Alert June 25, 2013

FINRA Requests Immediate Effectiveness of New Form for Electronic Private Placement Filings Under Rule 5123

On June 20, 2013, FINRA made a rule filing with the SEC (SR-2013-026) to amend Rule 5123 (the “Rule”) to mandate electronic filing of documents and information required to be filed within 15 days after the commencement of the offering of a private placement not exempt from the Rule.  FINRA also submitted a copy of the proposed electronic form, which includes new questions seeking information not previously required to be provided in Rule 5123 filings.  FINRA stated that it has filed the proposed rule change for immediate effectiveness and requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of filing, so that FINRA would be able to implement the proposed rule change immediately.

Rule 5123 requires each member that sells securities in a non-public offering (other than offerings exempted by the Rule) to file, within 15 days after the date of first sale, a copy of any private placement memorandum, term sheet or other offering document or, if none, to indicate that no such offering documents were used.  Rule 5123 is a companion to Rule 5122, which requires filing with respect to private offerings by a member or a control person of the member, and imposes certain other requirements not applicable to Rule 5123 offerings.  Electronic filing is currently required under Rule 5123, but FINRA has not previously required completion of an electronic form.

The proposed electronic form would require information about the maximum sales commission and aggregate amount of other compensation to registered persons disclosed in the offering document and the stated or target rate of return as disclosed in the offering document.  The form would also require an answer of Yes, No or Unknown to the following questions:

  • Whether the offering is a contingency offering;
  • Whether independently audited financial statements are available for the issuer’s most recently completed fiscal year;
  • Whether the issuer is able to use offering proceeds to make or repay loans to, or purchase assets from, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer’s affiliates;
  • Whether the issuer has a board of directors comprised of a majority of independent directors or a general partner that is unaffiliated with the firm;
  • Whether the issuer has engaged, or does the member anticipate that the issuer will engage, in a general solicitation in connection with the offering or sale of the securities; and
  • Whether the issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer’s affiliates has been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last 10 years.

The proposal has not yet been published in the Federal Register.