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U.S. Securities and Exchange Commission

Process for Requesting Waivers of “Bad Actor” Disqualification Under Rule 262 of Regulation A and Rules 505 and 506 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, 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), and Rule 506(d) of Regulation D (Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering), 17 C.F.R. § 230.506(d)(2)(ii) under the Securities Act. 

Regulation A and Rule 505 Disqualification Provisions

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 a criminal conviction, an administrative order or an injunction or bar 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 a conviction, order, injunction or bar. A Commission cease and desist order 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.

Rule 506 Disqualification Provisions

The Rule 506 list of “covered persons” is similar to Regulation A, but there are some differences. For example, in Rule 506(d) one of the categories of covered persons includes 20 percent owners, whereas in Rule 262 of Regulation A and Rule 505 of Regulation D, the category includes 10 percent owners.

The disqualifying events in Rule 506(d) are also similar to Regulation A, but broader. In addition to the criminal convictions, injunctions, administrative orders, and industry bars covered under Regulation A and Rule 505, the disqualifying events in Rule 506(d) include:

  • Securities and Exchange Commission cease and desist orders involving scienter-based antifraud provisions of the federal securities laws and violations of Section 5 of the Securities Act; and
  • Final orders of certain state and federal regulatory authorities.  These disqualifying events may involve a state or other regulatory authority imposing a bar from association or a final order based on a violation of any law or regulation that prohibits fraudulent, manipulative, or deceptive conduct. 

Issuers may submit waiver requests from the disqualification provisions of Rule 506(d) for disqualifying events that occur on or after September 23, 2013.  For disqualifying events that occurred before September 23, 2013, Rule 506(e) requires that issuers provide a description in writing of any matters that would have triggered disqualification. This written statement must be furnished to all purchasers a reasonable time before sale in any Rule 506 offering. The rules do not provide for waiver of the disclosure requirements of Rule 506(e).

Waivers

The Commission may waive Regulation A and Regulation D 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 Regulation A and D waivers, including granting them in connection with settling a Commission enforcement action.

Granted waivers are made publicly available at the Division of Corporation Finance’s website page on Section 3(b) No-Action letters found here:  http://www.sec.gov/divisions/corpfin/cf-noaction.shtml#3b.  Past waiver applications may provide guidance on factors that contribute to a showing of good cause.  In Release No. 33-9414 (July 10, 2013), the Commission also identified a number of circumstances (such as change of control, change of supervisory personnel, absence of notice and opportunity for hearing, and relief from a permanent bar for a person who does not intend to apply to reassociate with a regulated entity) that could be relevant to an evaluation of a Rule 506 waiver request. 

Submitting Your Waiver Request

How to Address Your Request

You may email your waiver request to smallbusiness@sec.gov

or

Address your waiver request to:

Sebastian Gomez Abero, 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

All waiver requests should be made to the attention of Sebastian Gomez Abero, Chief, Office of Small Business Policy, Division of Corporation Finance, U.S. Securities and Exchange Commission.

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.

Submitting a Draft Request

Officials of the Division of Corporation Finance will not grant Regulation A or Regulation D 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 Regulation A and Regulation D waivers is available from the SEC’s Office of Small Business Policy at (202) 551-3460 or SmallBusiness@SEC.gov.

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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.

 

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


Modified: 02/11/2014