.,

as of the most recently completed month) because we understand that the investment strategies employed by private funds vary. For instance, the most recent practicable date for which performance data is available may differ between a hedge fund with liquid assets and a private equity fund with illiquid and hard-to-value assets.

118

Under the proposed rule, we intend current performance data to mean as of the last date on which the private fund customarily determined the valuation of its portfolio securities. We do not expect a private fund to value its portfolio for the sole purpose of providing updated current performance under proposed Rule 509.

We are also proposing to require private funds that include performance data that does not reflect the deduction of fees and expenses in their written general solicitation materials to disclose that fees and expenses have not been deducted and that if such fees and expenses had been deducted, performance may be lower than presented. We believe it is important for investors to be informed about whether performance information presented reflects the deduction of fees and expenses.

As proposed, the requirement to include these legends and other disclosures, as applicable, would not be a condition of the Rule 506(c) exemption. Therefore, the failure to include legends or other disclosures in any written general solicitation materials as required by Rule 509 would not render Rule 506(c) unavailable for the offering. We recognize the potentially disproportionate consequences that would result if an inadvertent error in, or omission of, the legends or disclosures results in a violation of Section 5 of the Securities Act, as well as state securities laws and the uncertainty that issuers would have regarding the availability of Rule 506(c) for their offerings.

Instead, we are proposing to amend existing Rule 507(a) so that Rule 506 would be unavailable for an issuer if such issuer, or any of its predecessors or affiliates, has been subject to any order, judgment or court decree enjoining such person for failure to comply with Rule 509. We believe that the possibility of disqualification from reliance on Rule 506 would provide issuers with sufficient incentive to comply with the requirements of Rule 509, without penalizing them unduly for an inadvertent error in, or the omission of, a legend or other required disclosure in written general solicitation materials.

We recognize the Commission's experience with Rule 507 as it relates to compliance with the Form D filing requirements of Rule 503 and our belief today that the incentives for compliance with these requirements must be strengthened.

119

We have decided, however, not to propose that non-compliance with Rule 509 would result in disqualification from reliance on Rule 506 without requiring action on the part of the Commission or the courts. We recognize this differs from our treatment of non-compliance with Rule 503 under proposed Rule 507(b); however, we are concerned that such a disqualification provision could result in disproportionate consequences for inadvertent errors or omissions, particularly in light of the large amounts of written communications that many issuers may use during the course of a Rule 506(c) offering that could be viewed as written general solicitation materials triggering proposed Rule 509. Consideration of an approach similar to proposed Rule 507(b) may be more appropriate after first assessing the level of compliance Rule 509 once it is in effect. In this regard, we believe that it is reasonable to expect a higher level of compliance with proposed Rule 509, which would require limited, standardized information about Rule 506(c) offerings, than the current level of compliance with Rule 503, which requires the public filing of a Form D that notifies the market of the occurrence of an offering and contains issuer- and offering-specific information. As a result, including the required legends and other disclosures in written general solicitation materials would seem less likely to raise any concerns for issuers. We believe that Rule 507(a), with its provision that disqualification would occur only if a court takes injunctive action, may be better suited for addressing the varied facts and circumstances that may cause an issuer not to include the required legends and other disclosures in its written general solicitation materials and for determining whether disqualification for this failure is appropriate. While we are not proposing that compliance with Rule 509 be a condition to Rule 506(c) or that non-compliance trigger disqualification without action on the part of the Commission or courts, we are soliciting comment on both of these alternative approaches.

119

See

Section II.E of this release.

We also are requesting comment on whether content restrictions should apply to private fund general solicitation materials, but we are not proposing to prohibit private funds from including performance information in general solicitation materials at this time. The presentation of performance information, like other information used in general solicitation and other

materials, is subject to the antifraud provisions of the federal securities laws.

120

Compliance with the proposed legend and disclosure requirements does not relieve an issuer from the obligation to comply with these antifraud requirements. We note that performance data for certain private funds are available from other sources and that material deviations between reported performance and performance included on general solicitation materials could be misleading.

121

Furthermore, as we noted in the Rule 506(c) Adopting Release, we believe it is appropriate for advisers to private funds to review their compliance policies and procedures and make appropriate updates to such policies and procedures, particularly if the private funds intend to engage in general solicitation activity.

122

120

See, e.g.,

In the Matter of Oppenheimer Asset Management Inc. and Oppenheimer Alternative Investment Management, LLC,

Release No. IA-3566 (Mar. 11, 2013);

In the Matter of Sentinel Investment Management Corp.,

Release No. IA-3556 (Feb. 22, 2013) (settled enforcement action alleging that adviser misrepresented to investors that client's investments in private limited partnerships were growing and performing well);

In the Matter of Calhoun Asset Management, LLC, et al.,

Release No. IA-3428 (July 9, 2012) (settled enforcement action alleging that hedge fund adviser disseminated marketing materials that contained misrepresentations about performance and unsupported performance returns);

In the Matter of Belal K. Faruki,

Release No. IA-3405 (May 17, 2012) (settled enforcement action alleging hedge fund adviser made material misrepresentations to an investor regarding the fund's track record);

In the Matter of GMB Capital Management LLC, et al.,

Release No. IA-3399 (Apr. 20, 2012) (settled enforcement action alleging hedge fund adviser made misrepresentations in marketing materials, meetings with potential investors, and a Web site interview that the adviser subsequently reprinted and distributed to investors and potential investors regarding the funds' historic performance).

121

For instance, performance information must be reported to the Commission in a non-public filing on Form PF. Question 17 of Form PF requires certain registered investment advisers managing private funds to report to the Commission the private fund's performance information as reported to current and prospective investors. While Question 17 instructs advisers to provide the most representative performance results if the fund reports different performance results to different groups of investors, we would expect an adviser to be able to explain and justify the difference between performance information included in any written communications used in a Rule 506(c) offering and that which is reported in such adviser's Form PF report, if applicable. Private funds may also voluntarily report performance data to publicly-available databases.

122

See

Rule 506(c) Adopting Release, at Section II.E (noting that “[w]e believe that investment advisers that have implemented appropriate policies and procedures regarding, among other things, the nature and content of private fund sales literature, including general solicitation materials, are less likely to use materials that materially mislead investors or otherwise violate the federal securities laws.”).

Request for Comment

59. Should we require all issuers to include the proposed legends in written general solicitation materials? Why or why not? Are accredited investors already aware of the information included in the proposed legends? Would the proposed legends be effective in reducing the incidence of non-accredited investors participating in Rule 506(c) offerings?

60. Is it appropriate for the Commission to provide for disqualification from reliance on Rule 506 for non-compliance with Rule 509? How would this affect the Rule 506(c) market? Should the Commission amend Rule 507 to also include Commission cease-and-desist and administrative proceedings? Would another mechanism provide a better incentive for issuers to include legends and other disclosures in written general solicitation materials that relied on a simpler enforcement mechanism but did not impose an immediate disqualification?

61. Should the Commission condition Rule 506(c) on compliance with the proposed requirements of Rule 509? What effect would such a condition have on the Rule 506 market? If compliance with Rule 509 were a condition of Rule 506(c), should the Commission provide for a cure mechanism for inadvertent errors in, or the omission of, legends or other required disclosure in the written general solicitation materials?

123

If so, what should be the parameters of this cure mechanism?

123

For example, Securities Act Rule 164 [17 CFR 230.164] permits an issuer or an offering participant to cure an unintentional or immaterial failure to include the specified legend in any free writing prospectus, as long as a good faith and reasonable effort is made to comply with the legend condition and the free writing prospectus is amended to include the specified legend as soon as practicable after discovery of the omitted or incorrect legend. In addition, if a free writing prospectus has been transmitted to potential investors without the specified legend, the free writing prospectus must be retransmitted with the appropriate legend by substantially the same means as, and directed to substantially the same investors to whom, it was originally transmitted. Securities Act Rule 163 [17 CFR 230.163] provides a similar cure provision.

62. Do the proposed legends and required disclosures appropriately inform potential investors as to whether they are qualified to participate in Rule 506(c) offerings, the type of offerings being conducted and the potential risks that may be associated with such offerings? If not, how could they be revised to do so? Should additional legends or disclosures be required and, if so, what should these additional legends or disclosures be?

63. Should we have specific requirements for the legends and disclosures, such as for type size, type style, location and proximity? If so, what should they be? Alternatively, should we require the legends and disclosures to be presented in any manner reasonably calculated to draw investor attention to them?

64. Should we define the types of communications that constitute written general solicitation materials for purposes of the proposed requirements of Rule 509? If so, how should we define written general solicitation materials? For example, should we refer to the definition of “written communications” in Rule 405 under the Securities Act?

124

Should we specify that the term includes any electronic communications?

124

Rule 405 defines “written communications” as, except as otherwise specifically provided or the context otherwise requires, any communication that is written, printed, a radio or television broadcast, or a graphic communication. Rule 405 defines “graphic communication” as including all forms of electronic media, including, but not limited to, audiotapes, videotapes, facsimiles, CD-ROM, electronic mail, Internet Web sites, substantially similar messages widely distributed (rather than individually distributed) on telephone answering or voice mail systems, computers, computer networks and other forms of computer data compilation. “Graphic communication” does not include a communication that, at the time of the communication, originates live, in real-time to a live audience and does not originate in recorded form or otherwise as a graphic communication, although it is transmitted through graphic means.

65. Should comparable disclosure be required to be provided in oral communications used in a Rule 506(c) offering that constitute general solicitations? Why or why not? Should the legends and required disclosures be required to be included in all offering materials or just the materials used in connection with general solicitation activities? How would issuers provide such disclosure?

66. Are there alternative methods for encouraging important explanatory information regarding performance to be given sufficient prominence in written general solicitation materials? Would mandated legends be helpful in mitigating concerns regarding fraudulent statements in written general solicitation materials?

67. The proposed amendments do not specify the precise wording of any required legends. Is that appropriate? Or should we require specific wording? If so, what would that be?

68. Should we specifically require disclosure of the date as of which any performance data included in the written general solicitation materials was calculated? Should we require all such performance data to be current as

of the most recent practicable date? To give issuers certainty, should we provide more specific guidance as to what constitutes the most recent practicable date? Should we require performance data to be provided for a specific period (

e.g.,

for the last one, five, and ten year periods)? Should we require such performance data to be updated at specified intervals? If so, what interval or intervals would be appropriate? Should we require a private fund to provide narrative disclosure regarding the methodology used to calculate performance data? Will such required disclosure become standardized or unwieldy and, therefore, less useful to investors?

69. If all purchasers in an offering receive a private placement memorandum that includes all of the required legends, is it necessary that other materials also include these legends?

70. To what extent do issuers, including private funds, currently use legends similar to those proposed in this release (for example, in the private placement memoranda given to the potential investors)? To what extent do they use other legends? Does this differ depending on the type of document used? For example, do private placement memoranda contain more extensive legends than other marketing materials?

71. As proposed, private funds would be required to include a telephone number or a Web site where an investor may obtain current performance data. Is this requirement appropriate? Should private funds be required to provide performance information on a Web site? Should private funds be allowed to restrict access to such Web site through the use of passwords or other measures?

72. Do the proposed disclosures relating to performance data appropriately inform investors that there are limitations on the usefulness of past performance data and the difficulty of comparing the performance of one private fund to other funds, particularly in light of the fact that private funds are not required by law to calculate or present performance pursuant to a standard methodology? If so, how? If not, why not?

73. If the amendments to Rule 482 proposed in the money market fund reform proposals are adopted,

125

should we require liquidity funds to include similar disclosure statements in written general solicitation materials? For example, should we require liquidity funds to include a statement that the fund's sponsor has no legal obligation to provide financial support to the fund, and that an investor should not expect that the sponsor will provide financial support to the fund at any time? Why or why not?

125

See

Release No. 33-9408.

74. Rule 506(c) may cause certain types of issuers that have historically registered offerings under the Securities Act to instead conduct offerings under Rule 506(c). These issuers also may use performance data in written general solicitation materials. For example, non-traded REITs, which have historically included prior performance data in Securities Act registration statements and sales literature, may instead conduct Rule 506(c) offerings and provide similar data in written general solicitation materials. Should we adopt legends or other disclosure requirements that are tailored to additional types of issuers, such as non-traded REITs? If so, which types of issuers should be required to include legends or other required disclosure in their written general solicitation materials? What information should be required?

75. What are the costs or burdens on issuers in providing the legends and other required disclosures, as proposed? Are there ways to reduce any costs or burdens on issuers?

76. Should we adopt additional or different legends or disclosure requirements for written general solicitation materials used by private funds in Rule 506(c) offerings when performance data is included?

B. Proposed Amendments to Rule 156

We are also proposing to amend Rule 156 under the Securities Act to apply the guidance contained in the rule to the sales literature of private funds.

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We are proposing the amendments because we believe it is important to provide guidance to private funds in developing sales literature that is neither fraudulent nor misleading, particularly in light of the Commission's adoption of Rule 506(c).

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We are of the view that private funds should now be considering the principles underlying Rule 156 to avoid ma

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