
[Federal Register Volume 78, Number 142 (Wednesday, July 24, 2013)]
[Proposed Rules]
[Pages 44806-44855]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16884]



  Federal Register / Vol. 78, No. 142 / Wednesday, July 24, 2013 / 
Proposed Rules  

[[Page 44806]]


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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.

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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,\1\ 
Rules 503,\2\ 506 \3\ and 507 \4\ of Regulation D,\5\ and Form D \6\ 
under the Securities Act of 1933.\7\ We are proposing to add Rule 509 
and Rule 510T of Regulation D under the Securities Act.
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    \1\ 17 CFR 230.156.
    \2\ 17 CFR 230.503.
    \3\ 17 CFR 230.506.
    \4\ 17 CFR 230.507.
    \5\ 17 CFR 230.500 through 230.508.
    \6\ 17 CFR 239.500.
    \7\ 15 U.S.C. 77a et seq.
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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

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    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 \8\ and to Form D \9\ to implement Section 201(a)(1) of 
the Jumpstart Our Business Startups Act (the ``JOBS Act'') \10\ and 
Section 926 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'').\11\ 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.'' \12\ 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.\13\ 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.\14\ 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.\15\ 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.
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    \8\ 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)].
    \9\ 17 CFR 239.500.
    \10\ 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'').
    \11\ Public Law 111-203, sec. 926, 124 Stat. 1376, 1851 (July 
21, 2010) (codified at 15 U.S.C. 77d note).
    \12\ 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).
    \13\ 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.
    \14\ 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.
    \15\ Disqualification of Felons and Other ``Bad Actors'' from 
Rule 506 Offerings, Release No. 33-9414 (July 10, 2013).
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    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.\16\ 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.
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    \16\ 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.''
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    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 \17\ that they believed would be appropriate in 
connection with the adoption of the amendments to implement Section 
201(a) of the JOBS Act.\18\ 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

[[Page 44808]]

Form D filing requirement,\19\ require Form D to be filed in advance of 
any general solicitation \20\ and add to the information requirements 
of Form D.\21\ 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,\22\ some 
commenters recommended that the Commission also amend the definition of 
``accredited investor'' as it relates to natural persons.\23\ 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.\24\ 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''),\25\ to an electronic ``drop 
box'' to be created by the Commission specifically to receive general 
solicitation materials \26\ or as an exhibit to Form D.\27\
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    \17\ 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.
    \18\ 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.
    \19\ See, e.g., letters from Investor Advisory Committee; NASAA; 
AARP; Consumer Federation.
    \20\ 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'').
    \21\ See, e.g., letters from AARP; AFL-CIO and Americans for 
Financial Reform (``AFR''); Consumer Federation; Massachusetts 
Securities Division (July 2, 2012); NASAA.
    \22\ 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)].
    \23\ 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).
    \24\ 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.
    \25\ 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.
    \26\ See letters from Investor Advisory Committee; Consumer 
Federation.
    \27\ See letters from Massachusetts Securities Division (July 2, 
2012); Ohio Division of Securities (July 3, 2012).
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    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 \28\ of the issuer, did not 
comply, within the last five years, with all of the Form D filing 
requirements in a Rule 506 offering.
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    \28\ 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.
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    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.\29\ We are proposing to disqualify an issuer from relying on 
Rule 506 for future offerings if such

[[Page 44809]]

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.
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    \29\ 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.
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    We are also proposing to amend Rule 156 under the Securities 
Act,\30\ 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.
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    \30\ 17 CFR 230.156.
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    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; \31\ and
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    \31\ 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.
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     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.\32\ 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.\33\ 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

[[Page 44810]]

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,\34\ 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.\35\ The Commission can 
waive any such disqualification upon a showing of good cause.\36\
---------------------------------------------------------------------------

    \32\ 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)].
    \33\ 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)].
    \34\ 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)].
    \35\ 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).
    \36\ 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.\37\ Until 2008, however, issuers 
made Form D filings in paper format, making the extraction of 
information for large-scale statistical analysis problematic.\38\ 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.\39\ 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 \40\ and facilitating the enforcement of the federal 
securities laws and the enforcement efforts of state securities 
regulators and FINRA.\41\ 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 
\42\ and therefore are exempt from state blue sky registration 
requirements.
---------------------------------------------------------------------------

    \37\ 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)].
    \38\ 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)].
    \39\ 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.
    \40\ 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' '').
    \41\ 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'').
    \42\ 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

[[Page 44811]]

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; \43\
---------------------------------------------------------------------------

    \43\ 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; \44\ and
---------------------------------------------------------------------------

    \44\ 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.\45\
---------------------------------------------------------------------------

    \45\ 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.\46\ 
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).\47\ 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.\48\ 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 \49\ and to answer 
questions from investors who contact them after seeing an advertised 
offering.\50\
---------------------------------------------------------------------------

    \46\ 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.
    \47\ See, e.g., letters from NASAA; Missouri Commissioner of 
Securities; Nevada Securities Division.
    \48\ 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'').
    \49\ See letter from Ohio Division of Securities (July 3, 2012).
    \50\ 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.\51\ 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.\52\
---------------------------------------------------------------------------

    \51\ See letter from Managed Funds Association (``MFA'') (Mar. 
22, 2013).
    \52\ 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

[[Page 44812]]

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,\53\ 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?
---------------------------------------------------------------------------

    \53\ 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.\54\ 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.\55\
---------------------------------------------------------------------------

    \54\ See Release No. 33-6389.
    \55\ 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.\56\ 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.'' \57\
---------------------------------------------------------------------------

    \56\ See letters from NASAA; Ohio Division of Securities (July 
3, 2012); Massachusetts Securities Division (July 2, 2012).
    \57\ 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

[[Page 44813]]

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.\58\ 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.
---------------------------------------------------------------------------

    \58\ 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.\59\
---------------------------------------------------------------------------

    \59\ 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.\60\
---------------------------------------------------------------------------

    \60\ 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; \61\ 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.\62\ 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.\63\
---------------------------------------------------------------------------

    \61\ See Proposed Rule 503(a)(4)(v).
    \62\ See Release No. 33-6389.
    \63\ 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

[[Page 44814]]

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.\64\ 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).\65\ 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.
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    \64\ 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.
    \65\ 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.
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    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).\66\ 
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.\67\ 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.\68\ 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.\69\ 
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.\70\ A number of commenters 
stated that the Commission should consider requiring additional 
information in Form D about the issuers

[[Page 44815]]

that propose to engage in general solicitation activities under Rule 
506.\71\
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    \66\ 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).
    \67\ 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.'').
    \68\ See letter from Investor Advisory Committee.
    \69\ See letter from NASAA (referring to suggested revisions to 
Form D in its July 3, 2012 letter).
    \70\ See letter from Massachusetts Securities Division (July 2, 
2012).
    \71\ 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.\72\
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    \72\ 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.
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    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.\73\ 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).
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    \73\ 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)].
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    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.'' \74\ 
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.'' \75\ 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.
---------------------------------------------------------------------------

    \74\ Release No. 33-8891.
    \75\ 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

[[Page 44816]]

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.\76\ 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.\77\ This proposed amendment would also apply 
to offerings under Rule 504, Rule 505 and Section 4(a)(5).
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    \76\ 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.
    \77\ 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 \78\ to, the Commission, the name and SEC file number for each 
investment adviser who functions directly or indirectly as a promoter 
\79\ of the issuer;
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    \78\ 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.
    \79\ 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);\80\ and
---------------------------------------------------------------------------

    \80\ 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

[[Page 44817]]

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 \81\ 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?
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    \81\ 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.
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    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.\82\ The Commission did so with 
the expectation that the concurrent adoption of Rule 507 would provide 
an incentive for issuers

[[Page 44818]]

to file Form D.\83\ In fact, the disqualification provision of Rule 507 
has rarely been invoked since its adoption,\84\ and we understand that 
some issuers are not filing a Form D for Rule 506 offerings.\85\
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    \82\ See Release No. 33-6825.
    \83\ See id.
    \84\ 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).
    \85\ 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.\86\ 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.\87\
---------------------------------------------------------------------------

    \86\ 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.
    \87\ See letter from MFA (Mar. 22, 2013).
---------------------------------------------------------------------------

    Other commenters argued against conditioning Rule 506(c) on the 
filing of a Form D.\88\ One commenter stated that such a condition 
would have potential negative effects on the private placement 
market.\89\ 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.\90\ 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.\91\
---------------------------------------------------------------------------

    \88\ 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.
    \89\ See letter from Linklaters LLP.
    \90\ See letter from SRC of NYSBA.
    \91\ 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,\92\ 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.
---------------------------------------------------------------------------

    \92\ 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.\93\ 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.\94\ 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.
---------------------------------------------------------------------------

    \93\ Existing Rule 507(b) would be redesignated as Rule 507(c).
    \94\ 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

[[Page 44819]]

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.\95\ 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).
---------------------------------------------------------------------------

    \95\ 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.\96\ 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.
---------------------------------------------------------------------------

    \96\ 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.'' \97\ 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.\98\ We believe that the

[[Page 44820]]

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.
---------------------------------------------------------------------------

    \97\ Rule 507(b).
    \98\ 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.\99\ We anticipate that, if the 
proposal were adopted, we would similarly delegate authority for 
waivers of disqualification under new Rule 507(b).
---------------------------------------------------------------------------

    \99\ 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,

[[Page 44821]]

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\
---------------------------------------------------------------------------

    \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)]).

---------------------------------------------------------------------------

[[Page 44822]]

     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

[[Page 44823]]

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

[[Page 44824]]

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

[[Page 44825]]

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.\126\ 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).\127\ 
We are of the view that private funds should now be considering the 
principles underlying Rule 156 to avoid making fraudulent statements in 
their sales literature.
---------------------------------------------------------------------------

    \126\ The term ``private fund'' would be defined in Rule 156 as 
an issuer that would be an investment company, as defined in Section 
3 of the Investment Company Act (15 U.S.C. 80a-3), but for Section 
3(c)(1) or 3(c)(7) of that Act. See proposed Rule 156(d). Rule 
156(c) under the Securities Act defines ``sales literature'' to 
include ``any communication (whether in writing, by radio, or by 
television) used by any person to offer to sell or induce the sale 
of securities of any investment company.''
    \127\ See Rule 506(c) Adopting Release.
---------------------------------------------------------------------------

    Rule 156 provides guidance on the types of information in 
investment company sales literature that could be misleading for 
purposes of the federal securities laws, including Section 17(a) of the 
Securities Act \128\ and Section 10(b) of the Exchange Act \129\ and 
Rule 10b-5 thereunder.\130\ Under these provisions, whether a statement 
involving a material fact is misleading depends on an evaluation of the 
context in which it is made. Rule 156 outlines certain situations in 
which a statement could be misleading. These include certain general 
factors that could cause a statement to be misleading,\131\ as well as 
circumstances where representations about past or future investment 
performance \132\ and statements involving a material fact about the 
characteristics or attributes of an investment company \133\ could be 
misleading.\134\
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    \128\ 15 U.S.C. 77q(a).
    \129\ 15 U.S.C. 78j(b).
    \130\ 17 CFR 240.10b-5.
    \131\ A statement could be misleading because of other 
statements being made in connection with the offer of sale or sale 
of the securities in question; the absence of explanations, 
qualifications, limitations, or other statements necessary or 
appropriate to make such statement not misleading; or general 
economic or financial conditions or circumstances. See Rule 
156(b)(1).
    \132\ Representations about past or future investment 
performance about an investment company could be misleading because 
of statements or omissions made involving a material fact, including 
situations where portrayals of past income, gain, or growth of 
assets convey an impression of the net investment results achieved 
by an actual or hypothetical investment which would not be justified 
under the circumstances, including portrayals that omit 
explanations, qualifications, limitations, or other statements 
necessary or appropriate to make the portrayals not misleading; and 
representations, whether express or implied, are made about future 
investment performance, including: (a) representations, as to 
security of capital, possible future gains or income, or expenses 
associated with an investment; (b) representations implying that 
future gain or income may be inferred from or predicted based on 
past investment performance; or (c) portrayals of past performance, 
made in a manner which would imply that gains or income realized in 
the past would be repeated in the future. See Rule 156(b)(2).
    \133\ A statement involving a material fact about the 
characteristics or attributes of an investment company could be 
misleading because of statements about possible benefits connected 
with or resulting from services to be provided or methods of 
operation which do not give equal prominence to discussion of any 
risks or limitations associated therewith; exaggerated or 
unsubstantiated claims about management skill or techniques, 
characteristics of the investment company or an investment in 
securities issued by the company, services, security of investment 
or funds, effects of government supervision, or other attributes; 
and unwarranted or incompletely explained comparisons to other 
investment vehicles or to indexes. See Rule 156(b)(3).
    \134\ We note that the Commission proposed amendments to Rule 
156, which have not yet been adopted, to address concerns that 
emanated from target date funds but are applicable to all investment 
companies. The proposed amendments would provide that a statement 
suggesting that securities of an investment company are an 
appropriate investment could be misleading in two circumstances: (i) 
a statement could be misleading because of the emphasis it places on 
a single factor as the basis for determining that an investment is 
appropriate; or (ii) a statement suggesting that securities of an 
investment company are an appropriate investment could be misleading 
because of representations that investing in the securities is a 
simple investment plan or that it requires little or no monitoring 
by the investor. See Investment Company Advertising: Target Date 
Retirement Fund Names and Marketing, Release No. 33-9126 (June 16, 
2010) [75 FR 35920 (Jun. 23, 2010)].
    If the Commission were to adopt those amendments, we anticipate 
that such amendments would also apply to private fund sales 
literature because we believe the descriptions of what statements 
could be misleading (for example, a statement emphasizing a single 
factor as the basis for determining that an investment is 
appropriate) would apply equally to statements made in the sales 
literature of private funds.

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[[Page 44826]]

    The Commission adopted Rule 156 as an interpretive rule to provide 
guidance in certain areas which, based on the Commission's regulatory 
experience with investment company sales literature, had proven to be 
particularly susceptible to misleading statements.\135\ Just as the 
antifraud provisions of the Securities Act and the Exchange Act apply 
to the offer and sale of securities issued by an investment company, 
those same provisions apply to the offer and sale of securities issued 
by a private fund.\136\ We note that some commenters on the Rule 506(c) 
Proposing Release requested that the Commission clarify whether the 
interpretive guidance in Rule 156 also applies to private funds.\137\ 
Accordingly, the Commission believes it is important to provide 
interpretive guidance to private funds regarding the types of 
information in sales literature that could be fraudulent or misleading.
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    \135\ See Mutual Fund Sales Literature Interpretive Rule, 
Release No. 33-6140 (Oct. 26, 1979) [44 FR 64070 (Nov. 6, 1979)].
    \136\ In addition, statements by an investment adviser to any 
investor or prospective investor in a private fund that are 
fraudulent or materially misleading also violate Section 206 of the 
Advisers Act [15 U.S.C. 80b-6(4)] and Rule 206(4)-8 under the 
Advisers Act [17 CFR 275.206(4)-8].
    \137\ See letters from ICI and NASAA.
---------------------------------------------------------------------------

    While the adoption of Rule 506(c) is the impetus for proposing 
amendments to Rule 156 to extend its guidance to private funds, the 
proposed amendments would apply to all private funds, including private 
funds engaged in general solicitation activity under Rule 506(c). This 
reflects our view that statements or representations have the potential 
to mislead investors regardless of the type of offering, investors' 
level of sophistication or whether such materials are used in a general 
solicitation.\138\
---------------------------------------------------------------------------

    \138\ For example, misleading statements or representations 
could be made in materials for an offering pursuant to Rule 506(b).
---------------------------------------------------------------------------

    Rule 156 does not prohibit or permit any particular representations 
or presentations. The circumstances in which statements or 
representations in investment company sales materials may be viewed as 
misleading appear to be similar to the circumstances in which 
statements or representations in private fund sales materials may be 
viewed as misleading. Based on enforcement and regulatory experience 
regarding private funds, we believe that the areas identified in Rule 
156 as being vulnerable to misleading statements in investment company 
sales literature are similarly vulnerable with respect to private fund 
sales literature. For example, the Commission has brought enforcement 
actions against private fund advisers and others for material 
misrepresentations to investors and prospective investors regarding 
past or future investment performance and characteristics or attributes 
of the private fund. Such actions have included instances in which 
defendants were charged with misrepresenting a private fund's prior 
investment performance,\139\ exaggerating their personal employment 
history and qualifications,\140\ omitting information regarding their 
disciplinary history,\141\ misrepresenting information about the 
holdings of the fund's investment portfolio,\142\ making fraudulent 
claims that the fund was performing better than the major stock 
indexes,\143\ and falsely valuing the fund's investments.\144\
---------------------------------------------------------------------------

    \139\ See, SEC v. Alero Odell Mack, Jr., Steven Enrico Lopez, 
Sr., Easy Equity Asset Management, Inc., Easy Equity Management, 
L.P., Easy Equity Partners, L.P., Alero Equities the Real Estate 
Company, L.L.C., and Alero I.X. Corp., Litigation Release No. 21731 
(Nov. 4, 2010) (settled action).
    \140\ See id.; SEC v. Jean Baptiste Jean Pierre, Gabriel Toks 
Pearce, and Darius L. Lee, Litigation Release No. 17303 (Jan. 10, 
2002) (settled action).
    \141\ See In the Matter of LeadDog Capital Markets, LLC, f/k/a 
LeadDog Capital Partners, Inc., Chris Messalas and Joseph Larocco, 
Esq., Administrative Proceeding File No. 3-14623, Initial Decision 
Release No. 468 (Sept. 14, 2012) (Finality Order, Release No. 34-
68205 (Nov. 12, 2012)).
    \142\ See id.; In the Matter of Michael Lauer, Administrative 
Proceeding File No. 3-13265 (Jan. 29, 2009) (settled action).
    \143\ See id.
    \144\ See id.
---------------------------------------------------------------------------

    As the Commission previously described in connection with 
amendments to Rule 156, we have been particularly concerned that 
representations regarding past performance or future investment 
performance could be misleading given that many investors consider 
performance to be one of the most significant factors when selecting or 
evaluating mutual funds.\145\ The Commission explained that it was 
concerned that past performance information that did not contain an 
adequate explanation of other facts may create unrealistic investor 
expectations or mislead potential investors.\146\ The amendments were 
intended to address concerns about: (i) Advertising performance without 
providing adequate disclosure of unusual circumstances that have 
contributed to fund performance; (ii) advertising performance without 
providing adequate disclosure of the performance period or that more 
current information about performance is available and it may be lower 
than advertised performance; and (iii) advertising performance based on 
selective time periods without providing disclosure that would permit 
an investor to evaluate the significance of performance that is based 
on selective time periods.\147\ The Commission also highlighted how 
some funds addressed these concerns through narrative disclosure when 
performance presentations were provided.\148\
---------------------------------------------------------------------------

    \145\ See Release No. 33-8101.
    \146\ See Amendments to Investment Company Advertising Rules, 
Release No. 33-8294 (Sept. 29, 2003) [68 FR 57760 (Oct. 6, 2003)].
    \147\ See Release No. 33-8101.
    \148\ For example, the Commission noted that such narrative 
disclosures were designed to inform investors that: (i) The 
advertised performance was achieved through the fund's use of 
particular investment strategies under specified circumstances that 
are not likely to recur (e.g., disclosing that a significant portion 
of the advertised performance was attributable to the allocation of 
an initial public offering of securities to the fund but indicated 
that such allocation would not likely continue in the future); (ii) 
the advertised performance is not the fund's current performance and 
that due to market volatility or other factors, the fund's 
performance changes over time or that the fund's current performance 
may be lower than the advertised performance; or (iii) the fund's 
performance may be volatile or that the advertised performance is 
not representative of the fund's historical performance. Id.
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Request for Comment
    77. Are there certain types of private funds that will find it 
difficult to apply the guidance in Rule 156 to their sales literature? 
If so, which types of private funds and why? Are there changes to the 
guidance in Rule 156 that would be appropriate to consider in 
connection with the extension of the guidance to private funds?
    78. Are there additional amendments to Rule 156 that would help to 
clarify the obligations of private funds under the antifraud 
provisions?
    79. If the amendments to Rule 156 proposed in the target date fund 
rulemaking are adopted,\149\ we anticipate making such amendments also 
applicable to sales literature of private funds. Is there any reason 
such

[[Page 44827]]

guidance should not apply to sales literature of private funds?
---------------------------------------------------------------------------

    \149\ See Release No. 33-9126.
---------------------------------------------------------------------------

    80. Would antifraud guidance be useful regarding issues that may 
arise with respect to sales literature disseminated by other types of 
issuers in connection with offerings pursuant to Rule 506(c), such as 
non-traded REITs? Would similar guidance be appropriate for other types 
of issuers, such as statements that sales material should present a 
balanced discussion of risk and reward, and be consistent with 
representations in offering documents? What are the expected costs and 
benefits with respect to any such guidance?

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

    As noted above, some commenters have expressed particular concern 
that eliminating the prohibition against general solicitation may 
create more opportunities for private funds to distribute misleading 
and fraudulent information.\150\ Commenters recommending content 
restrictions expressed concern that general solicitation materials for 
private funds raise a substantial risk of investor confusion, and may 
cause an investor to draw unwarranted conclusions when comparing the 
performance of private funds, which are not subject to standardized 
performance calculation and reporting requirements, to the performance 
of other funds.\151\ Commenters also noted that, among other things, 
private fund portfolios tend to be more illiquid and difficult to value 
than registered investment companies, which may result in misleading 
performance data due to faulty valuations.\152\ Some commenters have 
also suggested that, until the Commission can develop standardized 
performance methodologies, private funds should be prohibited from 
including performance data in general solicitation materials.\153\ 
Other commenters, however, have stated that the risk of investor harm 
is limited because only accredited investors can purchase private funds 
offered under Rule 506(c).\154\
---------------------------------------------------------------------------

    \150\ See, e.g., letters from AFL-CIO and AFR; Consumer 
Federation; ICI; IDC.
    \151\ See, e.g., letters from ICI (noting that comparisons may 
be particularly difficult when a private fund is compared to a 
mutual fund, which is subject to specific calculation methodologies 
for performance data); and IDC (stating that ``[i]nvestors viewing 
mutual fund advertisements and private fund advertisements may see 
wide variations in performance information, without any explanation 
or way to understand the bases for the differences'').
    \152\ See, e.g., letters from NASAA (explaining that ``the 
investment strategies of private funds are typically more opaque, 
risky, and illiquid than those of mutual funds''); ICI (May 21, 
2012) (noting that private funds often ``invest in securities that 
are difficult to value or relatively illiquid'' and citing a 2003 
NASD sweep of broker-dealers that found several areas of concern in 
hedge fund advertisements and sales literature, including with 
respect to the presentation of performance data). Commission staff 
in our Office of Investor Education and Advocacy also recently 
issued an investor bulletin regarding hedge funds, advising 
investors that ``[h]edge funds do not need to follow any standard 
methodology when calculating performance, and they may invest in 
securities that are relative illiquid and difficult to value.'' See 
Office of Investor Education and Advocacy, Investor Bulletin: Hedge 
Funds (Oct. 2012), available at http://sec.gov/investor/alerts/ib_hedgefunds.pdf.
    \153\ See, e.g., letters from ICI (recommending a prohibition on 
use of performance advertising by private funds until the Commission 
can develop a new rule regarding such advertising); IDC; Consumer 
Federation (recommending that ``the Commission should at the very 
least adopt clear standards for the reporting of performance and 
fees by private funds, and delay their eligibility from engaging in 
general solicitation and advertising until such time as those 
standards are in place.'').
    \154\ See, e.g., letters from BlackRock (stating its belief that 
``the requirement that only sophisticated institutions and 
individuals may ultimately purchase interests in these funds . . . 
eliminates the risk that investors could be harmed as a result of a 
manager engaging in general advertising or solicitation'') and MFA 
(Sept. 28, 2012) (stating that ``only sophisticated investors may 
purchase interests in hedge funds, including those that in the 
future are offered and sold in reliance on revised Rule 506''). See 
also letter from MFA (June 20, 2013) (asserting that the Dodd-Frank 
Act and the Commission's regulatory implementation of the Dodd-Frank 
Act have significantly strengthened regulatory oversight of 
investment advisers to hedge funds).
---------------------------------------------------------------------------

    With respect to performance calculations for private funds, we note 
that the methodologies can vary for a number of reasons, such as the 
type of the fund, assumptions underlying the calculations and investor 
preferences. Given that legitimate reasons may result in different 
approaches to calculating performance for private funds, we have 
determined not to propose standardized calculation methodologies for 
performance of private funds without further study.
    We believe that the antifraud provisions of the federal securities 
laws, and the requirement that purchasers of a private fund offered 
under Rule 506(c) be accredited investors, provide a level of investor 
protection and thus we are not proposing to prohibit or restrict the 
use of performance data at this time. We are soliciting specific 
comment on this issue as well as on whether other manner and content 
restrictions related to the removal of the prohibition against general 
solicitation are necessary or appropriate for Rule 506(c) offerings by 
private funds or other issuers. As stated previously, we have directed 
the Commission staff to review and analyze developments in the new Rule 
506(c) market, including the form and content of written general 
solicitation materials submitted to the Commission.\155\
---------------------------------------------------------------------------

    \155\ See Section I of this release.
---------------------------------------------------------------------------

Request for Comment
    81. Commenters have expressed concern about private funds including 
performance information in general solicitations materials. Should the 
Commission apply any content restrictions to performance advertising by 
private funds? Why or why not? Should the Commission apply content 
standards to specific types of performance advertising (e.g., model or 
hypothetical performance)? Why or why not? Are there current practices 
that would be affected? If the performance information is otherwise 
truthful and not misleading, what should the Commission consider in 
deciding whether any content restriction is appropriate or necessary? 
Does the fact that investors in a private fund engaged in a Rule 506(c) 
offering must be accredited to purchase securities suggest a level of 
financial sophistication such that content restrictions in general, or 
certain content restrictions specifically, should not be required?
    82. How do the different types of private funds (e.g., hedge funds, 
private equity funds, venture capital funds, and securitized asset 
funds) calculate and present performance? Should private funds be 
subject to standardized performance reporting? If so, what reporting 
standard(s) should apply? Is there any standard that is widely used by 
private funds and should we consider requiring the use of such 
standard? Would one standardized performance reporting methodology be 
appropriate for different types of private funds?
    83. Should the use of performance claims by a private fund as part 
of a general solicitation be conditioned on a requirement that the 
private fund be subject to an audit by an independent public 
accountant? Would such a requirement provide some level of protection 
that the performance claims were at least based on valuations of assets 
audited by an independent third party? To what extent do private funds 
typically have such an audit?
    84. Is there a concern that, without content restrictions, 
materials used as part of general solicitations may vary depending upon 
who is selling the product (e.g., a broker-dealer's material subject to 
FINRA rules may differ from an issuer's materials)?
    85. Is investor confusion (or confusion by the general public) a 
concern with respect to a private fund's general solicitation 
materials? If so, what is the

[[Page 44828]]

specific nature of that confusion given that ultimately only accredited 
investors may invest in private funds engaged in a Rule 506(c) 
offering?
    86. Should the Commission draw a distinction between general 
solicitation activity engaged in by a private fund relying on Section 
3(c)(1) of the Investment Company Act compared to a fund relying on 
Section 3(c)(7) of the Investment Company Act? \156\ If so, how and 
why? General solicitation can be conducted through a broad array of 
media, including, but not limited to, print advertisements, billboards, 
television, the Internet and radio. Which ones will be most likely used 
in private fund offerings? Are there certain types of media that 
present heightened investor protection concerns?
---------------------------------------------------------------------------

    \156\ See notes 107 and 108.
---------------------------------------------------------------------------

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

    We are proposing new Rule 510T of Regulation D to require that an 
issuer conducting an offering in reliance on Rule 506(c) submit to the 
Commission any written general solicitation materials prepared by or on 
behalf of the issuer and used in connection with the Rule 506(c) 
offering. Under the proposed rule, the written general solicitation 
materials must be submitted no later than the date of first use of such 
materials in the offering. We are proposing the rule as a temporary 
rule that would expire two years after its effective date.
    In connection with the Rule 506(c) Proposing Release, a number of 
commenters recommended that the Commission require materials used in 
general solicitations under Rule 506(c) to be filed with, or furnished 
to, either the Commission or FINRA. Some commenters recommended that we 
require the submission of all proposed general solicitation materials 
as an exhibit to Form D.\157\ Other commenters, including the Investor 
Advisory Committee, suggested the creation of a publicly-available 
online electronic ``drop box'' on the Commission's Web site into which 
all general solicitation materials (whether in print, audio or video 
forms) could be deposited, together with a cover form identifying the 
issuer using the general solicitation materials and the circumstances 
under which the materials are to be used, with the Rule 506(c) 
exemption conditioned on such filings being made either before first 
use or promptly after first use.\158\ Still other commenters 
recommended that we consider requiring the pre-filing of all general 
solicitation materials under Rule 506(c) with FINRA, regardless of 
whether any broker-dealer involved in the offering is exempt from 
registration under the Exchange Act.\159\ These commenters generally 
asserted that such a requirement is needed as a safeguard for investor 
protection.
---------------------------------------------------------------------------

    \157\ See letters from Massachusetts Securities Division (July 
2, 2012); Ohio Division of Securities (July 3, 2012).
    \158\ See letters from Investor Advisory Committee; Consumer 
Federation.
    \159\ 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.
---------------------------------------------------------------------------

    The Commission will need to understand developments in the Rule 506 
market after the effectiveness of Rule 506(c). One of these 
developments would be the market practices through which issuers would 
solicit potential purchasers of securities offered in reliance on Rule 
506(c). We believe that it is important that the Commission have the 
ability to assess these market practices. Proposed Rule 510T would 
facilitate this assessment by requiring issuers to submit any written 
general solicitation materials used in their Rule 506(c) offerings 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. To allow the Commission to assess market 
developments prior to the adoption of proposed Rule 510T, the 
Commission will establish and make available for use the intake page 
upon the effectiveness of Rule 506(c). Doing so will allow issuers, 
investors and other market participants to submit voluntarily any 
written general solicitation materials used in Rule 506(c) offerings. 
The submitted materials would be considered by the Commission staff as 
part of the Rule 506(c) Work Plan.
    We are not proposing, at this time, that issuers file their written 
general solicitation materials through the Commission's EDGAR system. 
Written general solicitation materials submitted to the Commission 
pursuant to proposed Rule 510T would not be treated as being ``filed'' 
or ``furnished'' for purposes of the Securities Act or Exchange Act, 
including the liability provisions of those Acts. As the written 
general solicitation materials would be submitted to the Commission for 
the purpose of furthering the Commission's understanding of the market 
practices in the Rule 506 market, we are not proposing to make the 
written general solicitation materials publicly available on the 
Commission's Web site.\160\ Oral communications used to solicit 
potential purchasers of securities offered through Rule 506(c) 
offerings would not be subject to proposed Rule 510T. We believe that 
limiting the requirements of proposed Rule 510T in this manner is 
reasonable as we expect that many issuers will prefer to use written 
general solicitation materials due to the potentially greater reach and 
lower costs of such solicitation methods. Thus, we expect that 
requiring the submission of only written general solicitation materials 
should provide us with an efficient way to assess developments in the 
Rule 506 market.
---------------------------------------------------------------------------

    \160\ We do not contemplate that the submitted written general 
solicitation materials would be subject to a staff review similar to 
that conducted on Securities Act registration statements.
---------------------------------------------------------------------------

    Compliance with proposed Rule 510T would not be a condition of Rule 
506(c). As with the proposed Rule 509 requirement that issuers include 
legends and other disclosures in written general solicitation 
materials, we believe that conditioning the availability of Rule 506(c) 
on such compliance could lead to disproportionate consequences in the 
event of non-compliance. 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 510T. As with proposed Rule 509, we believe that 
the possibility of disqualification from reliance on Rule 506 would 
provide issuers with sufficient incentive to comply with the 
requirement of Rule 510T, without penalizing them unfairly for an 
inadvertent error or failure to submit written general solicitation 
materials. We also believe that Rule 507(a), with its provision that 
disqualification would occur only if a court issues an injunction, may 
be better suited for addressing the varied facts and circumstances that 
may cause an issuer not to submit written general solicitation 
materials and for determining whether disqualification for this failure 
is appropriate.
    As noted above, we are proposing Rule 510T as a temporary rule that 
will expire two years after the effective date of proposed Rule 510T. 
We believe that a two-year period would provide sufficient time for the 
Commission and the Commission staff to assess many of the market 
practices used to solicit potential purchasers of securities offered 
through Rule 506(c) offerings

[[Page 44829]]

and determine whether further action is warranted.
Request for Comment
    87. Should we require the submission of written general 
solicitation materials used in Rule 506(c) offerings, as proposed? 
Should oral communications that constitute general solicitation be 
required to be submitted in some form? If so, how should a requirement 
to submit general solicitation materials be applied to telephone 
solicitations, solicitations through broadcast media or oral 
communications?
    88. What are the appropriate ramifications for an issuer that fails 
to submit written general solicitation materials? Should failure to 
submit general solicitation materials disqualify an issuer from using 
Rule 506 for future offerings without court action? Should a cure 
period be provided? Should submission of written general solicitation 
materials be a condition to the Rule 506(c) exemption?
    89. What are the benefits and costs of requiring the submission of 
written general solicitation materials in Rule 506(c) offerings? If the 
staff were able to conduct only limited review of a small portion of 
the materials submitted, how does that impact an assessment of costs 
and benefits?
    90. Should the submitted written general solicitation materials be 
made publicly available on the Commission's Web site? Would the 
availability of such materials on the Commission's Web site give undue 
credibility to the materials and create the impression that submitted 
materials have been reviewed and/or approved by the Commission?
    91. Should written general solicitation materials be required to be 
submitted as an exhibit to Form D? Why or why not? Could submission of 
these materials publicly, through EDGAR or another means, have the 
effect of encouraging broadened investor interest in these offerings, 
beyond what the offerors would achieve by engaging in their own general 
solicitation efforts? Would this be in the interests of investors?
    92. Should the written general solicitation materials be submitted 
at a time other than the date of first use of such materials? For 
example, currently, free writing prospectuses in the form of media 
publications or broadcasts that include information about the issuer, 
its securities, or the offering provided, authorized, or approved by or 
on behalf of the issuer or an offering participant and that are 
published or disseminated by unaffiliated media must be filed within 
four business days after the issuer or offering participant becomes 
aware of its publication or first broadcast. Should a similar deadline 
be considered for the submission of written general solicitation 
materials that are in the form of media publications or broadcasts and 
that include information provided or authorized by the issuer or an 
offering participant?
    93. Should a requirement to submit written general solicitation 
materials be applied to all Rule 506(c) offerings, or should certain 
issuers or certain Rule 506(c) offerings be excluded or exempted from 
such a requirement? If yes, what issuers or offerings should be 
excluded or exempted? Should smaller issuers or smaller offerings be 
excluded or exempted?
    94. As proposed, only the issuer relying on Rule 506(c) would have 
an obligation under Rule 510T to submit written general solicitation 
materials to the Commission, even if the materials were prepared and 
disseminated by an offering participant on behalf of the issuer. Should 
this requirement extend to the submission of all written general 
solicitation materials used by other offering participants in the same 
offering? Would this requirement further the Commission's assessment of 
the market practices used by issuers in Rule 506(c) offerings?
    95. How would a requirement that written general solicitation 
materials be submitted to the Commission affect the amount or quality 
of information in such materials? How would it affect the use of Rule 
506(c)?
    96. Should the proposed requirement for issuers to submit written 
general solicitation materials be in the form of a temporary rule? 
Should this requirement be made a permanent one? If it is in the form 
of a temporary rule, is the proposed two-year period sufficient for 
purpose of understanding the market practices used by issuers to 
solicit potential purchasers in Rule 506(c) offerings?

V. Request for Comment on the Definition of ``Accredited Investor''

    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. Several commenters 
recommended that the accredited investor definition be revised to 
include a financial knowledge or investment experience component \161\ 
and/or a threshold based on the amount of securities investments owned 
by the purchaser, which, in their view, may be a more appropriate proxy 
for financial sophistication.\162\
---------------------------------------------------------------------------

    \161\ See letters from AARP; BetterInvesting; CFA Institute; 
Consumer Federation; ICI; Massachusetts Securities Division (July 2, 
2012). One commenter recommended adding ``knowledgeable employees'' 
to the accredited investor definition. See letter from MFA (May 4, 
2012). Another commenter suggested having the Commission offer 
investor education classes whereby investors who meet a lower 
financial threshold but pass a qualifying test could be granted 
accredited investor status. See letter from Cambridge Innovation 
Center (June 13, 2012).
    All of the commenters that recommended that the Commission amend 
the definition of accredited investor focused on the definition as 
it relates to natural persons. See, e.g., letters from AARP; AFL-CIO 
and AFR; BetterInvesting; CFA Institute; Consumer Federation; ICI; 
Investor Advisory Committee; Massachusetts Securities Division (July 
2, 2012).
    \162\ See letters from AARP; Consumer Federation; ICI.
---------------------------------------------------------------------------

    At the outset, we note that amending the definition of ``accredited 
investor'' raises a number of issues separate from the implementation 
of Section 201(a). The accredited investor definition is subject to a 
number of independent regulatory requirements that mandate review and 
consideration of the definition. For example, Section 415 of the Dodd-
Frank Act mandates the completion of a study by the Government 
Accountability Office (``GAO'') regarding the appropriate criteria for 
determining the financial thresholds or other criteria for qualifying 
as an accredited investor not later than three years after the date of 
enactment of the Dodd-Frank Act, which would be July 20, 2013. Under 
Section 413(b) of the Dodd-Frank Act, the Commission is required to 
undertake a review of the accredited investor definition as it relates 
to natural persons in its entirety four years after the enactment of 
the Dodd-Frank Act, and once every four years thereafter. Also, Section 
413(a) of the Dodd-Frank Act stipulates that the net worth standard 
shall be $1 million, excluding the value of a person's primary 
residence, until July 2014.
    Because any change we would propose to the definition of accredited 
investor would benefit from our consideration of these mandated reviews 
as well as from the ability to consider modifications to the net worth 
standard, we are not proposing any amendments to the accredited 
investor definition at this time. Nonetheless, in light of the 
considerations that commenters raised, 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). This review, which we 
anticipate will be completed in a timely manner, will encompass, among 
other things, both the question of whether net worth and annual income 
should be

[[Page 44830]]

used as the tests for determining whether a natural person is an 
accredited investor and the question of what the thresholds should be 
for those and other potential tests. We believe that it would be 
appropriate to coordinate the review and consideration of the 
accredited investor definition required by Section 413(b) of the Dodd-
Frank Act with the completion of the Commission staff's ongoing review 
and the GAO study.
Request for Comment
    97. Are the net worth test and the income test currently provided 
in Rule 501(a)(5) and Rule 501(a)(6), respectively, the appropriate 
tests for determining whether a natural person is an accredited 
investor? Do such tests indicate whether an investor has such knowledge 
and experience in financial and business matters that he or she is 
capable of evaluating the merits and risks of a prospective investment? 
If not, what other criteria should be considered as an appropriate test 
for investment sophistication?
    98. Are the current financial thresholds in the net worth test and 
the income test still the appropriate thresholds for determining 
whether a natural person is an accredited investor? Should any revised 
thresholds be indexed for inflation?
    99. Currently, the financial thresholds in the income test and net 
worth test are based on fixed dollar amounts (such as having an 
individual income in excess of $200,000 for a natural person to qualify 
as an accredited investor). Should the net worth test and the income 
test be changed to use thresholds that are not tied to fixed dollar 
amounts (for example, thresholds based on a certain formula or 
percentage)?

VI. Additional Requests for Comment

    We are also soliciting comment on the following additional matters:
    100. Should it be a condition of Rule 506(c) that, prior to any 
sale of a security in reliance on the Rule, the purchaser shall have 
received an offering document containing specified information? If so, 
should such information requirements be the same as, or more or less 
inclusive than, the information requirements set forth in Rule 502(b) 
of Regulation D (which apply only when an issuer sells securities under 
Rule 505 or Rule 506 to a purchaser that is not an accredited 
investor)?
    101. Should an issuer subject to the reporting requirements of 
Sections 13 or 15(d) of the Exchange Act be permitted to use Rule 
506(c) if it is not current in its reporting obligations?

VII. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding the proposed rule and form amendments, specific issues 
discussed in this release, and other matters that may have an effect on 
the proposed rules. We request comment from the point of view of 
issuers, investors and other market participants. With regard to any 
comments, we note that such comments are of particular assistance to us 
if accompanied by supporting data and analysis of the issues addressed 
in those comments. Commenters are urged to be as specific as possible.

VIII. Paperwork Reduction Act

A. Background

    The proposed rule and form amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\163\ The titles of these requirements 
are:
---------------------------------------------------------------------------

    \163\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

     ``Form D'' (OMB Control No. 3235-0076); \164\ and
---------------------------------------------------------------------------

    \164\ Form D was adopted pursuant to Sections 2(a)(15), 3(b), 
4(a)(2), 19(a) and 19(c)(3) of the Securities Act (15 U.S.C. 
77b(a)(15), 77c(b), 77d(a)(2), 77s(a) and 77s(c)(3)).
---------------------------------------------------------------------------

     ``Rule 506(c) General Solicitation Materials'' (a proposed 
new collection of information).

We are submitting these requirements to the Office of Management and 
Budget (``OMB'') for review and approval in accordance with the PRA and 
its implementing regulations.\165\ We are applying for an OMB control 
number for the proposed new collection of information in accordance 
with 44 U.S.C. 3507(j) and 5 CFR 1320.13, and OMB has not yet assigned 
a control number to the new collection. If adopted, responses to the 
new collection of information would be mandatory. An agency may not 
conduct or sponsor, and a person is not required to respond to, a 
collection of information requirement unless it displays a currently 
valid OMB control number.
---------------------------------------------------------------------------

    \165\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

B. Burden and Cost Estimates Related to the Proposed Amendments

1. Proposed Amendments Relating to Form D
    We adopted Regulation D and Form D as part of the establishment of 
a series of exemptions for offerings and sales of securities under the 
Securities Act. Form D contains collection of information requirements, 
requiring an issuer to file a notice of sale of securities pursuant to 
Regulation D or Section 4(a)(5) of the Securities Act. The Form D is 
required to include basic information about the issuer, certain related 
persons and the offering. This information is needed for implementing 
the exemptions and evaluating their use. The information collection 
requirements related to the filing of Form D with the Commission are 
mandatory to the extent that an issuer elects to make an offering of 
securities in reliance on the relevant exemption. Responses are not 
confidential. The hours and costs associated with preparing and filing 
forms and retaining records constitute reporting and cost burdens 
imposed by the collection of information requirements.
    We are proposing to require the advance filing of Form D for Rule 
506(c) offerings and to require the filing of a closing amendment to 
Form D after the termination of all Rule 506 offerings. In addition, we 
are proposing to amend Item 2 of Form D to require the identification 
of the issuer's publicly accessible (Internet) Web site address, if 
any; Item 3 of Form D to require, in Rule 506(c) offerings, the name 
and address of controlling persons, in addition to the information 
currently required for ``related persons;'' Item 4 of Form D to require 
the issuer to briefly describe its industry group if the issuer checks 
the ``Other'' box; Item 5 of Form D to replace the ``Decline to 
Disclose'' option with a ``Not Available to Public'' option; Item 7 of 
Form D to add separate fields or check boxes for issuers to indicate 
whether they are filing a Form D in advance of a Rule 506(c) offering 
or a closing Form D amendment for a Rule 506 offering; Item 9 of Form D 
to require information on the ticker symbol and security identifier for 
the offered securities, if any; Item 14 of Form D to add a table 
requiring information, in regard to Rule 506 offerings, on the number 
of accredited investors and non-accredited investors, whether they are 
natural persons or entities, and the amount raised from each category 
of investor; and Item 16 of Form D to require information, if the 
issuer is not a pooled investment fund, 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.
    We are also proposing to add new items to Form D, which would 
require

[[Page 44831]]

the following additional information in regard to offerings conducted 
under Rule 506: The number and types of accredited investors that 
purchased securities in the offering; for Rule 506(c) offerings, the 
methods used to verify accredited investor status and the types of 
general solicitation used; 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; and in the case of pooled investment funds, the name and 
SEC file number for each investment adviser who functions directly or 
indirectly as a promoter of the issuer.
    We anticipate that if the proposed amendments to require the 
advance filing of Form D for Rule 506(c) offerings, the filing of a 
closing amendment to Form D after the termination of Rule 506 
offerings, and additional information in Form D are adopted, the burden 
for responding to the collection of information in Form D would 
increase for most issuers. For purposes of the PRA, we estimate that 
the annual compliance burden of the collection of information 
requirements for issuers making Form D filings after these proposed 
amendments would be an aggregate 32,736 hours of issuer personnel time 
and $39,283,200 for the services of outside professionals per year. Our 
methodologies for deriving the above estimates are discussed below.
    The table below shows the current total annual compliance burden, 
in hours and in costs, of the collection of information pursuant to 
Form D in connection with the rule and form amendments to implement 
Section 201(a) of the JOBS Act we are adopting today. For purposes of 
the PRA, prepared in connection with the amendments to Form D adopted 
today, we estimate that, over a three-year period, the average burden 
estimate will be four hours per Form D filing. Our burden estimate 
represents the average burden for all issuers. This burden is reflected 
as a one hour burden of preparation on the company and a cost of $1,200 
per filing. In deriving these estimates, we assume that 25% of the 
burden of preparation is carried by the issuer internally and that 75% 
of the burden of preparation is carried by outside professionals 
retained by the issuer at an average cost of $400 per hour. The portion 
of the burden carried by outside professionals is reflected as a cost, 
while the portion of the burden carried by the issuer internally is 
reflected in hours.

                               Table 1--Estimated Paperwork Burden Under Form D, Pre-Amendments to Regulation D and Form D
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           External
                                                      Number of      Burden  hours/    Total burden   Internal issuer    professional     Professional
                                                      responses           form            hours             time             time             costs
                                                        (A) \166\              (B)                (C) = (A) * (B)(D)              (E)   (F) = (E) * $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form D...........................................          21,824                4           87,296           21,824           65,472        $26,188,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We believe that the proposed amendments to Form D, if adopted, 
would increase the existing paperwork burden of the form by requiring 
additional information in Form D, particularly with respect to Rule 506 
offerings. In addition, while we do not anticipate that these proposed 
rule and form amendments will result in an increase in the number of 
Regulation D offerings, we believe that the paperwork burden of the 
form would increase as a result of the advance filing requirement for 
Rule 506(c) offerings and the requirement to file an additional 
amendment after the termination of Rule 506 offerings.\167\ We estimate 
that the paperwork burden associated with filing the required 
information on Form D over the span of a particular offering would 
increase to approximately 6 hours per offering.\168\
---------------------------------------------------------------------------

    \166\ The information in this column is based on the 18,187 new 
Form D filings that were actually made in 2012, plus the additional 
3,637 filings we estimate would be filed in the first year after the 
effective date of Rule 506(c).
    \167\ As discussed in Section IX.B.4.a of this release, there is 
evidence that some issuers are not filing Form D for their offerings 
in compliance with Rule 503.
    \168\ The estimate of approximately 6 hours per offering is a 
blended average of the paperwork burden for all offerings for which 
a Form D is required to be filed, not only offerings under Rule 506.
---------------------------------------------------------------------------

    The table below illustrates the total annual compliance burden of 
the collection of information in hours and in cost under the proposed 
amendments to Regulation D and Form D. The burden estimates were 
calculated by multiplying the estimated number of responses by the 
estimated average amount of time it would take an issuer to prepare and 
review a Form D filing consistent with the assumptions above. We 
continue to estimate that 25 percent of the burden of preparation is 
carried by the company internally and that 75 percent of the burden of 
preparation is carried by outside professionals retained by the issuer 
at an average cost of $400 per hour. The portion of the burden carried 
by outside professionals is reflected as a cost, while the portion of 
the burden carried by the issuer internally is reflected in hours.

                              Table 2--Estimated Paperwork Burden Under Form D, Post-Amendments to Regulation D and Form D
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                           External
                                                      Number of      Burden  hours/    Total burden   Internal issuer    professional     Professional
                                                      responses           form            hours             time             time             costs
                                                              (A)              (B)                (C) = (A) * (B)(D)              (E)   (F) = (E) * $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form D...........................................          21,824                6          130,944           32,736           98,208        $39,283,200
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 44832]]

2. Rule 506(c) General Solicitation Materials
    We are proposing new Rule 510T of Regulation D to require that an 
issuer conducting an offering in reliance on Rule 506(c) submit to the 
Commission any written general solicitation materials prepared by or on 
behalf of the issuer and used in connection with the Rule 506(c) 
offering. Under the proposed rule, the written general solicitation 
materials must be submitted to the Commission through an intake page on 
the Commission's Web site no later than the date of first use of such 
materials in the offering. Written general solicitation materials 
submitted to the Commission in this manner would not be publicly 
available on the Commission's Web site. We are proposing Rule 510T as a 
temporary rule that will expire two years after the effective date of 
proposed Rule 510T. In addition, we are proposing a number of legends 
and other disclosures that would need to be included in written general 
solicitation materials used in Rule 506(c) offerings. All such 
materials would need to disclose that only accredited investors can 
purchase in the Rule 506(c) offering. All such materials used by 
private funds would need to disclose that the securities offered are 
not subject to the protections of the Investment Company Act. And 
finally, any private fund that includes performance data in its written 
general solicitation materials would need to disclose certain 
information about the performance data. We propose to prescribe the 
basic elements of the disclosures but not the exact wording. We do not 
believe that any of the disclosures would be burdensome to prepare.
    For purposes of the PRA, we estimate that the annual compliance 
burden of this collection of information requirement for issuers 
conducting Rule 506(c) offerings would be an aggregate 7,274 hours of 
issuer personnel time. We estimate that compliance with the proposed 
requirements related to written general solicitation materials would 
result in an estimated burden of two hours per offering under Rule 
506(c). This estimated two hour burden includes the time it would take 
to prepare any applicable disclosures for the written general 
solicitation materials and to submit such materials through the 
Commission's Web site. Our burden estimate represents the average 
burden for all issuers per Rule 506(c) offering. In deriving this 
estimate, we assume that 100% of the burden of preparation will be 
carried by the issuer internally, which is reflected as an hourly 
burden.
    Although it is not possible to predict the number of future 
offerings made in reliance on Rule 506(c) with any degree of accuracy, 
particularly because Rule 506(c) is not yet effective, for purposes of 
this analysis we estimate that there would be 3,637 Rule 506(c) 
offerings per year.\169\ We assume for purposes of this analysis that 
all Rule 506(c) offerings will involve the use of written general 
solicitation materials.\170\ Based on this estimated number of Rule 
506(c) offerings and an estimated burden of two hours per Rule 506(c) 
offering, we estimate that the annual compliance burden of this 
collection of information requirement for the first year in which 
issuers would be required to submit written general solicitation 
materials to the Commission pursuant to Rule 510T would be an aggregate 
of 7,274 hours of issuer personnel time.
---------------------------------------------------------------------------

    \169\ As a reference point for the potential increase in the 
total number of Rule 506 offerings after the adoption of Rule 
506(c), we use the impact of another past rule change on the market 
for Regulation D offerings. In 1997, the Commission amended Rule 
144(d) under the Securities Act [17 CFR 230.144(d)] to reduce the 
holding period for restricted securities from two years to one year, 
thereby increasing the attractiveness of Regulation D offerings to 
investors and to issuers. See Revision of Holding Period 
Requirements in Rules 144 and 145, Release No. 33-7390 (Feb. 20, 
1997) [62 FR 9242 (Feb. 28, 1997)]. There were 10,341 Form D filings 
in 1996. This was followed by a 20% increase in the number of Form D 
filings in each of the subsequent three calendar years, reaching 
17,830 by 1999. We assume that there could be a similarly 
significant increase in the overall number of Rule 506 offerings 
following the adoption of Rule 506(c). We also assume, for purposes 
of this analysis, that this 20% increase will be comprised entirely 
of Rule 506(c) offerings because of the benefits to issuers in using 
general solicitation, including wider access to accredited 
investors, and because non-accredited investors reportedly purchased 
securities in only 11% of the Rule 506 offerings conducted between 
2009 and 2012. See Ivanov/Bauguess Study.
    According to DERA, for the year ended December 31, 2012, there 
were 18,187 new Form D filings. A 20% increase in this number would 
result in a total of 21,824 new Regulation D offerings. Assuming the 
entire 20% increase is comprised of Rule 506(c) offerings, this 
would result in an estimated 3,637 Rule 506(c) offerings per year 
after adoption of the rule.
    \170\ Not all Rule 506(c) offerings will involve the use of 
written general solicitation materials and not all private funds 
will include performance data in their written general solicitation 
materials but we cannot predict with any degree of accuracy how 
issuers will conduct their Rule 506(c) offerings. Therefore, for 
purposes of this analysis, we are assigning two hours per Rule 
506(c) offering, which we think represents a reasonable estimate of 
the average cost to issuers in Rule 506(c) offerings of complying 
with the proposed information requirements related to written 
general solicitation materials.
---------------------------------------------------------------------------

C. Request for Comment

    We request comment in order to: (i) Evaluate whether the proposed 
collections of information are necessary for the proper performance of 
the functions of the Commission, including whether the information will 
have practical utility; (ii) evaluate the accuracy of our estimate of 
the burden of the proposed collections of information; (iii) determine 
whether there are ways to enhance the quality, utility and clarity of 
the information to be collected; and (iv) evaluate whether there are 
ways to minimize the burden of the collections of information on those 
who respond, including through the use of automated collection 
techniques or other forms of information technology.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and send a copy to Elizabeth M. Murphy, Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090, 
with reference to File No. S7-06-13. Requests for materials submitted 
to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-06-13, and be 
submitted to the Securities and Exchange Commission, Office of Investor 
Education and Advocacy, 100 F Street NE., Washington, DC 20549. OMB is 
required to make a decision concerning the collections of information 
between 30 and 60 days after publication of this release. Consequently, 
a comment to OMB is best assured of having its full effect if OMB 
receives it within 30 days of publication.

IX. Economic Analysis

    As directed by Section 201(a)(1) of the JOBS Act, the Commission 
has amended Rule 506 of Regulation D to permit general solicitation for 
offers and sales of securities made pursuant to Rule 506, provided that 
all purchasers of the securities are accredited investors and the 
issuer takes reasonable steps to verify their accredited investor 
status. This rule amendment has raised a number of concerns with 
respect to the Commission's ability to evaluate and assess the changing 
nature of the Rule 506 market and investor awareness of the risks 
associated with offerings under Rule 506(c). We are proposing 
amendments to Regulation D, Form D and Rule 156 of the Securities Act 
to address these concerns.
    The proposed amendments to Form D and Regulation D as it relates to 
Form D would:

[[Page 44833]]

     Require the advance filing of Form D in Rule 506(c) 
offerings;
     require the filing of a closing amendment to Form D after 
the termination of a Rule 506 offering;
     require issuers to provide additional information in Form 
D primarily in regard to Rule 506 offerings; and
     disqualify an issuer from relying on Rule 506 for future 
offerings until one year after the required Form D filings are made 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.

These proposed amendments are intended to enhance the Commission's 
ability to evaluate the development of market practices in Rule 506 
offerings. In addition, these proposed amendments are expected to 
support and facilitate examination and enforcement efforts by the 
Commission and other regulators.
    We are also proposing a new rule in Regulation D and an amendment 
to Rule 156 designed to address investor protection concerns arising 
from the ability of issuers to engage in general solicitation in their 
Rule 506(c) offerings. The new rule and the amendment to Rule 156 
would:
     Require written general solicitation materials used in 
these offerings to include certain legends and other disclosures; and
     extend the interpretive guidance contained within Rule 156 
to the sales literature of private funds.

Further, we are soliciting comment on whether manner or content 
restrictions should be imposed on general solicitation materials used 
by private funds.
    We are proposing a new rule in Regulation D to require issuers, on 
a temporary basis, to submit any written general solicitation materials 
used in their Rule 506(c) offerings to the Commission. Such materials 
would be required to be submitted through an intake page on the 
Commission's Web site no later than the date of the first use of the 
materials in a Rule 506(c) offering. If adopted, this new rule would 
expire two years after the effective date of the rule.
    We are mindful of the costs imposed by and the benefits obtained 
from our rules. The discussion below addresses the potential economic 
effects of these proposed amendments, including the likely benefits and 
costs of the amendments and their potential impact on efficiency, 
competition and capital formation.\171\ These costs and benefits are 
not a result of the statutory mandate of Section 201(a) and are 
affected by the discretion we may exercise in implementing measures to 
supplement the implementation of the statutory mandate as contained in 
the amendments we are adopting today.
---------------------------------------------------------------------------

    \171\ Section 2(b) of the Securities Act and Section 3(f) of the 
Exchange Act require the Commission, when engaging in rulemaking 
that requires it to consider whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action would promote 
efficiency, competition, and capital formation. 15 U.S.C. 77b(b); 15 
U.S.C. 78c(f). Section 23(a)(2) of the Exchange Act requires the 
Commission, in adopting rules under the Exchange Act, to consider 
the impact that any new rule would have on competition and prohibits 
the Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the 
purposes of the Exchange Act. 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

A. Broad Economic Considerations

    As we highlight in our baseline analysis below, we note that a 
large percentage of current Rule 506 offerings are conducted by small 
issuers, which is consistent with the original Commission initiative in 
the early 1980s to facilitate capital formation by small issuers.\172\ 
We stated at that time that an important purpose of the Form D filing 
requirement was ``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 would allow the Commission to elicit information 
necessary in assessing the effectiveness of Regulation D as a capital 
raising device for small businesses.'' \173\
---------------------------------------------------------------------------

    \172\ Form D and Regulation D were adopted in 1982. Release No. 
33-6389 (adopting Form D as a replacement for Forms 4(6), 146, 240 
and 242).
    \173\ Release No. 33-6339.
---------------------------------------------------------------------------

    As previously noted, we substantially revised Form D in 2008 to 
mandate its filing in electronic form.\174\ At that time, we 
highlighted that a searchable electronic database of machine-readable 
filings would enable both federal and state securities regulators to 
analyze exempt securities transactions more effectively, thereby 
improving coordination among regulators and enhancing investor 
protections.\175\ Since the adoption of the electronic Form D, we have 
been able to systematically extract information from the machine-
readable filings, which are the best source of data about Rule 506 
offerings and the basis of the baseline information provided below.
---------------------------------------------------------------------------

    \174\ See Release No. 33-8891.
    \175\ Id.
---------------------------------------------------------------------------

    With the adoption of Rule 506(c), issuers are expected to have 
access to a greater number of capital sources because they will be able 
to generally solicit investors through a variety of means, thereby 
lowering search costs. While participating investors must be accredited 
investors, and Rule 506(c) requires issuers to take reasonable steps to 
verify that such persons are accredited investors, it is possible that 
some verification methods could lead to participation by non-accredited 
investors. Non-accredited investors who are not detected by reasonable 
verification methods could then participate in Rule 506(c) offerings 
for which they may not be well suited. There is also an increased 
likelihood of non-accredited investor participation in Rule 506(c) 
offerings if verification methods are deficient. Both of these 
likelihoods increase with issuers' ability to generally solicit their 
offers to an audience of potential investors through broader 
communication and advertising channels.
    The proposed enhancements to the Form D filing requirements are 
prompted, in part, by the additional investor protection concerns 
associated with the ability to generally solicit private offerings. The 
proposed additional information and filing requirements should also 
enable the Commission to better evaluate the effectiveness of general 
solicitation in raising capital for small businesses.
    All of these proposed rules could also impose certain costs on 
issuers, including filing burdens, reduced flexibility in offering 
methods and disclosure of potentially sensitive information. We discuss 
these potential costs in relation to the anticipated benefits in the 
sections below.

B. Economic Baseline

    To assess the economic impact of the proposed rules, we are using 
as our baseline the regulation of private offerings as it exists today, 
including the adoption of Rule 506(c), which removes the prohibition on 
general solicitation for offerings under Rule 506. We also include in 
our baseline the provisions enacted with the adoption of the bad actor 
rule, which disqualifies issuers and other market participants from 
relying on Rule 506 if ``felons and other `bad actors''' are 
participating in the offering. Because these provisions are being 
adopted today, the information provided below regarding the current 
state of the private offering market in the United States does not 
include data related to the use of general solicitation in Rule 506(c) 
offerings or the disqualification of bad actors, because no such data 
exist. Hence, some of our analysis of the potential impact of the 
proposed rules considers the anticipated

[[Page 44834]]

effects of the adoption of Rules 506(c) and 506(d). As a result, many 
of the potential costs and benefits are difficult to quantify with any 
degree of certainty, especially as the practices of market participants 
are expected to evolve and adapt to the ability to generally solicit in 
Rule 506(c) offerings. To the extent applicable, we will consider 
developments in the private offering market subsequent to the adoption 
of today's rule amendments in any future assessment of the potential 
economic impact of the rules proposed today.
    The baseline analysis that follows is in large part based on 
information collected from Form D filings submitted by issuers relying 
on Regulation D to raise capital, which is based on issuer reporting 
practices and requirements that could change because of the proposed 
amendments. As we describe in more detail below, we believe that we do 
not have a complete view of the Rule 506 market, particularly with 
respect to the amount of capital raised. Currently, issuers are 
required to file an initial Form D within 15 days of the first sale of 
securities, and are required to report additional sales through amended 
filings only under certain conditions. In addition, issuers do not 
report all required information, either due to error or because they do 
not wish to make the information public. Commenters have suggested and 
we also have evidence that some issuers are not filing a Form D for 
their offerings in compliance with Rule 503.\176\ Consequently, the 
analysis that follows is necessarily subject to these limitations in 
the current Form D reporting process.
---------------------------------------------------------------------------

    \176\ See note 85.
---------------------------------------------------------------------------

    Some of the proposed rules, such as an Advance Form D filing for 
Rule 506(c) offerings, a closing Form D amendment for Rule 506 
offerings, and expanded information requirements in Form D primarily in 
regard to Rule 506 offerings, seek to address these reporting 
limitations and are intended to result in more complete information on 
the Rule 506 market.
1. Size of the Exempt Offering Market
    Exempt offerings play a significant role in capital formation in 
the United States. Offerings conducted in reliance on Rule 506 account 
for 99% of the capital reported as being raised under Regulation D from 
2009 to 2012, and represent approximately 94% of the number of 
Regulation D offerings.\177\ The significance of Rule 506 offerings is 
underscored by the comparison to registered offerings. In 2012, the 
estimated amount of capital reported as being raised in Rule 506 
offerings (including both equity and debt) was $898 billion, compared 
to $1.2 trillion raised in registered offerings.\178\ Of this $898 
billion, operating companies (issuers that are not pooled investment 
funds) reported raising $173 billion, while pooled investment funds 
reported raising $725 billion.\179\ The amount reported as being raised 
by pooled investment funds is comparable to the amount of capital 
raised by registered investment funds. In 2012, registered investment 
funds (which include money market mutual funds, long-term mutual funds, 
exchange-traded funds, closed-end funds and unit investment trusts) 
raised approximately $727 billion.\180\
---------------------------------------------------------------------------

    \177\ See Ivanov/Bauguess Study.
    \178\ See id.
    \179\ See id.
    \180\ In calculating the amount of capital raised by registered 
investment funds, we use the net amounts (plus reinvested dividends 
and reinvested capital gains), which reflect redemptions, and not 
gross amounts, by open-ended registered investment funds because 
they face frequent redemptions, and do not have redemption 
restrictions and lock-up periods common among private funds. In 
addition, we use the new issuances of registered closed-end funds 
and the new deposits of registered unit investment trusts. See 2013 
Investment Company Institute Factbook, available at http://www.icifactbook.org.
---------------------------------------------------------------------------

    In 2011, the estimated amount of capital (including both equity and 
debt) reported as being raised in Rule 506 offerings was $849 billion 
compared to $985 billion raised in registered offerings.\181\ Of the 
$849 billion, operating companies reported raising $71 billion, while 
pooled investment funds reported raising $778 billion.\182\ More 
generally, when including offerings pursuant to other exemptions--Rule 
144A, Regulation S and Section 4(a)(2)--significantly more capital 
appears to be raised through exempt offerings than registered offerings 
(Figure 1).\183\
---------------------------------------------------------------------------

    \181\ See Ivanov/Bauguess Study.
    \182\ See id.
    \183\ See id.
    [GRAPHIC] [TIFF OMITTED] TP24JY13.022
    

[[Page 44835]]


    At present, issuers  are required to file a Form D not later than 
15 days after the first sale of securities in a Regulation D offering 
and an amendment to the Form D only under certain circumstances. Since 
issuers are not required to submit a filing when an offering is 
completed, and submit amendments only under certain circumstances, we 
have no definitive information on the final amounts raised. Figure 2, 
below, illustrates that at the time of the initial Form D filing, only 
39% of offerings by non-pooled investment fund issuers were completed 
relative to the total amount sought. Separately, 70% of pooled 
investment funds state their total offering amount to be ``Indefinite'' 
in their Form D filings. As a result, the initial Form D filings of 
these pooled investment funds likely do not accurately reflect the 
total amount of securities offered or sold.
---------------------------------------------------------------------------

    \184\ The 2012 non-ABS Rule 144A offerings data is based on an 
extrapolation of currently available data through May 2012 from 
Sagient Research System's Placement Tracker database. For more 
detail, see the Ivanov/Bauguess Study.
[GRAPHIC] [TIFF OMITTED] TP24JY13.023

2. Affected Market Participants
    The amendments to Rule 506 we are adopting today in a separate 
release will affect a number of different market participants. Issuers 
of securities in Rule 506 offerings include both reporting and non-
reporting operating companies and pooled investment funds. Investment 
advisers organize and sponsor pooled investment funds that conduct Rule 
506 offerings. Intermediaries that facilitate Rule 506 offerings 
include registered broker-dealers, finders and placement agents. 
Investors in Rule 506 offerings include accredited investors (both 
natural persons and legal entities) and non-accredited investors who 
meet certain ``sophistication'' requirements. Affected market 
participants might also include investors that are not eligible to 
participate in Rule 506(c) offerings, but do because of poor investor 
verification standards or fraudulent activities. Each of these market 
participants is discussed in further detail below.
a. Issuers
    Based on the information submitted in 112,467 new and amended Form 
D filings between 2009 and 2012, there were 67,706 new Regulation D 
offerings by 49,740 unique issuers during this four-year period.\185\ 
The size of the average Regulation D offering during this period was 
approximately $30 million, whereas the size of the median offering was 
approximately $1.5 million.\186\ The difference between the average and 
median offering sizes indicates that the Regulation D market is 
comprised of many small offerings, which is consistent with the view 
that many smaller businesses are relying on Regulation D to raise 
capital, and a smaller number of much larger offerings.
---------------------------------------------------------------------------

    \185\ See Ivanov/Bauguess Study.
    \186\ See id. The average and median amounts are calculated 
based on the amounts sold by Regulation D issuers as reported in 
their Form D filings. A study of unregistered equity offerings by 
publicly-traded companies over the period 1980-1996 finds that the 
mean offering amount was $12.7 million, whereas the median offering 
amount was $4.5 million. See Michael Hertzel, Michael Lemmon, James 
Linck and Lynn Rees, Long-Run Performance Following Private 
Placements of Equity, 57 Journal of Finance 2595 (2002).
---------------------------------------------------------------------------

    Some information about issuer size is available from Item 5 in Form 
D, which requires issuers in Regulation D offerings to report their 
size in terms of revenue ranges or, in the case of pooled investment 
funds, net asset value ranges. All issuers can currently choose not to 
disclose this size information, however, and a significant majority of 
issuers that are not pooled investment funds declined to disclose their 
revenue ranges in the Forms D that they filed between 2009 and 2012. 
For those that did, most reported a revenue range of less than $1 
million (Figure 3).\187\ During the 2009-2011 period, approximately 10% 
of all public companies raised capital in Regulation D offerings; in 
2012, approximately 6% of such companies did so.\188\ These public 
companies tended to be smaller and less profitable than their industry 
peers, which illustrates the importance of the private capital markets 
to smaller companies, whether public or private.\189\
---------------------------------------------------------------------------

    \187\ See Ivanov/Bauguess Study.
    \188\ Id. (explaining methodology of using listings in the 
Standard & Poor's Compustat database and the University of Chicago's 
Center for Research in Securities Prices database to determine which 
companies were public companies).
    \189\ Id.

---------------------------------------------------------------------------

[[Page 44836]]

[GRAPHIC] [TIFF OMITTED] TP24JY13.024

    During this period, pooled investment funds conducted approximately 
24% of the total number of Regulation D offerings and raised 
approximately 81% of the total amount of capital raised in Regulation D 
offerings.\190\ More than 75% of pooled investment funds declined to 
disclose their net asset value range. The proposed amendments to Form D 
would eliminate this voluntary choice to decline to report fund size 
(or issuer size for those that are not pooled investment funds), except 
for issuers who do not include such information in general solicitation 
materials under Rule 506(c) or otherwise make this information publicly 
available.
---------------------------------------------------------------------------

    \190\ Id.

---------------------------------------------------------------------------

[[Page 44837]]

[GRAPHIC] [TIFF OMITTED] TP24JY13.025

    Between 2009 and 2012, approximately 66% of Regulation D offerings 
were of equity securities, and almost two-thirds of these were by 
issuers other than pooled investment funds.\191\ Non-U.S. issuers 
accounted for approximately 19% of the amount of capital raised in 
Regulation D offerings, indicating that the U.S. market is a 
significant source of capital for these issuers.\192\
---------------------------------------------------------------------------

    \191\ Id.
    \192\ Id.
---------------------------------------------------------------------------

b. Investors
    We have relatively little information on the types and number of 
investors in Rule 506 offerings. Form D currently requires issuers in 
Rule 506 offerings to provide information about the total number of 
investors who have already invested in the offering and the number of 
persons who do not qualify as accredited investors.\193\ In 2012, 
approximately 153,000 investors participated in offerings by operating 
companies, while approximately 81,000 investors invested in offerings 
by pooled investment funds.\194\ Because some investors participate in 
multiple offerings, these numbers likely overestimate the actual number 
of unique investors in these reported offerings. We do not know what 
fraction of these investors are natural persons or entities because 
Form D does not require any other information on the types of 
investors.\195\ In offerings under Rule 506(b), both accredited 
investors and up to 35 non-accredited investors who meet certain 
``sophistication'' requirements are eligible to purchase securities. In 
offerings under new Rule 506(c), only accredited investors will be 
eligible to purchase securities.
---------------------------------------------------------------------------

    \193\ See Item 14 of Form D. Form D does not require any other 
information on the types of investors, such as whether they are 
natural persons or legal entities.
    \194\ These numbers are based on initial Form D filings 
submitted in 2012.
    \195\ See Item 14 of Form D.
---------------------------------------------------------------------------

    Information collected from Form D filings indicates that most Rule 
506 offerings do not involve broad investor participation. More than 
two-thirds of these offerings have ten or fewer investors, while less 
than 5% of these offerings have more than 30 investors. Although Rule 
506 currently allows for the participation of non-accredited investors 
who meet certain sophistication requirements, such non-accredited 
investors purchased securities in only 11% of the Rule 506 offerings 
conducted between 2009 and 2012.\196\ Only 8% of the offerings by 
pooled investment funds included non-accredited investors, compared to 
12% of the offerings by other issuers.\197\
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    \196\ See Ivanov/Bauguess Study.
    \197\ Id.

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[[Page 44838]]

[GRAPHIC] [TIFF OMITTED] TP24JY13.026

    As stated above, between 2009 and 2012, the size of the median 
Regulation D offering, based on the information in Form D filings, was 
approximately $1.5 million. The presence of so many relatively small 
offerings suggests that a sizable number of current investors in Rule 
506 offerings are natural persons or legal entities in which all equity 
owners are natural persons. This is because smaller offerings may not 
provide sufficient scale for institutional investors to earn a sizable 
return. Institutional investors typically have a larger investible 
capital base and more formal screening procedures compared to investors 
who are natural persons, and the associated costs of identifying 
potential investments and monitoring their investment portfolio lead 
them to make larger investments than natural persons.\198\ As for 
whether natural persons investing in these offerings are accredited 
investors or non-accredited investors, almost 90% of the Regulation D 
offerings conducted between 2009 and 2012 did not involve any non-
accredited investors.\199\
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    \198\ See, e.g., George Fenn, Nellie Liang and Stephen Prowes, 
The Economics of Private Equity Markets (1998); Steven Kaplan and 
Per Str[ouml]mberg, Leveraged Buyouts and Private Equity, 23 Journal 
of Economic Perspectives 121 (2009).
    \199\ See Ivanov/Bauguess Study.
---------------------------------------------------------------------------

    While we do not know what percentage of investors in Rule 506 
offerings are natural persons, the vast majority of Regulation D 
offerings are conducted without the use of an intermediary,\200\ 
suggesting that many of the investors in Regulation D offerings likely 
have a pre-existing relationship with the issuer or its management 
because these offerings would not have been conducted using general 
solicitation. This category of investors is likely to be much smaller 
than the total number of eligible investors for Rule 506(c) offerings, 
which is potentially very large. We estimate that at least 8.7 million 
U.S. households, or 7.4% of all U.S. households, qualified as 
accredited investors in 2010, based on the net worth standard in the 
definition of ``accredited investor'' (Figure 6).\201\
---------------------------------------------------------------------------

    \200\ An analysis of all Form D filings submitted between 2009 
to 2012 shows that approximately 11% of all new offerings reported 
sales commissions of greater than zero because the issuers used 
intermediaries. See Ivanov/Bauguess Study. We assume that the lack 
of a commission indicates the absence of an intermediary.
    \201\ This estimate is based on net worth and household data 
from the Federal Reserve Board's Triennial Survey of Consumer 
Finances 2010. Our calculations are based on all 32,410 observations 
in the 2010 survey.

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[[Page 44839]]

[GRAPHIC] [TIFF OMITTED] TP24JY13.027

    Our analysis, however, leads us to believe that only a small 
percentage of these households are likely to participate in securities 
offerings, especially exempt offerings. First, as mentioned above, data 
from Form D filings in 2012 suggests that fewer than 234,000 investors 
(of which an unknown subset are natural persons) participated in 
Regulation D offerings, which is small compared to the 8.7 million 
households that qualify as accredited investors. Second, evidence 
suggests that only a small fraction of the total accredited investor 
population has significant levels of direct stockholdings. Based on an 
analysis of retail stock holding data for 33 million brokerage accounts 
in 2010, only 3.7 million accounts had at least $100,000 of direct 
investments in equity securities issued by public companies listed on 
domestic national securities exchanges, while only 664,000 accounts had 
at least $500,000 of direct investments in such equity securities 
(Figure 7).\202\ Assuming that investments in publicly-traded equity 
securities are a gateway to investments in securities issued in exempt 
offerings, and accredited investors with investment experience in 
publicly-traded equity securities are more likely to participate in an 
exempt offering than accredited investors who do not, the set of 
accredited investors likely to be interested in investing in Rule 
506(c) offerings could be significantly smaller than the total 
accredited investor population.
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    \202\ This analysis by DERA is based on the stock holdings of 
retail investors from more than 100 brokerage firms covering more 
than 33 million accounts during the period June 2010-May 2011.

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[[Page 44840]]

[GRAPHIC] [TIFF OMITTED] TP24JY13.028

c. Investment Advisers
    As of December 2012, there were 10,870 Commission-registered 
investment advisers that filed Form ADV with the Commission, 
representing approximately $50 trillion total assets under 
management.\203\ The average investment adviser registered with the 
Commission has assets under management of approximately $4.6 billion; 
the median size of assets under management for these registered 
investment advisers is $258 million.
---------------------------------------------------------------------------

    \203\ For the same time period, 2,303 exempt reporting advisers 
filed a Form ADV with the Commission. Certain investment advisers 
that are ineligible to register with the Commission may also be 
exempt from registration with any state.
---------------------------------------------------------------------------

    Approximately one-fourth of registered investment advisers (2,842) 
currently advise (or advised) private funds that filed Form D between 
2002 and 2012, while another 1,250 registered investment advisers 
currently advise (or advised) private funds that did not file Form D 
during the same period. The registered investment advisers advising 
private funds that submitted Form D filings during this period had 
average assets under management of $8.7 billion, while the ones 
advising private funds that did not submit Form D filings had average 
assets under management of $8.6 billion. Registered investment advisers 
that did not advise private funds (6,623) are considerably smaller, 
with average assets under management of $2.1 billion.
d. Broker-Dealers
    As of December 2012, there were 4,450 broker-dealers registered 
with the Commission who file on Form X-17A-5, with average total assets 
of approximately $1.1 billion per broker-dealer. The aggregate total 
assets of these registered broker-dealers are approximately $4.9 
trillion. Of these registered broker-dealers, 410 are dually registered 
as investment advisers. The dually registered broker-dealers are larger 
(average total assets of $6.4 billion) than those that are not dually 
registered. Among the dually registered broker-dealers, we identified 
24 that currently have or have had private funds that submitted Form D 
filings between 2002 and 2012.
3. Incidence of Fraud in Securities Offerings
    As discussed above, commenters expressed concern that the use of 
general solicitation in Rule 506(c) offerings could lead to greater 
incidence of fraud in this market as those seeking to conduct 
fraudulent offerings would be able to directly solicit unsophisticated 
investors. Our principal source of data about the Rule 506 market is 
Form D filings and the incidence of fraud detected by us and other 
regulators. Because data on the incidence of fraud in private 
securities offerings is extremely limited, we are unable to estimate 
the extent of fraud in the existing market for privately offered 
securities or the degree, if any, to which such fraud may increase upon 
the adoption of Rule 506(c).
    Some commenters suggested that we look to our experience with 
offerings conducted pursuant to Rule 504, as amended in 1992, as a 
means of evaluating the potential for fraud in the Rule 506(c) market. 
We do not believe that our experience with the 1992 amendments to Rule 
504 is particularly instructive with respect to the potential incidence 
of fraud resulting from our implementation of Section 201(a) of the 
JOBS Act.\204\
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    \204\ In 1992, when we amended Rule 504 to eliminate the 
prohibition against general solicitation, we also provided that the 
securities issued in these Rule 504 offerings would not be 
``restricted securities'' for purposes of resale pursuant to Rule 
144 under the Securities Act. As a result, a non-reporting company 
could sell up to $1 million of immediately freely-tradable 
securities in a 12-month period and be subject only to the antifraud 
and civil liability provisions of the federal securities laws.
    By 1998, we concluded that securities issued in these Rule 504 
offerings facilitated a number of fraudulent secondary transactions 
in the over-the-counter markets, and that these securities were 
issued by ``microcap'' companies, characterized by thin 
capitalization, low share prices and little or no analyst coverage.
    Moreover, we stated that, while ``we believe that the scope of 
abuse is small in relation to the actual usage of the exemption, we 
also believe that a regulatory response may be necessary.'' As the 
freely-tradable nature of the securities facilitated the fraudulent 
secondary transactions, we proposed to ``implement the same resale 
restrictions on securities issued in a Rule 504 transaction as apply 
to transactions under the other Regulation D exemptions,'' in 
addition to reinstating the prohibition against general 
solicitation. Although we recognized that resale restrictions would 
have ``some impact upon small businesses trying to raise `seed 
capital' in bona fide transactions,'' we believed that such 
restrictions were necessary so that ``unscrupulous stock promoters 
will be less likely to use Rule 504 as the source of the freely 
tradable securities they need to facilitate their fraudulent 
activities in the secondary markets.'' Revision of Rule 504 of 
Regulation D, the ``Seed Capital'' Exemption, Release No. 33-7541 
(May 21, 1998) [63 FR 29168, 29169].
    In contrast, issuers using Rule 506(c) can sell only to 
accredited investors, and the securities issued in these offerings 
are deemed to be ``restricted securities'' for purposes of resale 
under Rule 144. As a result, schemes involving price manipulation to 
defraud unknowing investors in the immediate resale of securities 
purchased directly from issuers (colloquially referred to as ``pump 
and dump'' schemes) are not the types of fraud we believe are likely 
to occur in Rule 506(c) offerings, given the holding period 
requirement in Rule 144(d) and other structural impediments, such as 
restricted transfer legends on stock certificates.

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[[Page 44841]]

    Several commenters echoed concerns regarding the potential of fraud 
related to private funds in the Rule 506(c) market.\205\ Empirical 
evidence on the extent of fraud involving private funds is not readily 
available. While a few economic studies suggest that certain hedge 
funds engage in various types of misreporting, such as misrepresenting 
past performance,\206\ delaying disclosure of returns \207\ and 
inflating returns at the end of the fiscal year in order to earn higher 
fees,\208\ these studies do not provide information about the extent or 
magnitude of any such misreporting activities. In a 2003 report, the 
Commission staff noted that there was no evidence that hedge funds were 
disproportionately involved in fraudulent activity and that the charges 
brought by the Commission in 38 enforcement actions against hedge fund 
advisers and hedge funds between 1999 and 2003 were similar to the 
charges against other types of investment advisers.\209\ Evidence on 
the extent of fraud involving other types of pooled investment funds 
also is sparse. A more recent study has identified 245 lawsuits (both 
federal and state) involving 200 venture capitalists as defendants 
between 1975 and 2007, and has shown that venture capital funds that 
are older and have a larger presence in terms of size and network are 
less likely to be sued.\210\
---------------------------------------------------------------------------

    \205\ See letters from Consumer Federation; Fund Democracy; IDC.
    \206\ See Andrew Patton, Tarun Ramadorai and Michael 
Streatfield, Change You Can Believe In? Hedge Fund Data Revisions 
(Duke University, Working Paper, 2013). But see letter from MFA 
(June 20, 2013) (questioning the reliability of the underlying data 
used in the study).
    \207\ See George Aragon and Vikram Nanda, Strategic Delays and 
Clustering in Hedge Fund Reported Returns (Arizona State University, 
Working Paper, 2013).
    \208\ See Vikas Agarwal, Naveen Daniel and Naranyan Naik, Do 
Hedge Funds Manage Their Reported Returns?, 24 Review of Financial 
Studies 3282 (2011).
    \209\ See Implications of the Growth of Hedge Funds, Staff 
Report to the U.S. Securities and Exchange Commission (Sept. 2003), 
available at http://www.sec.gov/news/studies/hedgefunds0903.pdf.
    \210\ See Vladimir Atanasov, Vladimir Ivanov and Kate Litvak, 
Does Reputation Limit Opportunistic Behavior in the VC Industry? 
Evidence From Litigation Against VCs, 67 Journal of Finance 2215 
(2012).
---------------------------------------------------------------------------

    For comparison purposes, a recent study using enforcement actions 
brought by the Commission and private securities class action lawsuits 
to measure the incidence of fraud in the registered offering market 
found that approximately 3% of registered initial public offerings 
during the period from 1995 to 2007 were associated with allegations of 
fraud.\211\ This study used the filing of a securities lawsuit against 
an issuer for financial misreporting during the initial public offering 
process as the proxy for detected fraud. The analysis covered 3,297 
initial public offerings that resulted in 110 cases. The study 
determined that the incidence of fraud increased to 12% when securities 
law violations committed in years subsequent to the initial public 
offering were included. These are cases where fraud was detected and 
the Commission filed or instituted enforcement action; at best, they 
represent a lower bound on incidence of fraud in those markets.
---------------------------------------------------------------------------

    \211\ See Tracy Wang, Andrew Winton and Xiaoyun Yu, Corporate 
Fraud and Business Conditions: Evidence from IPOs, 65 Journal of 
Finance 2255 (2010).
---------------------------------------------------------------------------

    While we cannot estimate the extent of fraud in the market for 
privately offered securities, we do know, based upon our own experience 
enforcing the federal securities laws and the enforcement efforts of 
criminal authorities and state securities regulators, that fraud exists 
in this market. One of the primary objectives of the amendments to 
Regulation D and Form D being proposed today is to increase the 
information available to the Commission about the Rule 506 market so 
that we can better assess, and, if necessary, take steps to respond to, 
fraudulent practices in the market for privately offered securities.
4. Current Practices
    The potential economic impact of the proposed amendments will 
depend on the current practices of issuers and market participants in 
Rule 506 offerings--specifically, on the extent to which issuers 
currently file Form D and their incentives for doing so in the future. 
The analysis below provides an assessment of current compliance rates 
with respect to Form D filing requirements.
a. Missing Form D Filings
    Issuers that use an exemption under Regulation D to raise capital 
are required to file a Form D not later than 15 days after the first 
sale of securities in the offering; however, the filing of Form D is 
not a condition to the use of Regulation D. Commenters have indicated 
that a number of issuers in Regulation D offerings do not file the 
form, even though the filing of Form D is a requirement of Regulation 
D. Assessing the prevalence of current non-compliance is difficult 
because a Form D filing is often the only public record of a Regulation 
D offering. We can provide an estimate of filing compliance for issuers 
under Rule 506 that use a registered broker-dealer in these offerings 
and for private funds that are managed by a Commission-registered 
investment adviser.\212\ Because information related to private 
offerings for these sets of issuers is available in other filings, we 
can determine, in certain cases, when a Form D should have been but was 
not filed. In the analyses below, we present evidence on the 
corresponding rate at which we observe Form D filings. It should be 
noted that our estimates are subject to some degree of error because in 
some instances it is possible that that a Form D was filed even though 
we could not match it to a specific offering. In other instances, a 
Form D may not have been filed because the issuer may be relying on 
another exemption from Securities Act registration that does not 
require a Form D filing, such as the statutory exemption under Section 
4(a)(2). Our estimates of compliance for issuers that use a registered 
investment adviser or broker-dealer also may not reflect the rate of 
compliance among issuers that do not. To the extent that Forms D are 
more likely to be filed when a registered entity is involved, there 
could be a greater rate of non-compliance among the remaining Rule 506 
offerings that do

[[Page 44842]]

not involve a registered investment adviser or broker-dealer.\213\
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    \212\ Broker-dealers registered with FINRA are required to file 
private placement memoranda under FINRA Rules 5122 and 5123 for 
their or their client's private offering. Sections 203 and 204 of 
the Advisers Act [15 U.S.C. 80b-3 and 80b-4] authorize the 
Commission to collect the information required by Form ADV. 
Investment advisers that are required to register with the 
Commission and exempt reporting advisers are required to file Form 
ADV with the Commission. The form includes disclosure of Regulation 
D offerings that they conduct for their client issuers.
    \213\ Approximately 20% of Rule 506 offerings use either a 
broker-dealer or investment adviser.
---------------------------------------------------------------------------

    Form D and Form ADV reconciliation. Our estimate of Form D filing 
compliance among Commission-registered investment advisers that manage 
private funds is based on their requirement to report to the Commission 
on Form ADV the Regulation D offerings that they conduct. We matched 
the Form D file numbers reported on Form ADV filings from 2012 to the 
actual Form D and Form D amendments filed on EDGAR. This created a 
universe of 18,276 private funds identified on Form ADV filings for the 
period between 2002 and 2012.\214\ The matching was done in two steps. 
First, we matched the file number of each Regulation D offering as 
reported by the investment adviser on Form ADV to the file numbers in 
EDGAR.\215\ Second, if there was no file number for the Regulation D 
offering, we matched by private fund name. We compared the name of the 
private fund reported by the investment adviser in its Form ADV to the 
issuer names in the Form D and Form D amendment filings. Conducting 
both steps resulted in an 89% match--i.e., during the period from 2002 
to 2012, as many as 11% of the private funds advised by registered 
investment advisers did not file a Form D when relying on the 
Regulation D exemption. This number, however, could overstate the 
actual number of private funds that did not file a Form D due to 
typographical errors in the name of the private fund or filing number. 
Also, registered investment advisers are required to identify Form D 
filing numbers only for private funds that are currently offering their 
securities. As a result, the Form ADV filings of advisers to private 
funds that are closed to new investments or are no longer engaged in a 
Regulation D offering of their securities are not required to disclose 
a Form D filing number.
---------------------------------------------------------------------------

    \214\ We chose this period because Form D file numbers are not 
available for Form D filings submitted prior to January 1, 2002.
    \215\ Some advisers identify a private fund's Form D file number 
as a series of 9s because they may not be able to locate the fund's 
Form D file number (particularly with respect to Form D filings made 
prior to January 1, 2002 because such file numbers are not available 
through an EDGAR search). Advisers may also mask the Form D file 
number to maintain the anonymity of a private fund's name. These 
factors will understate the number of funds that file Form D and 
Form D amendments. Thus, in such cases we attempted to match by fund 
name.
---------------------------------------------------------------------------

    Form D and FINRA filing reconciliation. Our estimate of Form D 
filing compliance among registered broker-dealers that facilitate 
private offerings is based on their compliance with FINRA Rules 5122 
and 5123 (the latter rule took effect on December 3, 2012), which 
requires member firms that sell securities in certain private offerings 
to file with FINRA copies of any private placement memorandum, term 
sheet or other offering document used in these offerings (or amendments 
thereof) or, alternatively, to file a notice stating that no such 
offering document was used.\216\ As of December 31, 2012, FINRA oversaw 
nearly 4,300 brokerage firms.\217\ During the period from December 3, 
2012 to February 5, 2013, FINRA received 366 filings under this rule. 
Each private offering could have multiple broker-dealers and 
consequently the 366 filings could represent fewer than 366 unique 
offerings. Further, FINRA rules require filing by broker-dealers 
associated with a Regulation D or other private offerings, not all of 
which require the filing of Form D. A Form D filing is only required by 
issuers that undertake Regulation D offerings. We cannot identify how 
many of the 366 filings are related to non-Regulation D offerings.
---------------------------------------------------------------------------

    \216\ Not all broker-dealers that sell securities in private 
offerings have to file private placement memoranda with FINRA under 
FINRA Rules 5122 and 5123. FINRA filings represent a small 
proportion of Regulation D offerings. For example, if a broker-
dealer is not registered as a member of FINRA, they will not file 
with FINRA. Further only those private offerings that have retail 
investors, i.e., natural persons, trigger the requirement for the 
broker-dealer to file the private placement memorandum with FINRA.
    \217\ See http://www.finra.org/Newsroom/Statistics/.
---------------------------------------------------------------------------

    We matched these FINRA filings to the Form D and Form D amendment 
filings received on EDGAR. The matching was done in multiple steps. 
First, we matched using the issuer CIK number and the Form D filing 
number \218\ contained in each of the separate filings. Then, for each 
unmatched FINRA filing, we searched the issuer name, and variants of 
the name, in EDGAR to determine if a Form D was filed for that issuer's 
offering. Applying both procedures resulted in a 91% match--i.e., 
during this three-month period, subject to the limitations described 
above, as many as 9% of the offerings represented in the FINRA filings 
for Regulation D or other private offerings that used a registered 
broker did not have a corresponding Form D.
---------------------------------------------------------------------------

    \218\ The Form D filing number is the 021--Commission filing 
number reported in the header of the Form D filing.
---------------------------------------------------------------------------

b. Legends and Other Disclosures in Regulation D Offering Materials
    Prior to the effectiveness of Rule 506(c), general solicitation has 
not been permitted for private offerings under Rule 506. Although 
advertising by issuers is prohibited, issuers may provide some material 
or information to intermediaries and interested investors regarding 
themselves and their offering. Because this information is not filed 
with the Commission, we do not know if legends and relevant disclosures 
are included in any such material.

C. Analysis of the Amendments Relating to Form D

    We are proposing amendments to Form D and Regulation D as they 
relate to Form D in order to enhance our understanding of the Rule 506 
market, particularly the impact of the adoption of Rule 506(c). These 
proposed amendments would:
     Require the filing of Form D 15 calendar days in advance 
of the first use of general solicitation in a Rule 506(c) offering;
     require the filing of a closing amendment to Form D within 
30 calendar days after the termination of a Rule 506 offering;
     require issuers to provide additional information in Form 
D primarily with respect to Rule 506 offerings; and
     disqualify an issuer from relying on Rule 506 for future 
offerings until one year after the required Form D filings are made 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 proposals relating to the Form D filing requirements are intended 
to improve the availability of Form D information to the Commission 
that would enable it to evaluate market developments in the Rule 506 
market. The amendments to the information requirements of Form D would 
enable the Commission to obtain more complete information about the 
Rule 506 market than it has now, especially with respect to the 
composition of investors and the general solicitation practices and 
verification methods employed in Rule 506(c) offerings.
1. Advance Filing of Form D for Rule 506(c) Offerings
    We are proposing to amend Rule 503 of Regulation D to require 
issuers that intend to engage in general solicitation for Rule 506(c) 
offerings to file an initial Form D with certain information 15 
calendar days in advance of any general solicitation for the offering. 
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). The 
Advance Form D would be useful to the Commission and the Commission 
staff, as it would enhance the

[[Page 44843]]

information available to the Commission to analyze issuers that 
attempted to conduct 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 
attempted to, 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 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 the use of Rule 506(c).
    On the other hand, to the extent that an Advance Form D filing 
signals planned capital-raising activity and related details to 
potential competitors, some issuers may be reluctant to use Rule 506(c) 
when they might otherwise. The proposed Advance Form D filing 
requirement could thus deter some issuers from using Rule 506(c) as 
they would be forced to indicate their capital raising plans to a 
limited extent prior to commencing their general solicitation 
activities. In addition, the proposed Advance Form D filing requirement 
could impose market timing costs to the extent that an issuer would 
like to move quickly but has not yet filed an Advance Form D. We have 
proposed an advance filing deadline that we think appropriately 
balances the benefits of advance notice with these market timing costs. 
Nevertheless, many issuers may choose to file an Advance Form D just in 
case they decide to conduct a Rule 506(c) offering. As a result, many 
Advance Form D filings may not reflect the true intent of issuers to 
conduct these offerings. If there are large numbers of issuers that 
frequently engage in this practice, there could be a sizable number of 
premature, and possibly even meaningless, notices of Rule 506(c) 
offerings; however, requiring specific information about the 
anticipated offering could decrease the likelihood that issuers file an 
Advance Form D when they do not intend to conduct an offering in the 
near term.
    To complete an Advance Form D would cause issuers to incur costs; 
however, because the information in Advance Form D mirrors the 
information required to be filed within 15 days of the first sale of 
securities, the additional expense to collect the information for the 
Advance Form D would be offset by the lack of any need to do so for the 
subsequent filings.
2. 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 a Rule 506 offering. Requiring a closing filing through a Form D 
amendment upon the termination of a Rule 506 offering, in combination 
with the changes to Form D to require additional information on Rule 
506 offerings, would provide more complete information of the total 
amounts of capital raised in these offerings by the types of investor 
and the methods used to verify accredited investor status in Rule 
506(c) offerings.
    At present, issuers are required to file a Form D within 15 days of 
the first sale of securities in a Regulation D offering and amendments 
to the Form D under certain circumstances. As a result, if the total 
offering amount remains the same or is increased by less than 10%, any 
capital raised or any change in the composition of subscribing 
investors, subsequent to the last filing for the offering, is not 
required to be reported in a Form D. 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 Form 
D filing.\219\ Thus, based on the available information, we are not 
able to determine the actual amount raised. A requirement to file a 
closing amendment to Form D for a Rule 506 offering that confirms the 
actual amount raised in the offering could provide more complete 
information.
---------------------------------------------------------------------------

    \219\ See Ivanov/Bauguess Study. For issuers that reported their 
offering amount as `Indefinite', we assumed that amount offered is 
equal to amount raised.
---------------------------------------------------------------------------

    Without a closing Form D amendment requirement, it may be difficult 
to clearly ascertain, for example, all of the methods of general 
solicitation that issuers used in Rule 506(c) offerings or the types of 
investors solicited in these offerings, particularly if any changes in 
solicitation methods or targeted investors after the initial Form D 
filing are not otherwise required to be reported. In such case, any 
analysis of the information in Form D filings would be based on 
incomplete data, which may limit the intended benefits of collecting 
the Form D information. Updated and more conclusive data on Rule 506 
offerings from closing Form D amendments would provide the Commission 
with a more complete account of the flow of capital in the Rule 506 
market, how the flow relates to offering characteristics and the 
potential associated risks and would assist the Commission in 
evaluating whether further regulatory action is necessary.
    Requiring a closing Form D amendment for Rule 506 offerings would 
likely come at a nominal cost to issuers in terms of filing another 
notice, particularly because the filing would be substantially similar 
to the initial Form D filing or prior Form D amendments for the 
offering.
3. Amendments to the Content Requirements of Form D
    The information about Regulation D offerings collected to date and 
described in this release illustrates and underscores the importance of 
the non-registered offering market to the U.S. economy. Form D is the 
primary source of information for the Commission to assess the 
Regulation D market. Much of what we know about the size and 
characteristics of the private offering market comes from Form D 
filings. The continued collection of this information following the 
elimination of the prohibition against general solicitation in Rule 
506(c) offerings will be an important tool for determining the ongoing 
impact of Rule 506(c).
    A number of the proposed amendments to Form D would require 
additional information specific to Rule 506(c) offerings, which would 
enable the Commission to develop a greater understanding of the new 
Rule 506(c) market, particularly with respect to those matters where 
limited to no information would otherwise be available. Other proposed 
revisions to Form D would require additional information in regard to 
both Rule 506(b) offerings and Rule 506(c) offerings, which would 
permit a more complete analysis and comparison of the use of current 
Rule 506(b) and new Rule 506(c).\220\ Without a substantially similar 
set of information collected for both Rule 506(b) and 506(c) offerings, 
the effects of the use of general solicitation on the Rule 506 market 
may be difficult to measure or identify. Increased consistency in the 
reporting of information in Form D filings for offerings under Rules 
506(b) and 506(c) would promote the availability of comparable data for 
the two types of offerings and, consequently, may result in a more 
complete assessment of the

[[Page 44844]]

effects of the elimination of the prohibition against general 
solicitation on raising capital under Regulation D. In addition, 
because the overwhelming majority of Regulation D offerings are 
conducted in reliance on Rule 506, this should provide the Commission 
with substantially more complete information about the Regulation D 
market generally, which, when considered along with the information 
collected as part of the Commission's Rule 506 review program, would 
help the Commission evaluate the need for additional action to enhance 
investor protection.
---------------------------------------------------------------------------

    \220\ A number of the proposed revisions to Form D would also 
require additional information in regard to offerings under Rule 
504, Rule 505, and Section 4(a)(5).
---------------------------------------------------------------------------

    On the other hand, the proposed amendments to Form D may result in 
higher compliance costs for issuers conducting offerings in reliance on 
Rule 506(b) and new Rule 506(c). Issuers relying on Rule 506(b) would 
have to provide more information than is currently the case in regard 
to Form D, which would be coupled with the risk of disqualification 
from using Rule 506 in future offerings, under proposed Rule 507(b), if 
they or their affiliates or predecessors fail to comply with the 
additional Form D filing requirements. Nevertheless, we believe that 
the additional burden to provide the additional required information to 
be minimal. The proposed amendments would also require, depending on 
the circumstances, additional information under Items 5 and 9 of Form D 
with respect to offerings under Rule 504, Rule 505 or Section 4(a)(5), 
which, as discussed below, we do not believe would result in materially 
higher compliance costs for issuers conducting these offerings.
    Issuers may view the increased reporting requirements as a greater 
regulatory burden and a loss of commercial privacy,\221\ which could 
put certain issuers at a competitive disadvantage if the costs are 
sufficient to deter them from raising capital in the private offering 
market. Requiring issuers to report more information in Form D could 
also result in some issuers choosing to consider other capital-raising 
options.
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    \221\ Issuers may not wish to reveal certain information such as 
the timing of amounts offered and raised, including whether an 
offering was successfully completed, which could inform other market 
participants, including competitors, about the issuers' ability to 
finance investments.
---------------------------------------------------------------------------

    A discussion of a number of the proposed amendments to Form D is 
set forth below.
a. Investor Types
    The proposed amendment to Item 14 (Investors) of Form D would 
require information, with respect to Rule 506 offerings, on the number 
of investors under the following categories: natural persons who are 
accredited investors, legal entities that are accredited investors, and 
if applicable, non-accredited natural persons and non-accredited legal 
entities. The additional required information would include the amount 
raised from each of the four categories of investors. At present, Form 
D requires information on the total amount of capital expected to be 
raised and the number of accredited and non-accredited investors that 
have purchased securities in a particular offering. We do not have 
information on the number of investors who are natural persons or legal 
entities, or the amounts raised from each of these investor categories. 
The proposed amendment would thus require more detailed information on 
the composition of investors in the Rule 506 market than is currently 
available. Because all purchasers in Rule 506(c) offerings must be 
accredited investors, and offerings under Rule 506(b) can have no more 
than 35 non-accredited investors who meet certain sophistication 
requirements, disaggregated data regarding the number of each type of 
investor and the amount invested by accredited and non-accredited 
investors would provide a more complete view of their participation in 
the Rule 506 market.
    Understanding the composition of investors in Rule 506 offerings as 
between natural persons and legal entities would also be important for 
risk assessment purposes. Institutional investors usually have a 
greater amount of resources at their disposal and therefore are more 
likely to have better information and greater sophistication when 
considering the potential risks and benefits of a particular 
investment, as compared to natural persons.\222\ To the extent that 
natural persons are less sophisticated and more prone to be targets of 
fraud than institutional investors, understanding how many natural 
persons are participating in Rule 506(c) offering could help identify 
those Rule 506(c) offerings that raise greater investor protection 
concerns. This information could also help the Commission better 
understand how general solicitation is used with respect to the types 
of investors. Additionally, concerns about verification methods to 
assess accredited investor status are greatest as it relates to natural 
persons. Having a better understanding of the involvement of natural 
persons in Rule 506(c) offerings would assist the Commission in its 
assessment of the efficacy of the verification provisions.
---------------------------------------------------------------------------

    \222\ See note 198.
---------------------------------------------------------------------------

    Issuers relying on Rule 506(c) will be collecting such information 
as part of their verification of accredited investor status for Rule 
506(c) offerings. We do not expect the requirement that issuers report 
this information on Form D to impose significant additional costs.
b. Issuer Size
    The proposed amendment to Item 5 (Issuer Size) of Form D would 
replace the ``Decline to Disclose'' option with ``Not Available to 
Public'' option. This change to Form D would assist the Commission in 
obtaining a greater amount of information on the size of issuers that 
conduct Rule 506 offerings. This proposed amendment would also apply to 
offerings under Rule 504, Rule 505 and Section 4(a)(5). At present, a 
majority of Form D filings do not provide information on the size of 
the issuer's revenue (if the issuer is an operating company) or net 
asset value (if the issuer is a hedge fund or other investment fund). 
It is likely that some issuers keep this information private for 
competitive purposes and therefore do not make this information widely 
available. For those issuers that already make this information 
publicly available, or that do not currently make a reasonable effort 
to keep such information confidential, reporting their size range in a 
Form D filing would not impose a material cost. Having this information 
would provide a more complete picture of the Rule 506 market and allow 
the Commission to more accurately assess the impact of allowing general 
solicitation on capital formation across issuer sizes. This information 
would be particularly useful in better understanding the effects of 
general solicitation on capital formation by small businesses, a set of 
issuers that otherwise face significantly greater challenges than 
larger issuers in finding investors.
c. Issuer Industry Group
    Industry information is an important issuer characteristic that 
helps in assessing the effectiveness of private markets in promoting 
capital formation across industry groups. An analysis of Form D filings 
over the period 2009-2012 indicates that the ``Other'' category was 
checked in over 15% of offerings.\223\ The proposed amendment to Item 4 
(Industry Group) would require an explanation to be provided when an 
issuer checks ``Other'' as its industry. This would allow a better 
assessment of the representation of a

[[Page 44845]]

particular industry or sub-industry in Regulation D offerings and help 
the Commission evaluate whether industry classifications are 
appropriately defined in Form D.
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    \223\ See Ivanov/Bauguess Study.
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d. Control Persons
    The proposed amendment to Item 3 (Related Persons) to include 
controlling persons when the issuer seeks to use general solicitation 
in a Rule 506(c) offering will expand the set of persons covered under 
the existing list of related persons that includes promoters, directors 
and executive officers. Thus, a beneficial owner who has a significant 
equity stake in an issuer but may not be a managing executive would now 
need to be identified. This information may be helpful to the 
Commission in developing a more comprehensive understanding of the 
issuers and other market participants that are involved in Rule 506(c) 
offerings.
    Including information regarding control persons would enable 
investors to better identify persons who may be in positions to 
influence the Rule 506(c) offering. The identity information could also 
be useful if questions arise about the offering. Issuers would incur 
additional reporting costs when there are control persons that are not 
also related persons. In many instances this information is readily 
available and easy to collect, particularly to the extent that issuers 
identify controlling shareholders under the bad actor provisions we are 
adopting today. Issuers could, however, find this amendment burdensome 
as they may want to keep information on controlling persons private.
    There could be instances where some shareholders who own a 
significant stake in the issuers' equity but are passive owners are 
incorrectly identified as control persons in a publicly filed form. 
Because this information would be required only for Rule 506(c) 
offerings, issuers would not face these privacy concerns if they do not 
rely on Rule 506(c) for their offering.
e. Trading Venue and Security Identifiers
    Proposed Item 18 would require issuers to identify if any of its 
securities are traded on a national securities exchange, ATS or any 
other organized trading venue. If the issuer answers in the 
affirmative, it is required to identify the names of such trading 
venues where its securities are being traded and the SEC file number 
for such class of securities. The issuer, under proposed Item 18, would 
also need to identify if the securities to be sold in the offering are 
of the same class as the class of securities listed or quoted on the 
trading venue. Further, the proposed amendment to Item 9 (Types of 
Securities Offered) of Form D would require information on the trading 
symbol and security identifier, such as a CUSIP number \224\ or ISIN 
(International Securities Identification Number), for the offered 
securities, if any.
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    \224\ CUSIP (Committee on Uniform Securities Identification 
Procedures) is a universally recognized identification for more than 
9 million unique financial instruments. The CUSIP system, owned by 
the American Bankers Association and operated by Standard & Poor's, 
facilitates the clearing and settlement process of securities. The 
number consists of nine characters (including letters and numbers) 
that uniquely identify a company or issuer and the type of security. 
See https://www.cusip.com/cusip/index.htm. CUSIP is one of the most 
widely available securities identifiers and is available for the 
securities issued by Exchange Act reporting companies.
---------------------------------------------------------------------------

    These proposed amendments would apply to offerings under Rule 506 
as well as to offerings under Rule 504, Rule 505 and Section 4(a)(5). 
In many cases, the class of an issuer's security offered through a Rule 
506 offering may not be eligible for trading on a national securities 
exchange, ATS or any other organized trading venue, and may not have an 
assigned security identifier.
    For classes of securities where this information is available, 
regulators could link the offered securities to financial information 
about the issuer and the class of security--such as accounting data and 
security-price data--that is not available on Form D but is available 
through common third-party data aggregation platforms and through the 
associated trading venues. The inclusion of a security identifier in 
Form D would be relevant information for a number of private offerings. 
For example, analysis of Form D filings shows that approximately 10% of 
Exchange Act reporting companies conducted Regulation D offerings 
during the period between 2009 to 2011.\225\
---------------------------------------------------------------------------

    \225\ Ivanov/Bauguess Study.
---------------------------------------------------------------------------

    The inclusion of this information could be useful to the Commission 
in evaluating developments in the Rule 506 market in several ways. 
First, with respect to a security identifier, linking Rule 506 
offerings and financial information about the issuer from other 
financial data providers would allow for a more effective evaluation of 
one part of the Rule 506 market. In particular, the availability of a 
security identifier would enable us to automatically match and process 
financial and other information about the issuer in a manner that would 
be significantly less burdensome than if we had to rely solely on a 
firm name and other identifying information. Security identifiers also 
could facilitate tracking multiple issuances by the same issuer, which 
might not otherwise be clear if a security identifier exists but is not 
made available. In addition, identifying the trading venue for an 
offered security could help us assess whether particular trading 
venues--or the lack of trading venue--is associated with higher 
prevalence of fraud and other illegal activities.
    Identifying whether the securities being offered in reliance on 
Rule 506 are of the same class of securities, or are convertible into, 
or exercisable, or exchangeable for such class of securities will 
provide additional informational linkages between publicly available 
data and private offerings. The marginal cost to issuers of providing 
this information is likely to be low because this information should be 
readily available to the issuers of the offered securities.
f. Use of Proceeds
    The proposed amendment to Item 16 (Use of Proceeds) of Form D would 
require issuers that are not pooled investment funds to report 
information on the portion of proceeds (if any) from Rule 506 offerings 
that will be used to repurchase or retire the issuer's existing 
securities. This information would allow the Commission to distinguish 
between offerings that raise capital to allow insiders and/or incumbent 
shareholders a partial or full exit and offerings that use the proceeds 
for investments or capital expenditures. This information could help us 
better distinguish the impact of the ability to use general 
solicitation in Rule 506(c) offerings on capital formation versus 
investment exit strategies, particularly for small businesses. It may 
also help inform investors and the market generally about the issuer's 
incentives or related risks. For example, proceeds used towards 
redemption of securities could indicate that existing shareholders are 
lowering their investment exposure in the issuer.
    The proposed amendment also requires issuers, other than pooled 
investment funds, that are relying on Rule 506 to provide more 
information on the use of offering proceeds. Issuers will be required 
to indicate what part of the proceeds is being used to pay for offering 
expenses, asset acquisition, working capital, business acquisition or 
repayment of existing debts. For non-fund issuers, this information 
would help us evaluate whether and how Rule 506 enhances capital 
formation that would be used for new investments, consistent with the 
intent of the JOBS Act, as compared to refinancing and capital 
restructuring. However, the

[[Page 44846]]

additional information may reveal previously non-public information 
about issuer plans that could put the issuer at a competitive 
disadvantage. Moreover, an issuer may not be certain as to the ultimate 
use of proceeds or may alter its intended use as time passes and market 
conditions change. In these cases, the Form D information may not 
accurately reflect issuer plans or the issuer may be required to file 
an amended Form D.
g. Issuer Web Site
    The proposed amendment to Item 2 (Principal Place of Business and 
Contact Information) would require all Regulation D issuers to provide 
their publicly accessible business Web site, if they have one. Web 
sites for operating businesses have become ubiquitous and are part of 
their contact information, and in some instances, businesses could be 
operating only via the Internet and may not have a physical location. 
When available, this information would be a useful component of issuer 
identification and would not be burdensome to provide.
h. Types of General Solicitation Used
    The proposed amendments to Form D would include adding a 
requirement for issuers to provide information on the types of general 
solicitation used in Rule 506(c) offerings. The options would include 
oral communications, written communications, such as mass mailings and 
emails, Web sites or television and the web link to the advertising if 
the advertising is presented on a Web site. Having this information 
would help the Commission perform reviews of the Rule 506 market to 
better understand how the different methods of solicitation correspond 
to issuer behavior, including potentially fraudulent activity, 
identified through the Commission's Rule 506 review program.
i. Verification Methods
    The proposed amendments to Form D would include adding requirements 
for issuers to provide information about how the investors in the 
offerings qualified as accredited investors, such as a natural person 
on the basis of income or net worth, as well as information on the 
types of methods used for verifying the accredited investor status of 
purchasers. This information would help us assess the nature of the 
verification methods used and how issuers are complying with the 
requirement to take reasonable steps to verify the accredited investor 
status of purchasers in Rule 506(c) offerings. The Commission may be 
able to use this information to analyze whether there are correlations 
between certain verification methods and the incidence of fraud in the 
private offering market. Similarly, information about verification 
practices learned through the Commission's Rule 506 review program 
could be applied to subsequent Commission reviews of any practices, or 
combinations of practices and other offering characteristics, 
associated with the increased likelihood of fraudulent activity.
4. Proposed Amendment to Rule 507
    The proposed amendment to Rule 507 would disqualify an issuer from 
using Rule 506 for future offerings if the issuer, or its predecessors 
or affiliates, had conducted an offering under Rule 506 in which, 
within the last five years, it or they did not comply with the Form D 
filing requirements of Rule 503 in Rule 506 offerings. Disqualification 
would extend for a period of one year after the filing of all required 
Forms D and Form D amendments have been made. This provision should 
increase the incentive for issuers to submit timely filings of Form D.
    As described above, we could not locate Form D filings for 
approximately 10% of Regulation D offerings where broker-dealers or 
registered investment advisers were involved.\226\ Although we cannot 
estimate the rate of compliance among the issuers of the remaining 89% 
of Rule 506 offerings that do not use a registered investment adviser 
or broker-dealer, it may be reasonable to assume that they are no more 
likely to file a Form D, particularly to the extent that they undertake 
an offering without the assistance of a regulated entity. This evidence 
suggests that many private issuers are failing to file a Form D even 
though this is a requirement under Regulation D. By disqualifying an 
issuer from relying on the Rule 506 exemption for one year for future 
offerings when 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 Commission intends to increase 
the incentive for issuers to comply with the Form D filing 
requirements.
---------------------------------------------------------------------------

    \226\ This evidence was based on 11 years of Form ADV filings by 
registered investment advisers, and three months of data at the 
beginning of 2012 for broker-dealers filing offering documents with 
FINRA.
---------------------------------------------------------------------------

    Greater compliance with Form D filing requirements would provide a 
more complete picture of the Regulation D market. It would enhance the 
Commission's ability to assess the effectiveness and efficiency of the 
private offering market and the impact of the elimination of the 
prohibition against general solicitation. As the Commission obtains 
more comprehensive data on Regulation D offerings, it would be able to 
better evaluate activity in Rule 506(b) and Rule 506(c) markets and 
undertake regulatory action in a more informed manner. In particular, 
to the extent that certain issuer and offering characteristics 
collected through Form D are associated with illegal market practices, 
regulators would be in a better position to focus monitoring efforts on 
offerings that present heightened investor protection concerns.
    A better-informed view of capital-raising in the Rule 506 market 
could help the Commission engage in targeted regulatory responses to 
the potential for fraudulent activity in the Rule 506 market. To the 
extent that these regulatory responses decrease fraudulent activity, 
they could promote investor protection and investor interests 
potentially leading to higher participation by eligible investors, 
especially natural persons who are accredited investors, and to greater 
capital-raising opportunities.
    While the proposed disqualification provision is designed to 
encourage a higher rate of compliance with the Form D filing 
requirements, it would make failure to file costly to Rule 506 issuers 
if they or their successors and affiliates cannot rely on Rule 506 in a 
timely manner for future offerings and they would otherwise do so. The 
loss of access to Rule 506 offerings could impair their competitiveness 
if they are unable to secure alternative sources of capital at the same 
cost.
    For those issuers that submit their Form D filings in a timely 
manner, the potential for disqualification under proposed Rule 507 
would pose little additional risk, such as from an accidental failure 
to file a Form D or the late filing of a Form D that was not identified 
and corrected during the cure period. Those issuers that, in the past, 
have chosen not to file a Form D or filed it late may have a stronger 
incentive to file (i.e., the risk of losing the ability to conduct a 
Rule 506 offerings in the future may outweigh the cost of giving their 
competitors better access to certain capital-raising information). To 
the extent that these issuers otherwise engage in legitimate capital 
raising activities, the cost of conditioning the future use of Rule 506 
on Form D filings could be disproportionate to the benefit of having a 
public notice of their offering.
    We are not proposing to disqualify an issuer from reliance on Rule 
506 in its

[[Page 44847]]

current offering for failure to file a Form D for such offering; an 
issuer that does not comply with the filing requirements will therefore 
not be subject to immediate costs, such as the loss of an offering 
exemption and potential rescission rights of investors. 
Disqualification for future offerings only would provide a less severe 
consequence for inadvertent missed filings and late filings, and would 
limit the potential costs to more active issuers of securities in 
private markets. In this regard, repeat issuers in Rule 506 offerings 
would be more affected by the disqualification provision but would be 
more likely to understand the Rule 503 filing requirements.
    The inclusion of a cure period and providing the disqualification 
to be lifted for one-year after the required Form D filings have been 
made or by virtue of a waiver by the Commission, would help moderate 
issuers' costs of non-compliance in Form D filings. At the same time, 
making issuers that repeatedly fail to file Form D ineligible for a 
cure period will provide a strong incentive for timely compliance with 
the filing requirements. This would increase the cost associated with 
non-compliance, although issuers that have been disqualified from 
future use of Rule 506 would retain the option of applying for a 
waiver. We believe that disqualifying an issuer from relying on Rule 
506 for one year may be a sufficient incentive for achieving higher 
filing compliance, and is not so severe that it would deter issuers 
from using Rule 506 for their capital-raising activity.

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

    We are proposing a new rule under Regulation D and an amendment to 
a Securities Act rule in connection with an issuer's ability to engage 
in general solicitation in Rule 506(c) offerings.
1. Mandated Legends and Other Disclosures for Written Solicitation 
Materials
    We are proposing new Rule 509 of Regulation D to require issuers to 
include legends in all written general solicitation materials used in a 
Rule 506(c) offering and to require private funds to include an 
additional legend and other disclosures where the written general 
solicitation materials include performance data. Specifically, issuers 
would be required to include:
     Eligibility legends that advise investors that securities 
offered under Rule 506(c) may be purchased only by accredited 
investors.
     Risk legends that advise investors of the following: 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 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 purchasers should be able to bear the loss 
of the entire investment. Private funds would be required to include a 
legend informing investors that the funds are not subject to the 
protections of the Investment Company Act.
     Performance disclosures in the case of private funds 
informing investors that the performance data represents past 
performance, that past performance is not indicative of future results, 
that the current performance may be lower or higher than the 
performance presented, that performance data is not calculated on a 
standardized basis as is required for registered funds, and that the 
performance of the private fund may not be directly comparable to the 
performance of other funds. Private funds also would be required to 
include only performance data as of the most recent practicable date 
and to include a telephone number or Web site where an investor may 
obtain current performance data. Private funds also would be required 
to disclose the period for which performance is presented and if 
performance data does not reflect the deduction of fees and expenses, 
private funds would be required 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.
    The inclusion of mandated legends would better inform potential 
investors as to whether they are qualified to purchase in Rule 506(c) 
offerings. Including risk and performance legends could make investors 
more aware of the potential risks associated with such offerings and, 
with respect to offerings by private funds, could help investors avoid 
confusing private funds with registered funds, which have a different 
risk and regulatory profile. Performance disclosures for private funds 
would also assist potential investors in assessing performance claims 
that may be included in the general solicitation materials. These 
legends would alert potential investors to certain investment risks.
    Even though only accredited investors are allowed to purchase in 
Rule 506(c) offerings, advertising and other activities by issuers and 
intermediaries could induce non-accredited investors to believe that 
they are eligible to participate in these investment opportunities. 
Legends notifying them that only accredited investors are eligible to 
invest in these offerings could help alert non-accredited investors as 
to their ineligibility to participate.
    We anticipate that the cost of including such legends in sales 
materials would be minimal for issuers. In some instances, the legends 
may be of limited benefit to investors because legends do not address 
whether the offering is fraudulent. It is possible that some 
unsuspecting accredited investors might erroneously believe that the 
inclusion of legends validates all of the information and risks 
regarding the offering. Further, it is possible that because these 
legends may contain standardized language, investors might discount the 
relevance of these legends.
    Requiring additional disclosures for private funds, similar to 
those required by Rule 482 under the Securities Act for registered 
investment companies, would increase the likelihood that the 
performance data that is reported in the written general solicitation 
material is timely and would provide additional information and context 
about the performance presented. Because there are no standardized 
performance reporting requirements for private funds, such disclosure 
would address some concerns about investors being misled or confused in 
interpreting the performance information and may decrease the 
likelihood of misleading or exaggerated performance information being 
presented in private fund written general solicitation materials. While 
flexibility in reporting performance data may be appropriate for 
private funds that have a varied scope of investment strategies, 
performance calculation methodologies that are non-standardized or 
complicated limit how much investors can appropriately glean from the 
data advertised in the written material. The purpose for requiring 
these additional disclosures is to provide context so investors can 
better understand fund performance information.
    The proposed requirement for private funds to include a telephone 
number or Web site where an investor may obtain current performance 
data could impose costs, including the cost of establishing a telephone 
line or establishing a Web site for this information. We have

[[Page 44848]]

attempted to address these costs by providing flexibility to distribute 
the information either through a telephone number or a Web site. We 
have also determined to not require that the telephone number be toll-
free or collect. We believe that most private funds (or their advisers) 
currently maintain either a telephone number or Web site, though we 
recognize that some private funds or their advisers may incur 
additional costs for staff and technology. The current information that 
a private fund would be required to provide would only need to be as of 
the most recent practicable date. Because this requirement would not 
require a private fund to calculate performance for dates on which the 
fund would not otherwise be calculating performance, we believe this 
will limit the costs incurred by private funds. In addition, updated 
current performance would be provided as of the last date on which the 
private fund determined the valuation of its portfolio securities. We 
do not expect a private fund to value its portfolio solely for the 
purpose of providing updated current performance under proposed Rule 
509, which would not increase costs.
2. Proposed Amendments to Rule 156
    Rule 156 under the Securities Act is an interpretive rule that 
provides guidance on the types of information in investment company 
sales literature that could be misleading for purposes of the federal 
securities laws, including Section 17(a) of the Securities Act and 
Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. We are 
proposing amendments to Rule 156 to apply the guidance contained in the 
rule to sales literature used by private funds. The sales literature 
and other offering materials used by private funds are already subject 
to the antifraud provisions of Section 17(a) of the Securities Act and 
Section 10(b) of the Exchange Act and Rule 10b-5. The proposed 
amendments to Rule 156 are intended to provide helpful guidance to 
private fund issuers in developing sales literature that is neither 
fraudulent nor misleading. The proposal may also encourage private 
funds to include additional disclosure regarding performance and other 
statements or representations about the characteristics of the fund. 
Funds may incur some costs in reviewing their sales literature for 
consistency with the interpretive guidance set forth in Rule 156. We 
note, however, that private funds should already be reviewing their 
sales literature for misleading statements to avoid violating the 
antifraud provisions of the federal securities laws. Accordingly, we 
believe that the amendments to Rule 156 would not impose significant 
compliance costs on private funds.
3. Request for Comment on Manner and Content Restrictions for Private 
Funds
    Commenters have suggested that there be standards or requirements 
that would govern the content and/or manner of general solicitations by 
private funds in Rule 506(c) offerings. As discussed above, there may 
be investor protection concerns with respect to the offering materials 
used by private funds as these funds are not subject to specific 
disclosure requirements in reporting their performance, unlike 
registered funds. Some commenters have advocated that, in order to 
engage in general solicitation, the materials used by private funds 
should be held to standards that are analogous to those that are 
applicable to the materials used by mutual funds. They have also 
advocated for restricting the use of performance data in general 
solicitation materials by private funds until the Commission can 
develop standardized performance calculation and reporting 
requirements. We recognize, however, that prescribing performance 
standards in general solicitation materials could reduce the 
flexibility of issuers when methodologies for calculating performance 
may vary for legitimate reasons, including investor preferences, and 
could be burdensome for issuers, especially if their general 
solicitation materials are otherwise not misleading.

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

    Proposed new Rule 510T in Regulation D would require an issuer 
conducting a Rule 506(c) offering to submit to the Commission any 
written general solicitation materials prepared by or on behalf of the 
issuer and used in connection with the Rule 506(c) offering. This 
requirement would enable the Commission to evaluate the use of written 
general solicitation materials. It could also serve as a deterrent 
against potential forms of misleading advertising or other fraud 
because the written general solicitation materials would be submitted 
to the Commission and accessible to other securities regulators. Having 
access to the written general solicitation material could help 
regulators evaluate market practices.
    The written general solicitation material would not be treated as 
filed or furnished with the Commission and is therefore not subject to 
the particular liability provisions under the Securities Act or the 
Exchange Act for filings. Conditioning the future availability of Rule 
506 on not being subject to any order, judgment or court decree for 
failure to comply with proposed Rule 510T would provide incentives for 
submitting written general solicitation material. Inclusion of a two-
year sunset period for this rule would provide a finite period of time 
(and information) for issuers to submit written general solicitation 
materials for the Commission's consideration in assessing general 
solicitation in Rule 506(c) offerings and would therefore also limit 
issuers' costs of compliance.
    Under the proposed rule, written general solicitation materials 
would be required to be submitted no later than the date of first use 
of such materials. Issuers are required to submit only written general 
solicitation materials, so to the extent issuers' written general 
solicitation materials do not change, they should not be costly to 
submit. If the written general solicitation materials change or are 
updated during the course of an offering, however, submission of these 
materials at multiple times could create an increased burden for 
issuers.

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

    The proposed amendments to the Form D filing requirements would 
enable the Commission to evaluate the effectiveness of Regulation D 
market more systematically and to more accurately determine the 
economic impact of eliminating the prohibition against general 
solicitation in Rule 506 offerings. A more complete understanding of 
how and where capital is being raised in offerings relying on Rule 
506(b) or Rule 506(c) would help the Commission better assess the risk 
in these markets and evaluate the effectiveness of the use of general 
solicitation materials in capital-raising activity. Appropriate and 
timely regulatory responses to Rule 506 market developments would 
enhance investor protection, and could encourage greater investor 
participation in the Rule 506 markets, which would lead to higher 
aggregate of capital formation.\227\
---------------------------------------------------------------------------

    \227\ See, e.g., Andrei Shleifer and Daniel Wolfenzon, Investor 
Protection and Equity Markets, 66 Journal of Financial Economics 3 
(2002).
---------------------------------------------------------------------------

    The proposed amendments to the Form D filing requirements would 
also provide the Commission, other regulators and investors with more 
information about market participants and practices in the private 
offering market. The increased quantity and quality of information 
about private offerings is designed to make it easier

[[Page 44849]]

for regulators to identify poor or inappropriate market practices, 
which may help deter fraudulent activity. A better understood and 
regulated market would promote investor protection and contribute to 
broader participation by accredited investors.
    The inclusion of legends and additional disclosures would inform 
investors about the differences between Rule 506(c) offerings and 
registered offerings, allowing for greater transparency and better 
understanding of the differences in the underlying risks of the two 
types of offerings. This would improve investor decision-making and 
thereby, the allocative efficiency of capital in the Rule 506 market. 
The proposed amendments to Securities Act Rule 156 may also make 
private funds and their investment advisers more aware of potentially 
misleading statements in their sales literature and written general 
solicitation material.
    The elimination of the prohibition against general solicitation may 
enhance the ability of accredited investors to identify and evaluate 
investment opportunities in private funds that would not have 
previously been available. This could increase the level of competition 
between private funds and registered funds and result in a shift in the 
flow of invested capital from registered to private funds. The proposed 
amendments to require legends and disclosures in written general 
solicitation materials are intended to limit such a shift to only those 
investors that are qualified to participate in Rule 506(c) offerings. 
We are not, however, able to quantify the magnitude of such a potential 
substitution of investment in private funds and registered funds or the 
extent to which the proposed legends will affect that shift.
    We recognize the proposed rule and form amendments in this release 
could increase the regulatory burden for issuers in the Rule 506(b) and 
Rule 506(c) markets, which could drive potential issuers, especially 
small issuers, to the Rule 504 and Rule 505 markets. Some issuers may 
even find accessing public markets more attractive. However, with the 
availability of general solicitation in Rule 506(c) offerings, the 
benefits of using Rule 506(c) are still likely to justify the higher 
costs of complying with the proposed rule and form amendments.

X. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\228\ the Commission must advise the OMB as to 
whether a proposed regulation constitutes a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in:
---------------------------------------------------------------------------

    \228\ Public Law 104-121, Tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more 
(either in the form of an increase or a decrease);
     a major increase in costs or prices for consumers or 
individual industries; or
     significant adverse effects on competition, investment or 
innovation.
    If a rule is ``major,'' its effectiveness will generally be delayed 
for 60 days pending Congressional review.
    We request comment on whether our proposed amendments would be a 
``major rule'' for purposes of SBREFA. We solicit comment and empirical 
data on:
     The potential effect on the U.S. economy on an annual 
basis;
     any potential increase in costs or prices for consumers or 
individual industries; and
     any potential effect on competition, investment or 
innovation.
    We request those submitting comments to provide empirical data and 
other factual support for their views to the extent possible.

XI. Initial Regulatory Flexibility Analysis

    The Commission has prepared this Initial Regulatory Flexibility 
Analysis in accordance with Section 603 of the Regulatory Flexibility 
Act.\229\ This Initial Regulatory Flexibility Analysis relates to the 
amendments to Regulation D and Form D and Rule 156 that we are 
proposing in this release.
---------------------------------------------------------------------------

    \229\ See 5 U.S.C. 603.
---------------------------------------------------------------------------

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

    The primary reason for, and objective of, the proposed amendments 
to Form D and the proposed amendments to Regulation D relating to Form 
D is to improve the Form D data collection process with respect to 
offerings under Rule 506 of Regulation D and, in particular, to assist 
our efforts to assess the use of general solicitation in Rule 506(c) 
offerings. We believe these amendments, in general, would improve our 
Form D data collection efforts by providing a greater incentive for 
issuers to file Form D and by amending the information requirements of 
Form D to require additional information on Rule 506 offerings. 
Proposed Rule 509, which would require issuers to include certain 
legends and other disclosures in written general solicitation materials 
used in Rule 506(c) offerings, is intended to address investor 
protection concerns arising from the ability of issuers to engage in 
general solicitation in these offerings. Proposed Rule 510T, which 
would require issuers to submit to the Commission any written general 
solicitation materials used in Rule 506(c) offerings, is intended to 
facilitate the Commission's understanding of the market practices 
relating to how issuers solicit potential purchasers through written 
general solicitation materials for their Rule 506(c) offerings. The 
proposed amendments to Rule 156 are intended to provide helpful 
antifraud guidance to those preparing sales literature for private 
funds.
    We are proposing the amendments to Regulation D and Form D under 
the authority in Sections 4(a)(2), 19(a) and 28 of the Securities 
Act,\230\ as amended, and Section 201(a) of the JOBS Act.\231\ We are 
proposing the amendments to Rule 156 under the authority in Section 
19(a) of the Securities Act \232\ and Sections 10(b) and 23(a) of the 
Exchange Act.\233\
---------------------------------------------------------------------------

    \230\ 15 U.S.C. 77d(a)(2), 77s(a), and 77z-3.
    \231\ Public Law 112-106, sec. 201(a), 126 Stat. 306, 313 (Apr. 
5, 2012).
    \232\ 15 U.S.C. 77s(a).
    \233\ 15 U.S.C. 78j(b) and 78w(a).
---------------------------------------------------------------------------

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

    For purposes of the Regulatory Flexibility Act, under our rules, an 
issuer, other than an investment company, is a ``small business'' or 
``small organization'' if it has total assets of $5 million or less as 
of the end of its most recent fiscal year and is engaged or proposing 
to engage in an offering of securities which does not exceed $5 
million.\234\ For purposes of the Regulatory Flexibility Act, an 
investment company is a small entity if it, together with other 
investment companies in the same group of related investment companies, 
has net assets of $50 million or less as of the end of its most recent 
fiscal year.\235\
---------------------------------------------------------------------------

    \234\ 17 CFR 230.157.
    \235\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

    The proposed amendments would apply to all issuers that conduct 
offerings under Rule 506 and would affect small issuers (including both 
operating businesses and pooled investment funds that raise capital 
under Rule 506) relying on this exemption from Securities Act 
registration. All issuers that sell securities in reliance on Rule 506 
are required to file a Form D with the Commission reporting the 
transaction.

[[Page 44850]]

For the year ended December 31, 2012, 16,067 issuers made 18,187 new 
Form D filings, of which 15,208 issuers relied on the Rule 506 
exemption. Based on information reported by issuers on Form D, there 
were 3,958 small issuers \236\ relying on the Rule 506 exemption in 
2012. This number likely underestimates the actual number of small 
issuers relying on the Rule 506 exemption, however, because over 50% of 
issuers declined to report their size. The proposed amendments to Rule 
156 would apply to all private funds.
---------------------------------------------------------------------------

    \236\ Of this number, 3,627 of these issuers are not investment 
companies, and 331 are investment companies. We also note that 
issuers that are not investment companies disclose only revenues on 
Form D, and not total assets. Hence, we use the amount of revenues 
as a measure of issuer size.
---------------------------------------------------------------------------

C. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to Regulation D and Form D would impose 
certain reporting and compliance requirements on issuers that conduct 
Rule 506 offerings. The proposed amendment to disqualify an issuer from 
relying on the Rule 506 exemption 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 would not add a 
new reporting, recordkeeping or other compliance requirement because 
the filing of Form D is currently a requirement of Regulation D. The 
proposed amendments to Regulation D to require an Advance Form D filing 
for Rule 506(c) offerings, a closing Form D amendment for Rule 506 
offerings, temporary submission of written general solicitation 
materials used in Rule 506(c) offerings, prescribed legends and 
disclosure in written general solicitation materials used in Rule 
506(c) offerings, as well as the proposed amendments to Form D to 
require additional information, would, however, impose additional 
reporting and compliance requirements on issuers that conduct offerings 
under Rule 506 and, to a much lesser extent, offerings under Rule 504, 
Rule 505 and Section 4(a)(5). We expect that small entities would incur 
additional initial and ongoing costs related to complying with these 
requirements. Initial costs include those associated with preparing the 
first Form D filing that includes the required additional information 
in Form D, preparing legends and disclosures to be included in written 
general solicitation materials for Rule 506(c) offerings and submitting 
such materials to the Commission prior to the date of first use. 
Ongoing costs include the additional costs arising from providing this 
additional information in each subsequent filing of a Form D or Form D 
amendment when required, including the prescribed legends in written 
general solicitation materials, submitting updated or new written 
general solicitation materials to the Commission and submitting Advance 
Form D filings for Rule 506(c) offerings and closing amendments to Form 
D for Rule 506 offerings. The proposed amendments to Rule 156 may cause 
small entities to incur some costs in reviewing their sales literature 
for consistency with the interpretative guidance set forth in Rule 156, 
but we do not expect these costs to be significant.

D. Duplicative, Overlapping or Conflicting Federal Rules

    The Commission believes that the proposed amendments would not 
duplicate, overlap or conflict with other federal rules.

E. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objectives of our 
amendments, while minimizing any significant adverse impact on small 
entities. In connection with the proposed amendments, we considered 
several alternatives, including the following:
     Establishing different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     further clarifying, consolidating or simplifying the 
proposed requirements;
     using performance rather than design standards; and
     providing an exemption from the proposed requirements, or 
any part of them, for small entities.

    The Commission is not proposing the establishment of different 
compliance or reporting requirements or timetables for the rules, as 
proposed, for small entities. The Commission believes that, as to small 
entities, differing compliance, reporting or timetable requirements, a 
partial or complete exemption from the proposed requirements or the use 
of performance rather than design standards would be inappropriate 
because these approaches would detract from the completeness and 
uniformity of the Form D dataset and, as a result, reduce the expected 
benefits of more consistent submission of Rule 506 information and 
improved collection of data for Commission enforcement and rulemaking 
efforts. We believe that the proposed amendments to Rule 156 should 
apply to all private funds, regardless of size. The Commission solicits 
comment, however, on whether differing compliance, reporting or 
timetable requirements, a partial or complete exemption, or the use of 
performance rather than design standards would be consistent with the 
main goal of improving the Form D data collection process with respect 
to Rule 506 offerings.

F. General Request for Comment

    The Commission is soliciting comments regarding this analysis. In 
particular, the Commission requests comment regarding:
     The number of small entities that may be affected by the 
proposed amendments;
     the existence or nature of the potential impact of the 
proposed amendments on small entities as discussed in this analysis, as 
well as any effects that have not been discussed; and
     how to quantify the impact of the proposed amendments.

The Commission asks those submitting comments to describe the nature of 
any impact and to provide empirical data to support the nature and 
extent of the impact. These comments will be considered in the 
preparation of the Final Regulatory Flexibility Analysis, if the 
proposed amendments are adopted, and will be placed in the same public 
file as comments on the proposed amendments themselves.

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

    The Form D and Regulation D amendments contained in this release 
are being proposed under the authority set forth in Sections 4(a)(2), 
19(a) and 28 of the Securities Act, as amended, and Section 201(a) of 
the JOBS Act. The amendments to Rule 156 contained in this release are 
being proposed under the authority set forth in Section 19(a) of the 
Securities Act and Sections 10(b) and 23(a) of the Exchange Act.

List of Subjects in 17 CFR Parts 230 and 239

    Reporting and recordkeeping requirements, Securities. Advertising, 
Investment companies, Securities.

    For the reasons set out above, the Commission proposes to amend 
Title 17, chapter II of the Code of Federal Regulations, as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
1. The general authority citation for Part 230 is revised to read as 
follows:


[[Page 44851]]


    Authority: 15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll (d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 
80a-30, and 80a-37, and Pub. L. No. 112-106, sec. 201(a), 126 Stat. 
313 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec.  230.156 by:
0
a. Revising the heading;
0
b. In paragraph (a), adding the phrase ``or a private fund'' at the end 
of the first sentence.
0
c. Revising paragraphs (b)(3) introductory text, (b)(3)(ii) and (c); 
and
0
d. Adding paragraph (d).
    The revisions and addition read as follows:


Sec.  230.156  Investment company and private fund sales literature.

    (a) * * *
    (b) * * *
    (3) A statement involving a material fact about the characteristics 
or attributes of an investment company or a private fund could be 
misleading because of:
    (i) * * *
    (ii) Exaggerated or unsubstantiated claims about management skill 
or techniques, characteristics of the investment company or the private 
fund or an investment in securities issued by such entity, services, 
security of investment or funds, effects of government supervision, or 
other attributes; and
* * * * *
    (c) For purposes of this section, the term sales literature shall 
be deemed to include any communication (whether in writing, by radio, 
or by television) used by any person to offer to sell or induce the 
sale of securities of any investment company or private fund. 
Communications between issuers, underwriters and dealers are included 
in this definition of sales literature if such communications, or the 
information contained therein, can be reasonably expected to be 
communicated to prospective investors in the offer or sale of 
securities or are designed to be employed in either written or oral 
form in the offer or sale of securities.
    (d) For purposes of this section, the term private fund means an 
issuer that would be an investment company, as defined in section 3 of 
the Investment Company Act of 1940 (15 U.S.C. 80a-3), but for section 
3(c)(1) or 3(c)(7) of that Act (15. U.S.C. 80a-3(c)(1) or 80a-3(c)(7)).
0
3. Amend Sec.  230.503 by:
0
a. Redesignating paragraphs (a)(1), (a)(2), (a)(3) and (a)(4) as 
paragraphs (a)(2), (a)(3), (a)(4) and (a)(6), respectively;
0
b. Adding new paragraphs (a)(1) and (a)(5);
0
c. Revising newly redesignated paragraph (a)(2);
0
d. Removing ``and'' in newly redesignated paragraph (a)(4)(ii)(I);
0
e. Removing the period and adding in its place ``;'' in newly 
redesignated paragraph (a)(4)(iii); and
0
f. Adding new paragraphs (a)(4)(iv) and (a)(4)(v).
    The revisions and additions read as follows:


Sec.  230.503  Filing of notice of sales.

    (a) When notice of sales on Form D is required and permitted to be 
filed. (1) An issuer that intends to offer or sell securities in 
reliance on Sec.  230.506(c), and has not previously filed a notice 
under paragraph (a)(2) of this section of such intended offering in 
reliance on Sec.  230.506(c), must file with the Commission, no later 
than 15 calendar days prior to the first use of general solicitation or 
general advertising for such offering, a notice of sales containing the 
following information required by Form D (17 CFR 239.500) for such 
offering:
    (i) The issuer's identity (Item 1);
    (ii) Principal place of business and contact information (Item 2);
    (iii) Related persons (Item 3);
    (iv) Industry group (Item 4);
    (v) Federal exemptions and exclusions claimed (Item 6);
    (vi) Type of filing (Item 7);
    (vii) Type(s) of Securities Offered (Item 9);
    (viii) Business combination transaction (Item 10);
    (ix) Sales compensation (Item 12); and
    (x) Use of proceeds (Item 16).
    (2) An issuer offering or selling securities in reliance on Sec.  
230.504, Sec.  230.505, or Sec.  230.506 (other than an issuer that has 
previously filed a notice for such offering under paragraph (a)(1) of 
this section) must file with the Commission a notice of sales 
containing the information required by Form D (17 CFR 239.500) for each 
new offering of securities no later than 15 calendar days after the 
first sale of securities in the offering.
* * * * *
    (4) * * *
    (iv) To contain the information required by Form D for such 
offering of securities in reliance on Sec.  230.506(c), if the issuer 
is offering or selling securities in reliance on Sec.  230.506(c) and 
has previously filed the notice under paragraph (a)(1) of this section, 
no later than 15 calendar days after the first sale of securities in 
the offering; and
    (v) Not later than 30 calendar days after the termination of an 
offering conducted in reliance on Sec.  230.506, unless all the 
information that would be included in such amendment is included in a 
notice previously filed under this paragraph (a) and such notice 
indicated that it was the closing amendment to the Form D.
    (5) Where the end of a period specified for filing under paragraph 
(a)(1), (a)(2), (a)(4)(iv) or (a)(4)(v) of this section falls on a 
Saturday, Sunday or holiday, the due date for such filing would be the 
first business day following.
* * * * *
0
4. Amend Sec.  230.507 by:
0
a. Redesignating paragraph (b) as paragraph (c);
0
b. Revising paragraph (a);
0
c. Adding new paragraph (b); and
0
d. In newly redesignated paragraph (c), removing the words ``Paragraph 
(a)'' and adding in their place ``Paragraphs (a) and (b)''.
    The revision and addition read as follows:


Sec.  230.507  Disqualifying provision relating to exemptions under 
Sec. Sec.  230.504, 230.505 and 230.506.

    (a) No exemption under Sec.  230.504, Sec.  230.505 or Sec.  
230.506 shall be available for an issuer if such issuer, or any of its 
predecessors or affiliates, has been subject to any order, judgment, or 
decree of any court of competent jurisdiction temporarily, preliminary 
or permanently enjoining such person for failure to comply with Sec.  
230.503. No exemption under Sec.  230.506 shall be available for an 
issuer if such issuer, any of its predecessors or affiliates have been 
subject to any order, judgment, or decree of any court of competent 
jurisdiction temporarily, preliminary or permanently enjoining such 
person for failure to comply with Sec.  230.509 or Sec.  230.510T.
    (b) (1) No exemption under Sec.  230.506 shall be available for an 
issuer if such issuer, or any of its predecessors or affiliates, has, 
within the five preceding years, failed to comply with the requirements 
of Sec.  230.503 in connection with an offering conducted in reliance 
on Sec.  230.506, except that such exemption shall be available for 
offers and sales in connection with offerings that commenced before the 
failure to comply occurred. In determining compliance with Sec.  
230.503 for purposes of this paragraph (b)(1), a notice on Form D 
(Sec.  239.500) or amendment thereto will be deemed timely if it is 
filed not later than 30 calendar days after the date specified for such 
filing in Sec.  230.503, unless the issuer previously failed to comply 
with

[[Page 44852]]

such a filing deadline in connection with the same offering.
    (2) One year after the filing by the issuer and such predecessor(s) 
and affiliate(s), as the case may be, of all notices on Form D (Sec.  
239.500) and amendments thereto required under Sec.  230.503 in 
connection with each offering conducted in reliance on Sec.  230.506 
that has not been terminated, and of the closing amendment required 
under Sec.  230.503(a)(4)(v) with respect to each previous offering 
conducted in reliance on Sec.  230.506 within the five preceding years 
that has been terminated, the issuer shall be permitted to rely on the 
exemption under Sec.  230.506.
    (3) For purposes of paragraph (b)(1) of this section, failures to 
comply with Sec.  230.503 that occurred before [effective date of final 
rule] shall be disregarded.
* * * * *
    5. Add Sec.  230.509 to read as follows:


Sec.  230.509  Required legends and other disclosures.

    (a) Required legends. An issuer shall include, in a prominent 
manner, the following legends in any written communication that 
constitutes a general solicitation or general advertising in any 
offering conducted in reliance on Sec.  230.506(c):
    (1) 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;
    (2) 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;
    (3) 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;
    (4) 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
    (5) Investing in securities involves risk, and investors should be 
able to bear the loss of their investment.
    (b) Additional legend for private funds. If the issuer is a private 
fund, the issuer shall include, in a prominent manner, in any written 
communication that constitutes a general solicitation or general 
advertising in any offering conducted in reliance on this Sec.  
230.506(c), a legend disclosing that the securities offered are not 
subject to the protections of the Investment Company Act.
    (c) Required disclosure for performance data of private funds. If 
the issuer is a private fund and includes performance data in any 
written communication that constitutes a general solicitation or 
general advertising in any offering conducted in reliance on this Sec.  
230.506(c):
    (1) The private fund shall include in such written communication a 
legend disclosing that the performance data represents past 
performance; that past performance does not guarantee future results; 
that current performance may be lower or higher than the performance 
data presented; that the private fund is not required by law to follow 
any standard methodology when calculating and representing performance 
data; and that the performance of the private fund may not be directly 
comparable to the performance of other funds. The legend should also 
identify either a telephone number or a Web site where an investor may 
obtain current performance data.
    (2) All performance 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 must disclose the 
period for which performance is presented.
    (3) If the performance presentation does not include the deduction 
of fees and expenses, the private fund must disclose that the 
presentation does not reflect the deduction of fees and expenses and 
that if such fees and expenses had been deducted, performance may be 
lower than presented.

    Note to Sec.  230.509: A private fund is an issuer that would be 
an investment company, as defined in section 3 of the Investment 
Company Act of 1940 (15 U.S.C. 80a-3), but for section 3(c)(1) or 
3(c)(7) (15 U.S.C. 80a-3(c)(1) or 80a-3(c)(7)) of that Act. If 
applicable, a private fund may modify the required legend to reflect 
any higher minimum requirements to purchase in the offering, such as 
for qualified clients, as defined in Sec.  275.205-3(d)(1) of this 
chapter, and qualified purchasers, as defined in section 2(a)(51) of 
the Investment Company Act of 1940 (15 U.S.C. 80a-2(a)(51)) and the 
rules thereunder.

0
6. Add Sec.  230.510T to read as follows:


Sec.  230.510T  Submission of written general solicitation materials.

    (a) An issuer shall submit to the Commission any written 
communication that constitutes a general solicitation or general 
advertising in any offering conducted in reliance on Sec.  230.506(c) 
no later than the date of first use. The communication shall be 
submitted using the intake page designated on the Commission's Web site 
for the submission of such materials.
    (b) This temporary rule shall expire and no longer be effective on 
[ ].

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
7. The authority citation for Part 239 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78 o(d), 78o-7 note, 78u-5, 78w(a), 78ll, 
78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 
80a-29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
0
8. Amend Form D (referenced in Sec.  239.500) by:
0
a. Revising Item 2;
0
b. Revising Item 3;
0
c. Revising Item 4;
0
d. In Item 5, in the first column, removing the phrase ``Decline to 
Disclose'' after ``Over $100,000,000'' and adding in its place ``Not 
Available to Public,'' and in the second column removing the phrase 
``Decline to Disclose'' after ``Over $100,000,000'' and adding in its 
place ``Not Available to Public'';
0
e. In Item 7, adding a check box that reads ``Advance Notice--Rule 
506(c) Offering'' and the word ``OR'' before ``New Notice'' and adding 
the word ``OR'' after ``Amendment'' and adding a check box that reads 
``Closing Amendment--Rule 506 Offering'' after the word ``OR''; and
0
f. Revising Item 9;
0
g. Revising Item 14;
0
h. Revising Item 16;
0
i. Adding Items 17 through 22 to Form D; and
0
j. Revising the instruction ``When to file:'' and the instructions to 
Items 2, 3, 4, 5, 7, 9, 14 and 16, and adding instructions to Items 17 
through 22 to the General Instructions to Form D.
    The revisions and additions read as follows:

    Note:  The text of Form D does not, and the amendments will not, 
appear in the Code of Federal Regulations.

Sec.  239.500  Form D, notice of sales of securities under Regulation D 
and section 4(5) of the Securities Act of 1933.

* * * * *
Form D Notice of Exempt Offerings of Securities
* * * * *

Item 2. * * *

    Issuer's publicly accessible Web site address, if any: --------
* * * * *

Item 3. * * *


[[Page 44853]]


    Relationship(s): * * * [ ] Controlling Person (for Rule 506(c) 
offerings only)
* * * * *

Item 4. * * *

    Clarification of Response (if Other): --------
* * * * *

Item 9. * * *

    Trading Symbol for the Offered Securities, if any: --------
    Generally Available Security Identifier Number for the Offered 
Securities, if any: --------
* * * * *

Item 14. * * *


----------------------------------------------------------------------------------------------------------------
For offerings under Rule 506 only:                               Natural Persons             Legal Entities
----------------------------------------------------------------------------------------------------------------
Accredited Investors..............  Number................
                                    Amount Raised ($).....
Non-accredited Investors..........  Number................
                                    Amount Raised ($).....
----------------------------------------------------------------------------------------------------------------

* * * * *
    Item 16. * * *


Issuers That Are Not Pooled Investment Funds--Offerings Under Rule 506

    What fraction of offering proceeds was or will be used to 
repurchase/retire existing securities:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%

    What fraction of offering proceeds was or will be used to pay 
offering expenses:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%

    What fraction of offering proceeds was or will be used to acquire 
assets, otherwise than in the ordinary course of business:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%

    What fraction of offering proceeds was or will be used to finance 
acquisitions of other businesses:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%

    What fraction of offering proceeds was or will be used for working 
capital:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%

    What fraction of offering proceeds was or will be used to discharge 
indebtedness:


[ ] None

[ ] Less than 10%

[ ] 10-25%

[ ] 25-50%

[ ] More than 50%


Item 17. Offerings Under Rule 506: Specify the Number of Purchasers Who 
Qualified as Accredited Investors on the Basis of


[ ] Income

[ ] Net worth

[ ] Director, executive officer or general partner of issuer or its 
general partner

[ ] Other basis

    Item 18. Offerings Under Rule 506: National Securities Exchange or 
Alternative Trading System

    If the issuer's securities are traded on a national securities 
exchange, alternative trading system or any other organized trading 
venue, the name of such trading venue --------------------

    If a class of the issuer's securities is registered under the 
Securities Exchange Act of 1934, the SEC file number for such class of 
securities --------------------
    Check this box [ ] if the securities being offered in reliance on 
Rule 506 are of the same class of securities or are convertible into or 
exercisable or exchangeable for such class of securities.


Item 19. Offerings Under Rule 506: Filing of General Solicitation 
Materials with FINRA

    If the issuer used a registered broker-dealer in connection with 
the offering, were general solicitation materials filed with the 
Financial Industry Regulatory Authority (FINRA)?


[ ] Yes [ ] No [ ] Not applicable


Item 20. Offerings Under Rule 506: Name and SEC File Number of 
Investment Advisers

    If the issuer is a pooled investment fund, the name and SEC file 
number for each registered investment adviser or exempt reporting 
adviser that functions directly or indirectly as a promoter of the 
issuer --------------------

    Item 21. Offerings Under Rule 506(c): Types of General Solicitation 
and General Advertising Used or To Be Used (check all that apply)

[ ] Email
[ ] Mass mailing
[ ] Telephone solicitations
[ ] Public Web site(s) or webcast(s). [Specify Web address(es):--------
]
[ ] Broadcast media
[ ] Print media
[ ] Social media
[ ] Other written communications [Specify:--------------------]
[ ] Seminar(s)/meetings(s)
[ ] Other oral communications
[ ] Not applicable


Item 22. Offerings Under Rule 506(c): Methods Used or To Be Used to 
Verify That Purchasers Are Accredited Investors (check all that apply):

    Non-exclusive List of Verification Methods in Rule 506(c)(2)(ii):

[ ] Verification of natural person's income under Rule 506(c)(2)(ii)(A)

[ ] Verification of natural person's net worth under Rule 
506(c)(2)(ii)(B)

[ ] Confirmation under Rule 506(c)(2)(ii)(C) by
    [ ] Registered broker-dealer
    [ ] SEC-registered investment adviser
    [ ] Certified public accountant
    [ ] Licensed attorney

    Verification Using Other Methods (check all that apply):

[ ] Publicly available information [Specify: ------------]
[ ] Documentation provided by purchaser [Specify: ------------]
[ ] Documentation provided by third parties [Specify: ------------]
[ ] Reliance on verification by a third party other than a registered 
broker-dealer, registered investment adviser, certified public 
accountant, or licensed attorney
[ ] Questionnaire
[ ] Other (Specify:--------------------)
* * * * *

[[Page 44854]]

General Instruction
     * * *
     When to file:
    [cir] For offerings under Rule 504, Rule 505 and Rule 506(b) of 
Regulation D and Section 4(a)(5) of the Securities Act, an issuer must 
file a new notice with the SEC for each new offering of securities no 
later than 15 calendar days after the ``date of first sale'' of 
securities in the offering as explained in the Instruction to Item 7. 
For this purpose, the date of first sale is the date on which the first 
investor is irrevocably contractually committed to invest, which, 
depending on the terms and conditions of the contract, could be the 
date on which the issuer receives the investor's subscription agreement 
or check. An issuer may file the notice at any time before that if it 
has determined to make the offering. An issuer must file a new notice 
with each state that requires it at the time set by the state. For 
state filing information, go to www.NASAA.org. A mandatory capital 
commitment call does not constitute a new offering, but is made under 
the original offering, so no new Form D filing is required.
    [cir] When an issuer intends to offer or sell securities under Rule 
506(c) of Regulation D and has not previously filed a Form D for the 
offering, the issuer must file a new notice with the SEC for each new 
offering of securities no later than 15 calendar days prior to the 
first use of general solicitation or general advertising for the 
offering. The advance Form D is required to include the following 
information for such offering: the issuer's identity (Item 1), 
principal place of business and contact information (Item 2), related 
persons (Item 3), industry group (Item 4), federal exemptions and 
exclusions claimed (Item 6), type of filing (Item 7), type(s) of 
securities offered (Item 9), business combination transaction (Item 
10), sales compensation (Item 12), and use of proceeds (Item 16). The 
information under Item 9 and Item 12 is required only to the extent 
that the information is known at the time of the filing of the advance 
Form D.

* * * * *
    [cir] An issuer must file an amendment to a previously filed notice 
for an offering:

--to provide the information required by Form D for each new offering 
of securities in reliance on Rule 506(c) no later than 15 calendar days 
after the first sale of securities in the offering;
--to correct a material mistake of fact or error in the previously 
filed notice, as soon as practicable after discovery of the mistake or 
error;
--to reflect a change in the information provided in the previously 
filed notice, except as provided below, as soon as practicable after 
the change;
--annually, on or before the first anniversary of the most recent 
previously filed notice, if the offering is continuing at that time; 
and
--not later than 30 calendar days after termination of an offering 
conducted in reliance on Rule 506, unless a previously filed Form D 
amendment for such issuer with respect to the same offering includes 
the information that would have been disclosed in the amendment 
following termination of such offering and such previously filed 
amendment indicates that it is the closing amendment to the Form D for 
the offering.
* * * * *
Item-by-Item Instructions
* * * * *
    Item 2. Principal Place of Business and Contact Information. * * *
    Enter the issuer's publicly accessible Web site address, if any.
    Item 3. Related Persons. Enter the full name and address of each 
person having the specified relationships with any issuer and identify 
each relationship:
     Each executive officer and director of the issuer and 
person performing similar functions (title alone is not determinative) 
for the issuer, such as the general and managing partners of 
partnerships and managing members of limited liability companies; and
     Each person who has functioned directly or indirectly as a 
promoter of the issuer within the past five years of first sale of 
securities or the date upon which the Form D filing was required to be 
made, whichever date is later.
     For offerings conducted in reliance on Rule 506(c) only, 
each person who directly or indirectly controls the issuer.
    If necessary to prevent the information supplied from being 
misleading, also provide a clarification in the space provided.
    Identify additional persons having the specified relationships by 
checking the box provided and attaching Item 3 continuation page(s).
    Item 4. Industry Group. * * *
    If Other, provide a brief description of the issuer's industry 
group in the space provided.
    Item 5. Issuer Size.
     Revenue Range (for issuers that do not specify ``Hedge 
Fund'' or ``Other Investment Fund'' in response to Item 4): Enter the 
revenue range of the issuer or of all the issuers together for the most 
recently completed fiscal year available, or, if not in existence for a 
fiscal year, revenue range to date. Domestic SEC reporting companies 
should state revenues in accordance with Regulation S-X under the 
Securities Exchange Act of 1934. Domestic non-reporting companies 
should state revenues in accordance with U.S. Generally Accepted 
Accounting Principles (GAAP). Foreign issuers should calculate revenues 
in U.S. dollars and state them in accordance with U.S. GAAP, home 
country GAAP or International Financial Reporting Standards. If the 
issuer(s) has not otherwise made information about its revenues 
publicly available (for example, in general solicitation materials for 
an offering conducted in reliance on Rule 506(c)) and otherwise uses 
reasonable efforts to maintain the confidentiality of such information, 
enter ``Not Available to Public.'' If the issuer's(s') business is 
intended to produce revenue but did not, enter ``No Revenues.'' If the 
business is not intended to produce revenue (for example, the business 
seeks asset appreciation only), enter ``Not Applicable.''
     Aggregate Net Asset Value (for issuers that specify 
``Hedge Fund'' or ``Other Investment Fund'' in response to Item 4): 
Enter the aggregate net asset value range of the issuer or of all the 
issuers together as of the most recent practicable date. If the 
issuer(s) has not otherwise made information about its net asset value 
publicly available (for example, in general solicitation materials for 
an offering conducted in reliance on Rule 506(c)) and otherwise uses 
reasonable efforts to maintain the confidentiality of such information, 
enter ``Not Available to Public.''
* * * * *
    Item 7. Type of Filing. Indicate whether the issuer is filing a new 
notice, an advance notice for an offering in reliance on Rule 506(c), 
an amendment to a notice that was filed previously, or a closing 
amendment for an offering in reliance on Rule 506. If this is a new 
notice, enter the date of the first sale of securities in the offering 
or indicate that the first sale has ``Yet to Occur.'' For this purpose, 
the date of first sale is the date on which the first investor is 
irrevocably contractually committed to invest, which, depending on the 
terms and conditions of the contract, could be the date on which the 
issuer receives the investor's subscription agreement or check.
* * * * *
    Item 9. Type(s) of Securities Offered. Select the appropriate type 
or types of securities offered as to which this notice is filed. State 
the trading symbol and general available security identifier,

[[Page 44855]]

such as a CUSIP number or an International Securities Identification 
Number (ISIN), for the offered securities, if any. If the securities 
are debt convertible into other securities, however, select ``Debt'' 
and any other appropriate types of securities except for ``Equity.'' 
For purposes of this filing, use the ordinary dictionary and commonly 
understood meanings of these categories. For instance, equity 
securities would be securities that represent proportional ownership in 
an issuer, such as ordinary common and preferred stock of corporations 
and partnership and limited liability company interests; debt 
securities would be securities representing money loaned to an issuer 
that must be repaid to the investor at a later date; pooled investment 
fund interests would be securities that represent ownership interests 
in a pooled or collective investment vehicle; tenant-in-common 
securities would be securities that include an undivided fractional 
interest in real property other than a mineral property; and mineral 
property securities would be securities that include an undivided 
interest in an oil, gas or other mineral property.
* * * * *
    Item 14. Investors. Indicate whether securities in the offering 
have been or may be sold to persons who do not qualify as accredited 
investors as defined in Rule 501(a), 17 CFR 230.501(a), and provide the 
number of such investors who have already invested in the offering. In 
addition, regardless of whether securities in the offering have been or 
may be sold to persons who do not qualify as accredited investors, 
specify the total number of investors who already have invested. For an 
offering conducted in reliance on Rule 506, state the number of natural 
persons who are accredited investors and non-accredited investors and 
purchased securities in the offering, the number of legal entities that 
are accredited investors and non-accredited investors and purchased 
securities in the offering, and the dollar amount raised from each 
category of investor.
* * * * *
    Item 16. Use of Proceeds. For an offering conducted in reliance on 
Rule 506 by an issuer that is not a pooled investment fund, enter the 
percentage range of the offering proceeds that was or will be used to 
repurchase or retire the issuer's existing securities; to pay offering 
expenses; to acquire assets, otherwise than in the ordinary course of 
business; to finance acquisitions of other businesses; for working 
capital; and to discharge indebtedness.
    Item 17. Purchasers Who Qualified as Accredited Investors. For an 
offering conducted in reliance on Rule 506, enter the number of 
purchasers who qualified as accredited investors on the basis of (1) 
income, (2) net worth, (3) being a director, executive officer or 
general partner of the issuer or its general partner, or (4) other 
basis.
    Item 18. National Securities Exchange or Alternative Trading 
System. For an offering conducted in reliance on Rule 506, if the 
issuer's securities are traded on a national securities exchange, 
alternative trading system or any other organized trading venue, state 
the name of such trading venue. If a class of the issuer's securities 
is registered under the Securities Exchange Act of 1934, state the SEC 
file number for such class of securities. Check the box if the 
securities being offered in reliance on Rule 506 are of the same class 
of securities or are convertible into or exercisable or exchangeable 
for such class of securities.
    Item 19. Filing of General Solicitation Materials with FINRA. For 
an offering conducted in reliance on Rule 506, if the issuer used a 
registered broker-dealer in connection with the offering, indicate 
whether any general solicitation materials were filed with the 
Financial Industry Regulatory Authority (FINRA).
    Item 20. Name and SEC File Number of Investment Advisers. For an 
offering conducted in reliance on Rule 506 by an issuer that is a 
pooled investment fund, if an investment adviser functions, directly or 
indirectly, as a promoter of the issuer, provide the name and 
Commission file number for each such investment adviser that is 
registered with, or reporting as an exempt reporting adviser to, the 
Commission.
    Item 21. Types of General Solicitation and General Advertising. For 
an offering conducted in reliance on Rule 506(c), indicate each type of 
general solicitation and general advertising used or to be used in the 
offering. If public Web site(s) or webcast(s) are used, specify the Web 
addresses for the public Web site(s) or webcast(s). If written 
communications are used other than those listed in this item, briefly 
describe the form of such written communications.
    Item 22. Methods Used to Verify Accredited Investor Status. For an 
offering conducted in reliance on Rule 506(c), indicate each method 
used or to be used to verify that the purchasers of securities are 
accredited investors. If the issuer verifies the accredited investor 
status of purchasers other than through the non-exclusive list of 
verification methods in Rule 506(c)(2)(ii), specify the publicly 
available information, documentation provided by the purchaser or third 
parties, or other methods used to verify accredited investor status.

    By the Commission.

    Dated: July 10, 2013.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16884 Filed 7-23-13; 8:45 am]
BILLING CODE 8011-01-P


