SEC Enforcement Action: Failure to File Forms D
On December 20, 2024, the U.S. Securities and Exchange Commission (SEC) settled charges against a registered investment advisor and two private companies. What was the issue? They failed to file the necessary Forms D for unregistered securities offerings. These forms are crucial because they allow issuers to bypass certain registration requirements under Regulation D from the Securities Act of 1933. The SEC’s move surprised many in the private equity world because it was previously believed that not filing a Form D wouldn’t lead to enforcement action on its own.
Regulation D lets issuers offer securities without full registration, but they need to file Forms D with the SEC within 15 days of the first securities sale. This requirement serves to keep investors informed, maintain market stability, and help the SEC in its oversight. Violating Rule 503 can strip issuers of the registration exemptions under Regulation D. In the recent cases, while the issuers didn’t lose their exemption, the SEC did hand down penalties ranging from $60,000 to $195,000 for failing to file Form D.
What’s new about these cases is that the SEC focused on the simple act of not submitting Form D, signaling a change from its previous approach that targeted more serious violations like fraud. It’s a warning to issuers to stay compliant with all the filing requirements, or they risk facing hefty penalties. These actions also brought to light the importance of adhering to the rules around general solicitation, which impacted the issuers’ ability to utilize certain exemptions under the Securities Act.
So, if you’re involved in exempt offerings under Regulation D, make sure to file your Form D on time and keep your documents up to date. While the recent penalties might seem harsh, they underline the significance of following the rules to the letter. If you have any questions about these developments, feel free to reach out to Foley’s Fund Formation and Investment Management team.
