The SEC is Enforcing Accredited Investor Verification Rules

The SEC recently brought an enforcement action against a fund investing in digital assets for a failure to register a sale of securities under Section 5 of the Securities Act. The fund had filed a Form D with the SEC that, in itself, offers no clue as to what went wrong. The form reports the sale of fund interests under the exemption provided by Rule 506(b) of Regulation D. This is the common exemption used for private placements of securities, and by complying with the applicable rules under Regulation D, there would be a safe harbor protecting the issuer against a registration violation. So, what was the problem? Filing a Form D is just one part of complying with the procedures under Regulation D. Another requirement is that the issuer not engage in “general solicitation or general advertising,” at least with respect to a Rule 506(b) offering. Of course, the new rules under the JOBS Act permit such soliciting activity under a different exemption, Rule 506(c). You…

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