This is a summary of a recent FINRA podcast on Membership Application Program.
FINRA (Financial Industry Regulatory Authority) publishes a monthly review of disciplinary actions taken against both firms and individuals. These disciplinary actions are useful tools to look for trends in violations and other sanctions. These trends can assist you in identifying weak areas in your Firm’s compliance programs or surveillance. Below is a list of a few recent actions related to unregistered offerings or private placements including links to learn more about each as well as key takeaways. Due diligence obligations in connection with private offerings- Torch Securities In summary, Torch Securities failed to establish and maintain WSPs reasonably designed to Read more about Private Placement Best Practices from FINRA Disciplinary Actions[…]
Rule 147, also known as the intrastate offering exemption, allows for firms to avoid registration with the SEC for intrastate offerings under certain conditions. This exemption seeks to facilitate the financing of local business operations for companies that are organized in the state where it is offering the securities, carry out a significant amount of its business in that state, and make offers and sales only to residents of that state. The Rule 147 exemption is available only if the entire issue is offered and sold exclusively to residents of that single state. If any sales take place to non-residents, Read more about Rule 147 Offerings[…]
On July 15, 2021, FINRA released Regulatory Notice 21-26 announcing changes to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) effective October 1, 2021. The changes will require members to file retail communications that promote or recommend private placement offerings that are subject to those rules’ filing requirements.
The changes to the definition of “Accredited Investor” that the SEC approved in August of 2020 officially went into effect on December 8th. The changes now allow people to qualify based on factors other than net worth. Now individuals will be able to qualify as an Accredited Investor based on clear measures of financial sophistication, such as professional knowledge and experience or certifications in addition to the traditional test for income or net worth. The change also expanded and updated the list of entities that can meet the definition an participate in certain private offerings.
The SEC’s intentions with the change were to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets to expand investment opportunities while maintaining appropriate investor protections and promote capital formation.
On Nov. 2, 2020, the U.S. Securities and Exchange Commission (SEC) adopted final rules to simplify the exempt offering framework. The SEC’s goal with these amendments was to “simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.”. More Specifically they aimed to:
- Address the ability of issuers to move from one exemption to another;
- Set clear and consistent rules governing offering communications between investors and issuers;
- Address potential gaps and inconsistencies in their rules relating to offering and investment limits; and
- Harmonize certain disclosure requirements and bad actor disqualification provisions.