WASHINGTON (CN) – The Securities and Exchange Commission plans to deny exemptions that have allowed securities issuers to make offerings without registering them with the SEC, if the issuer or senior members of its staff qualify as “felons and other bad actors.”
While SEC regulations generally require that new securities be registered with the agency, some exemptions exist allowing, for instance, privately owned companies to issue shares to their executives and board members.
The most common exemption is called a Rule 506 exemption, which allows companies to raise money by soliciting investment from “qualified investors” who are considered sufficiently savvy, and wealthy, to not need SEC protections that come with buying a registered offering.
Under the proposed rule, these exemptions would be denied if anyone involved in an offering had a criminal conviction, was the subject of a court injunction, restraining order, final agency order or SEC disciplinary order for securities fraud.
In addition, registration exemptions would be denied if individuals involved in an offering have been suspended or expelled from self-regulatory organizations such as the New York Stock Exchange.
The proposed changes are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.