Process for Requesting Waivers of Disqualification Under Rule 262 of Regulation A and Rule 505 of Regulation D

The Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, handles applications for waivers from the disqualifications imposed by Rule 262 of Regulation A (Conditional Small Issues Exemption), 17 C.F.R. § 230.262, and Rule 505(b)(2)(iii) of Regulation D (Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000), 17 C.F.R. § 230.505(b)(2)(iii), under the Securities Act.

In summary, the disqualification provisions of Rules 262 and 505 provide that the exemptions from the registration provisions of the Securities Act available under Regulation A and Rule 505 of Regulation D are not available for an offering if, among other things, an issuer, an affiliate, or the underwriter is subject to an administrative order or an injunction involving certain securities law violations. Disqualification also occurs if any of the issuer’s directors, officers, general partners, 10 percent owners, or promoters, or the underwriter’s partners, directors, or officers, are subject to such an order or injunction.

The Commission may waive these disqualifications upon a showing of good cause that the disqualification is not necessary under the circumstances. The Commission has delegated authority to grant waivers of this kind to the Director of its Division of Corporation Finance, and the authority has been subdelegated to certain officials of the Division, including the Chief of the Division’s Office of Small Business Policy. The Commission itself retains authority to grant Rule 262/505 waivers, including granting them in connection with settling a Commission enforcement action.

Overview of Regulation A and Rule 505 Disqualification Provisions

Rule 262(a)-(c) and Rule 505(b)(2)(iii) specify the circumstances that result in disqualifications from relying on Regulation A and Rule 505, including certain criminal convictions and being subject to certain kinds of injunctions and administrative orders. These circumstances do not include being subject to a cease and desist order of the Commission. A Commission cease and desist order, therefore, in and of itself does not result in a disqualification from relying on Regulation A or Rule 505. In addition, the Commission and its staff have taken the position that issuance of a censure in a Commission administrative proceeding is not a disqualifying event under Rule 262 or Rule 505.¹

Submitting Your Waiver Request

• How to Address Your Request
   
  You should address your Rule 262/505 waiver request to:
   
  Gerald J. Laporte
  Chief, Office of Small Business Policy
  Division of Corporation Finance
  U.S. Securities and Exchange Commission
  100 F Street, N.E.
  Washington, DC 20549-3628
   
• Specify Grounds for Granting Waiver
   
  The text of your waiver request should discuss the background of the matter, including the facts and legal issues involved, and your suggested grounds for granting the waiver. To meet the governing legal standard, you should show good cause that disqualification is not necessary under the circumstances. Examples of granted Rule 262/505 waiver applications may be found on the SEC’s web site as no-action letters pertaining to Section 3(b) of the Securities Act.
   
• Submitting a Draft Request
   
  Officials of the Division of Corporation Finance will not grant Rule 262/505 waivers before a disqualifying event has occurred, such as before a disqualifying injunction or administrative order has been issued. If you wish to receive Commission staff feedback on your application before a disqualifying event has occurred, you may submit it in advance in draft form. For example, if you are negotiating a settlement of a Commission enforcement action and want your waiver to be effective at the same time as the injunction or administrative order settling the matter is issued, you should contact Commission staff by e-mail or telephone as soon as practicable beforehand to discuss your timing requirements, and submit the application in draft form. Your contact point should be the Office of Small Business Policy at SmallBusiness@SEC.gov or (202) 551-3460.
   
• Submitting Your Final Request
   
  Your final application must be manually signed and submitted before your waiver will be granted. You may submit a manually signed version to the Office of Small Business Policy:
   
  
  • by e-mail (to SmallBusiness@SEC.gov), using a format such as PDF that permits viewing of a scanned copy of the manually signed document;
     
  • by fax (to 202-772-9207); or
     
  • in paper form by postal mail or private shipping service to the address above.
     
In the context of settlement of an enforcement action, you may submit a dated manually signed application on the day your injunction or order is issued. In the alternative, the Office of Small Business Policy ordinarily will accept an undated manually signed application. With the concurrence of the applicant, the office will manually date the application when the settled order is entered, issue the waiver, and give the applicant an opportunity to submit a replacement page with a typed date to replace the manually dated page for the published record.
 
• Requesting Confidential Treatment of Your Request
   
  If you wish to seek confidential treatment of information contained in your waiver submission (such as information relating to an ongoing investigation), you should request confidential treatment in accordance with the Commission’s confidential treatment procedures in 17 C.F.R. § 200.83. These types of applications should be submitted under cover of another letter explaining the circumstances of the request.

Additional Help

Additional help and information on the process for obtaining Rule 262/505 waivers is available from the SEC’s Office of Small Business Policy at (202) 551-3460 or SmallBusiness@SEC.gov.

* * * * * * *

The statements above represent the views of the Division of Corporation Finance of the U.S. Securities and Exchange Commission. This document is not a rule, regulation or statement of the Commission. Further, the Commission has neither approved nor disapproved its content.

December 31, 2009

¹ SEC Release No. 33-6455, Question 66 (Mar. 3, 1983) [48 FR 10045, 10053 (Mar. 10, 1983)] (censure has no continuing force and thus censured person is not “subject to an order of the Commission entered pursuant to section 15(b)” within the meaning of Rule 505); Howard, Prim, Rice, Nemerovski, Canady & Pollak, SEC No-Action Letter, 1975 WL 11300 (Jan. 8, 1975, publicly available Feb. 11, 1975) (Rule 252 (predecessor to Rule 262) does not comprehend a situation where an underwriter of a Regulation A offering has stipulated to a consent order in a Commission administrative proceeding providing only for a censure, with no suspension or other sanction); Samuel Beck, SEC No-Action Letter, 1975 WL 11471 (May 15, 1975, publicly available June 24, 1975). In addition, the Commission consistently has taken the position that a person is “subject to” an order under section 15(b), 15B(a) or 15B(c) of the Exchange Act or section 203(e) or (f) of the Investment Advisers Act only so long as some act is being performed pursuant to the order. See SEC Release No. 33-6289 (Feb. 13, 1981) [46 FR 13505, 13506 (Feb. 23, 1981)].

http://www.sec.gov/divisions/corpfin/guidance/262-505-waiver.htm