Other interpretations of interest include:
- An issuer may reasonably rely on a covered person’s covenant (or a bylaw or similar undertaking) to provide notice of a potential or actual disqualifying event. For a continuous or long-lived offering, the issuer would be required to update its factual inquiry through reasonable steps such as questionnaires, certifications, negative consent letters or database searches. The CDI does not specify a recommended frequency for such updates. [CDI 260.14]
- If a placement agent becomes subject to a disqualifying event while an offering is ongoing, the issuer could continue to rely on Rule 506 for future sales in that offering if the “engagement with the placement agent was terminated and the placement agent did not receive compensation for future sales.” [CDI 260.15]
- If a placement agent’s “covered persons,” such as its executive officers, directors and officers participating in the offering, are subject to a disqualifying event, the placement agent could continue its role in the offering if the problematic covered persons are terminated or are no longer performing roles within the placement agent that would make them covered persons. [CDI 260.15]
- Convictions, orders, bars and suspensions in jurisdictions other than the United States do not trigger disqualification. [CDI 260.20]
- Actions based on non-scienter based rules, such as Rule 105 of Regulation M, would not trigger disqualification even if such non-scienter based rules were promulgated under Section 10(b) of the Securities Exchange Act of 1934. [CDI 260.21]
- Examples of participating in an offering include (i) participation or involvement in due diligence activities, (ii) participation or involvement in preparation of the offering document, (iii) provision of structuring or other advice to the issuer in connection with the offering or (iv) communication with the issuer, prospective investors or other offering participants about the offering, but administrative functions, such as opening brokerage accounts, wiring funds and bookkeeping functions, would not generally be deemed to be “participation” in the offering. [CDI 260.19]
- The reasonable care exception could apply when, despite the exercise of reasonable care, the issuer (i) is unable to determine the existence of disqualifying event, (ii) is unable to determine if a person is a covered person or (iii) erroneously determined that a person was not a covered person. Upon discovering such error or disqualifying event, the issuer would need to consider what steps are appropriate and may terminate the relationship with the covered person, obtain a waiver from the SEC staff or take other remedial steps. [CDI 260.23]
- It is not necessary to seek a waiver of Rule 506(d) from the SEC staff if the relevant court or administrative order includes language stating that disqualification under Rule 506(d) should not occur. [CDI 260.22]
- No waiver may be granted for the disclosure of bad acts under Rule 506(e) (as opposed to their disqualifying effect under 506(d) if the disqualifying event occurs after September 23, 2013). [CDI 260.24]
- Disclosure under Rule 506(e) must be made to all investors regarding all “bad acts” by all compensated solicitors involved in the offering at the time of sale and their respective covered persons, irrespective of which compensated solicitor actually solicited the investor. [CDI 260.26]
Rule 506(d) disqualification does not apply if the issuer is not offering securities at the time, and no disclosure need be made relating to compensated solicitors who are no longer involved in the offering at the time of sale. [CDI 260.14 and 260.27]