SEC VERIFY DATA
TITLE: What Is Rule 506(d) Bad Actor Disqualification
SEO DESCRIPTION: Learn how SEC Rule 506(d) bad actor disqualification works, who is covered, which events can affect a Rule 506 offering, and what investors should check.
WHAT IS RULE 506(d)
Rule 506(d) is the “bad actor” disqualification provision within Regulation D. It can prevent an issuer from relying on Rule 506(b) or Rule 506(c) when the issuer or certain people connected with the offering have experienced specified criminal, court or regulatory events.
The rule is important because Rule 506 is one of the most widely used exemptions for private securities offerings in the United States.
WHO IS A COVERED PERSON
Covered persons can include the issuer, predecessor or affiliated issuers, directors, executive officers, certain participating officers, general partners, managing members, promoters and certain significant beneficial owners.
For pooled investment funds, the rule can also reach investment managers and certain principals. People who receive compensation for soliciting investors, together with certain persons connected to those solicitors, may also fall within the rule.
WHAT EVENTS CAN CAUSE DISQUALIFICATION
Potential disqualifying events include certain criminal convictions, court injunctions, regulatory orders, SEC disciplinary orders and other specified actions involving securities or financial activities.
The exact effect depends on the type and timing of the event. Certain events occurring before the relevant rule effective date may not automatically disqualify an offering but can still require disclosure to investors.
DOES A FORM D SHOW EVERY BAD ACTOR ISSUE
Not necessarily. A Form D can identify important people connected with an offering, but due diligence should not stop with the filing itself.
Researchers may need to compare names against SEC enforcement records, regulatory databases, court records and other reliable public sources.
WHY RULE 506(d) MATTERS
When FilingDossier reviews a Rule 506 offering, the people and entities connected with the issuer can be as important as the offering amount or exemption claimed.
The absence of an obvious enforcement record does not prove an offering is safe, while the existence of a regulatory event should be evaluated according to the applicable rule, timing and legal context.
DISCLAIMER
FilingDossier is an independent research platform and is not affiliated with or endorsed by the SEC. This material is provided for informational and research purposes only and does not constitute legal or investment advice.