On December 20, 2024, the SEC announced enforcement actions against multiple companies for failure to file Form Ds on a timely basis. As a quick refresher, under federal securities laws, any offering of securities must be registered or exempt. A registered offering is like an IPO, whereas relying on an exemption will mean you don’t have to go through all of the disclosure requirements that apply in an IPO, and the burdensome SEC review process. The most commonly used exemption is Regulation D, which can either be done under Rule 506(b), which allows for unlimited amount of sales to accredited and a limited number of unaccredited investors without the use of general solicitation, or Rule 506(c), which allows for unlimited amount of sales only to verified accredited investors that may utilize general solicitation.
When relying on Regulation D to make an unregistered offering of securities, a company is required to File a Form D. The Form D is a notice filing that includes basic information about the company and what was sold in the Regulation D offering. The rules require that the Form D f be filed within 15 days after the first sale of securities.
For the SEC, Form Ds are an important source of information in its mission of protecting investors, maintaining orderly and efficient markets, and facilitating capital formation. However, for many companies, Form Ds are merely an afterthought in their private financing efforts. The deal is done, so why do I have to file anything now?
The SEC wants the industry to know that Form Ds really are required. In the details announced here, https://www.sec.gov/newsroom/press-releases/2024-210, the SEC brought actions against an investment company and two private companies for their failure to file Form Ds as required under Regulation D. Each of the three entities used general solicitation for their offerings under Rule 506(c), which made the enforcement easier on the part of the SEC – they could see that the solicitations occurred, that a Form D was not filed, and no fallback exemption was available to the companies.
So what’s next? The SEC now has a proven method to go after companies that do not file their Form Ds, and a form of enforcement order that can be utilized again and again. As such, companies undertaking Regulation D offerings will not want to consider the Form D filing to be merely an afterthought.
CrowdCheck has helped many companies with their Form D filings and can help yours as well, and with filing Form D with the states, too (a Form D must be filed in every state where sales are made).