Dodd-Frank Update: SEC Proposes Bad Actor Disqualifications For Private Placements Under Regulation D

On May 25, 2011, the Securities and Exchange Commission (the "SEC" or "Commission") proposed amendments to rules promulgated under Regulation D to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").¹ Section 926 of the Dodd-Frank Act, entitled "Disqualifying felons and other 'bad actors' from Regulation D offerings," requires the SEC to adopt rules to disqualify certain securities offerings from reliance on the private placement safe harbor provided by Rule 506 of Regulation D.

We discuss the background, the proposed amendments to Rule 506 of Regulation D, and possible future SEC rulemaking below.

Background

Rule 506 permits sales of an unlimited amount of securities, without registration, to any number of accredited investors² and up to 35 non-accredited investors, as long as there is no general solicitation, the appropriate resale limitations are imposed, any applicable information requirements are