B-D Corner: More Disclosures and Filings Required For Private Placements

Last month, FINRA proposed Rule 5123 which, if adopted by the SEC, would have a huge impact on broker-dealers  that offer or sell any security conducted in reliance on an exemption from registration under the Securities Act (i.e., a private placement), or participate in the preparation of a PPM, term sheet or other disclosure document for a private placement.

Proposed FINRA Rule 5123 would require broker-dealers and their representatives to provide a PPM or term sheet to each investor prior to the sale of a private placement. Such disclosure would be required to describe the anticipated use of the offering’s proceeds, the amount and type of the offering’s expenses, and the amount and type of compensation to be provided to sponsors, finders and consultants in connection with the private placement.  Proposed Rule 5123 would also require “notice” filings of broker-dealers’ private placement activities. Specifically, the proposed Rule would require broker-dealers to file with FINRA the PPM, term sheet or other disclosure document (including exhibits) with FINRA no later than 15 calendar days after the date of first sale, and to timely file any material amendments to such document.

Notably, proposed Rule 5123 would exempt several types of private placements from the requirements noted above. Some of the Rule’s exemptions include private placements sold only to one or more of the following purchasers:

  • Institutional accounts;
  • Qualified purchasers;
  • Qualified institutional buyers; and
  • Investment companies.

As offerings sold exclusively to qualified purchasers are exempt, so-called 3(c)(7) funds would not have to comply with proposed Rule’s requirements.

For additional information proposed FINRA Rule 5123, please contact Brent M. Cunningham, Associate Attorney by email at brent.cunningham@jackolg.com or by phone at (619) 298-2880.

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