SEC Proposes Disqualifying "Bad Actors" From Rule 506 Offerings

The U.S. Securities and Exchange Commission (SEC) has announced proposed rules¹ that would deny the safe-harbor exemption provided by Rule 506 of Regulation D to securities for any offering involving certain "felons and other 'bad actors'" under the Securities Act of 1933 (the "Securities Act"). The period for comments on the proposed rules expires on July 14, 2011.

Disqualifying Events

The proposed rules include the following disqualifying events² that, in most instances, contain look-back provisions of between five and 10 years:

• criminal convictions regarding certain securities-related matters;
• court injunctions and restraining orders regarding certain securities-related matters;