The New SEC Regulation D Proposal - Why We Care
I have had a chance to review the SEC’s proposed overhaul of Form D and proposal to require electronic filing of the form going forward. While you might think this stuff is highly technical and seemingly not that important other than for the form-philes among us (not me friends), in many ways it is. [Note: the more substantive proposal regarding a new proposed "super accredited investor" standard with limited advertising and solicitation permitted has not yet been published.]
The goal of the proposal seems to be to make preparing and filing Form D so easy even a CEO can do it, theoretically even without an attorney (heaven forbid). But given that you have to go obtain Edgar codes, make decisions about what Rule you are filing under, determine who is a promoter of the company and so on, I think lawyers will still need to provide critical advice on the form. However, one look at the proposed new form and you will see it is indeed much simpler and shorter and should not take one long to complete in the proposed new online filing system.
Also, it appears they are proposing allowing the electronic filing with the SEC to count for purposes of filing with the states as well, subject of course to the states accepting this, which the SEC states in the proposal they hope will happen (they suggest “one-stop” filing with them). The question is, will this eliminate state filings if you file a Form D? Eliminate state filing fees (not likely)? Eliminate the need for state blue sky review at all in Regulation D offerings (very not likely)? The poor blue sky lawyers took enough of a hit when Congress preempted state securities regulation of offerings on larger exchanges back in 1996.
This is also a lost opportunity for Edgar filing companies (sorry Shai!). They would have had quite a boon formatting and filing these as they do for all our other SEC filings, but it looks like the Commission is determined to make it easy enough to file yourself after you obtain Edgar codes.
The other goal of the proposal is to organize, gather and make available data and search capabilities of all filed Forms D, which currently is virtually impossible to obtain. If this goes through, anyone will now be able to view and download anyone’s Form D rather than waiting and ordering it on paper. Thus you can see what your competitors are doing more easily, see what investment banks are acting as placement agents for offerings, etc. There are some other changes that could be rather significant, and here they are:
1. They propose that the form no longer require disclosure of owners of 10% or more of the company’s stock, only officers, directors and promoters. The feeling is this information is either contained in offering materials for investors or is available to them. This allows private companies to keep this information confidential from the public.
2. The proposal suggests that the form be revised to ask you to provide a revenue range and industry classification, mostly for data collection purposes. However you will be able to decline to provide the revenue information.
3. The form will still be filed within 15 days after the first sale. The only required amendments will be to correct mistakes of fact or changes in the situation (but not just more closings or minor changes in offering size or changes in revenue).
4. If your offering lasts more than a year, a once a year update filing will be required.
5. They propose requiring the inclusion of the identifying “CRD” number of any broker who receives compensation in the transaction. This may not bode well for unregistered brokers trying to earn fees, and is likely to be the subject of comment.
6. Here’s one to rejoice about: they propose eliminating the information about use of proceeds and offering expenses. That was always the most annoying and seemingly unnecessary part of the form.
7. The electronic filing would be signed like other Edgar filings, with a conformed (ie typed) signature on the filing and a requirement for the company to obtain and retain for five years a manual signature.
8. They propose making clear that the electronic filing of Form D does not in and of itself constitute general solicitation in violation of Regulation D. In the past the form had room for footnotes and other things that might have been deemed to constitute solicitation. The new form will be drop-down menus and have no real room for “free writing,” so filing will not be deemed solicitation.
9. Here’s a tip- don’t plan to go to lunch while online preparing this, as the new proposed filing system would time you out if you are inactive for one hour and no previous work would be saved.
10. One request for comment is whether public companies should be exempt from Form D filing as long as the same information is in a Form 8-K filing or periodic filing such as Form 10-Q or 10-K. I say yes!
Anyway, life for securities lawyers will certainly be a little bit simpler if this new proposal is adopted. And it will be interesting so see, as happened in the reverse merger business with the passage of new rules in 2005 that required identifying shells and shell mergers, what data can be collected and become available as to the extent of the private placement market and information about issuers, agents and the like.
I hope you're enjoying the summer!
The goal of the proposal seems to be to make preparing and filing Form D so easy even a CEO can do it, theoretically even without an attorney (heaven forbid). But given that you have to go obtain Edgar codes, make decisions about what Rule you are filing under, determine who is a promoter of the company and so on, I think lawyers will still need to provide critical advice on the form. However, one look at the proposed new form and you will see it is indeed much simpler and shorter and should not take one long to complete in the proposed new online filing system.
Also, it appears they are proposing allowing the electronic filing with the SEC to count for purposes of filing with the states as well, subject of course to the states accepting this, which the SEC states in the proposal they hope will happen (they suggest “one-stop” filing with them). The question is, will this eliminate state filings if you file a Form D? Eliminate state filing fees (not likely)? Eliminate the need for state blue sky review at all in Regulation D offerings (very not likely)? The poor blue sky lawyers took enough of a hit when Congress preempted state securities regulation of offerings on larger exchanges back in 1996.
This is also a lost opportunity for Edgar filing companies (sorry Shai!). They would have had quite a boon formatting and filing these as they do for all our other SEC filings, but it looks like the Commission is determined to make it easy enough to file yourself after you obtain Edgar codes.
The other goal of the proposal is to organize, gather and make available data and search capabilities of all filed Forms D, which currently is virtually impossible to obtain. If this goes through, anyone will now be able to view and download anyone’s Form D rather than waiting and ordering it on paper. Thus you can see what your competitors are doing more easily, see what investment banks are acting as placement agents for offerings, etc. There are some other changes that could be rather significant, and here they are:
1. They propose that the form no longer require disclosure of owners of 10% or more of the company’s stock, only officers, directors and promoters. The feeling is this information is either contained in offering materials for investors or is available to them. This allows private companies to keep this information confidential from the public.
2. The proposal suggests that the form be revised to ask you to provide a revenue range and industry classification, mostly for data collection purposes. However you will be able to decline to provide the revenue information.
3. The form will still be filed within 15 days after the first sale. The only required amendments will be to correct mistakes of fact or changes in the situation (but not just more closings or minor changes in offering size or changes in revenue).
4. If your offering lasts more than a year, a once a year update filing will be required.
5. They propose requiring the inclusion of the identifying “CRD” number of any broker who receives compensation in the transaction. This may not bode well for unregistered brokers trying to earn fees, and is likely to be the subject of comment.
6. Here’s one to rejoice about: they propose eliminating the information about use of proceeds and offering expenses. That was always the most annoying and seemingly unnecessary part of the form.
7. The electronic filing would be signed like other Edgar filings, with a conformed (ie typed) signature on the filing and a requirement for the company to obtain and retain for five years a manual signature.
8. They propose making clear that the electronic filing of Form D does not in and of itself constitute general solicitation in violation of Regulation D. In the past the form had room for footnotes and other things that might have been deemed to constitute solicitation. The new form will be drop-down menus and have no real room for “free writing,” so filing will not be deemed solicitation.
9. Here’s a tip- don’t plan to go to lunch while online preparing this, as the new proposed filing system would time you out if you are inactive for one hour and no previous work would be saved.
10. One request for comment is whether public companies should be exempt from Form D filing as long as the same information is in a Form 8-K filing or periodic filing such as Form 10-Q or 10-K. I say yes!
Anyway, life for securities lawyers will certainly be a little bit simpler if this new proposal is adopted. And it will be interesting so see, as happened in the reverse merger business with the passage of new rules in 2005 that required identifying shells and shell mergers, what data can be collected and become available as to the extent of the private placement market and information about issuers, agents and the like.
I hope you're enjoying the summer!
Labels: Regulation D, SEC
posted by David N. Feldman at
7/13/2007 09:26:00 AM
2 Comments:
This was very informative. Thankyou for your time. One of my companies just did a Reverse. Valentis and Unigen. I am pretty excited even though it is on a very smal scale.
Carl Benjamin
Carl, thanks for the nice comments and I hope you keep visiting!
David
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