SEC Amends Private Offering Rules

The Securities and Exchange Commission (SEC) recently adopted amendments to its rules, known as Regulation D, governing private securities offerings. The amendments are intended to modernize and streamline the reporting process with respect to private offerings and to enhance availability of information to the investing public and regulators alike.

The amended rules require issuers to file the mandatory SEC notice filing on Form D electronically rather than on paper, after a phase-in period in which issuers can file in either format. Mandatory electronic filing will begin on March 16, 2009. The data resulting from those filings will be publicly available through the SEC's Web site and is expected to be interactive and searchable. The electronic filing requirement is also intended to coordinate efforts among regulators. The ultimate goal would be to have filing with the SEC become a one-stop-shop, eliminating the need to file in individual states.

The amendments also altered the content of Form D. Among many other things, the new Form D will require revenue range information for most issuers although issuers will have an option to decline to disclose that information. The amendments also reduce disclosures regarding use of the proceeds so that issuers need only disclose payments to related parties and commissions and similar fees.

For the first time, the amended form will permit a limited amount of "free writing", or explanatory writing, in response to certain questions. For example, one of the areas in which free writing is permitted is when disclosing related party transactions. This information could permit investors to make their own determination as to whether proceeds were used to inappropriately benefit affiliates in the current or former offerings. The SEC has attempted to limit potential abuses of permitted free writing by limiting the number of words and the types of questions in response to which free writing may be used. The SEC has also imposed requirements that any free writing be done in good faith after having made reasonable efforts to comply with the requirements of Form D.

Some additional amendments include eliminating the former requirement to identify significant shareholders as related parties, removing the requirement of a description of the business and replacing it with a code identifying the issuer's industry and limiting reporting of minimum investment amounts so as to avoid adversely affecting employee incentive plans.

Janice Wilken is a partner in Ice Miller's Private Equity and Venture Services Practice Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.