Mark your calendar for these in-person only sessions, held at our New York office from a. During this webinar, the panelists will address the rules applicable to U. SEC-registered offering. BST The cross-border private placement market has continued to grow, providing issuers with an opportunity to raise capital from US and European financial institutions. Monday, July 24, p.
As discussed in Regulatory Notice , a broker-dealer that participates in an offering and recommends a security must, among other requirements, conduct a reasonable investigation of the security and the issuer's representations about it.
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Such inconsistencies should be "red flags" to a broker-dealer performing a reasonable investigation. Furthermore, FINRA has found that broker-dealers violated SEA Rule 10b-9 by failing to return subscriber funds after the issuer changed the contingency by reducing the offering minimum. The manner in which a broker-dealer must handle investor funds generally will be determined by two factors. Escrow Agreements In contingent offerings that require an escrow agent, the escrow agreement must be executed with a bank that is unaffiliated with the broker-dealer and the issuer.
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The escrow account may not be controlled by the issuer, 18 the broker-dealer 19 or an attorney. Prompt Transmittal of Funds SEA Rule 15c b requires that a broker-dealer promptly transmit funds to either an escrow agent or a separate bank account. SEC staff has interpreted "promptly" to mean by noon of the next business day.
A broker-dealer must also promptly refund investors' funds if the contingency is not met. For example, FINRA found that a broker-dealer violated SEA Rule 10b-9 after it failed to return two investors' funds, even after the investors demanded their money back.
Disbursal to the Issuer Broker-dealers must segregate investor funds they receive at least until the contingency is met. FINRA has found that some broker-dealers improperly disbursed investor funds to issuers before the contingency was satisfied.
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Issuer's Direct Receipt of Investor Funds FINRA has observed in some contingency offerings that broker-dealers have instructed investors to transmit their funds directly to the issuer. Since SEA Rule 15c governs the broker-dealer's receipt of investor funds, funds that are not received by the broker-dealer absent the circumstance in which there is an affiliation between the broker-dealer and the issuer are outside the purview of this rule.
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Print Manager. Is the firm making the filing required to obtain sufficient information so that it can answer "yes" or "no" to the questions instead of "unknown? The scope of a firm's obligations to conduct a reasonable due diligence investigation of a private placement issuer is addressed in Regulatory Notice The form asks whether the issuer is "able to use offering proceeds to make or repay loans to, or purchase assets from, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer's affiliates.
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If the firm has information, including representations from the issuer, from which it concludes there are limits in place against such use of proceeds, the firm should answer "no. Why is the form's question regarding the issuer's disciplinary history different than the SEC's Rule disqualification "Bad Actor" provision? The SEC recently adopted amendments to Regulation D under the Securities Act of that require specific disclosure or make the exemption under Rule unavailable if a "Covered Person" is subject to a "Disqualifying Event. Disqualifying Events that occur before September 23, , the effective date of the SEC's "Bad Actor" provision, must be disclosed to investors, and Disqualifying Events that occur on or after the effective date result in the offering being ineligible to rely on SEC Rule The form asks whether the issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer's affiliates has been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last 10 years.
The criteria of Covered Persons or Disqualifying Events that the SEC adopted in its Bad Actor provision are not relevant to the disciplinary history question on the form, which is used to assist FINRA in prioritizing the reviews of private placements, not to screen offerings for compliance with SEC requirements. What are "independently audited financial statements" for purposes of the form?
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Independently audited financial statements are financial statements prepared in accordance with generally accepted accounting principles, or GAAP, and audited by an independent certified public accountant in accordance with generally accepted auditing standards. Can a firm explain why a question in the form was answered in a particular way, or provide additional information not requested in the form? FINRA encourages firms to provide explanations or additional information, as appropriate, in the text box at the end of the form. Do the SEC's recent amendments that permit general solicitation for certain offerings under Rule of Regulation D eliminate the filing requirements of Rule or for these offerings?
Whether general solicitation is used to market a private placement is irrelevant to whether the offering must be filed pursuant to FINRA Rule or View Whole Section. Text only. Print Manager. Regulatory Notice.