Syndication Law & The Private Placement Memorandum Attorney Behind the 'Bad Actor' Rule: Rule 506d Demystified
Tilden Moschetti, a securities attorney, discusses Rule 506d, a part of Regulation D, which defines "bad actors" in the context of securities offerings. These "bad actors" are individuals who are prohibited from participating in the offering of securities due to past misdeeds. Rule 506d is applicable to both Rule 506b and 506c offerings.
According to Moschetti, the rule disqualifies a wide range of individuals from participating in offerings. This includes individuals with previous convictions, judgments or court orders related to securities or fraudulent conduct, within certain time frames. This also includes those who have been barred or suspended from entities regulated by securities, insurance, banking, or those engaging in fraudulent, manipulative, or deceitful conduct.
The rule also covers people who have been expelled or suspended from national securities exchanges, people named underwriters in a registration statement or Regulation A offering, and those who have committed mail fraud.
However, there are exceptions for past bad actors, including instances where the disqualification came before September 23, 2013, or the SEC determines it unnecessary to bar an individual from making a Regulation D offering. Other exceptions include a court order allowing participation and proof that the issuer did not know of the bad actor's history.
If a bad actor is allowed to participate in a Regulation D offering, they must disclose their history to investors before the sale. Moschetti suggests that potential issuers, who are uncertain if they qualify as a bad actor, should seek legal counsel to determine eligibility.
Lastly, Moschetti clarifies that common misdemeanors like DUIs do not fall under the category of a "bad actor" for this context. The regulation targets individuals with prior fraudulent activities related to securities or similar offenses.
Read more about Reg D - The SEC and Its Regulation D: https://www.moschettilaw.com/sec-reg-d/
Read more about real estate syndication - How to Syndicate Real Estate: https://www.moschettilaw.com/how-to-syndicate-real-estate/
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