FINRA Updates Form for Private Placement Filings

In its March 2021 Regulatory Notice 21-10, FINRA announced that it has updated the form that FINRA members use to file offering documents and related information regarding their participation in private placements. See FINRA Rule 5122[1] and Rule 5123.[2] The new form will be accessible in the FINRA Gateway as of May 22, 2021.

The updated form will be used in connection with new filings and amendments to prior filings. The new form includes new and updated questions that are designed to facilitate FINRA’s review of the filing. FINRA indicated that the updates are designed to enhance its oversight of certain areas of risk in private placements. In this alert, we summarize the key updates to the form.

Contingency Offerings

“Contingency offerings” occur when, for example, the offering may not close until a specified contingent event has occurred. For example, an offering may be conducted on an “all or none” basis, in which a certain amount of capital has to be committed for the offering to close.

In the case of a contingency offering, the updated form requests the following information:

• The date by which the relevant contingency must be satisfied;
• Whether there have been any changes to the original terms of the contingency during the course of the offering (for example, if there is an extension of the date by which the contingency must be satisfied); and
• Whether the subscription process involves the FINRA member receiving or transmitting investor funds in the offering. (If so, the form will have a follow-up question to identify the entity that is acting as the escrow agent or trustee for investor funds and to identify the escrow agent (if applicable).

Disciplinary Record

The new form will have additional questions as to the disciplinary history of the issuer and the issuer’s principals and affiliates.

FINRA is amending the existing question on the form to include actions or proceedings involving any federal agency and not just the proceedings involving the SEC or FINRA. If there is information in this regard, this section of the form will request identifying information about the person or entity that is the subject of the action, proceeding, or complaint. If the relevant person or entity does not have records in FINRA’s Central Registration Depository (CRD)[3] that would reference that information, the form will request additional information about the proceeding. 

Additional Questions

The new form will also request additional detail as to:

• The use of proceeds from an offering;
• Whether the offering is being sold by an associated person in a private securities transaction subject to Rule 3280[4]; and
• The timing of the offering and the delivery of documents to investors.

FINRA Examinations

FINRA remains interested in the private placement activity by its members and whether they are complying with applicable rules. The notice indicates that FINRA members engaged in the private placement business can expect FINRA staff to request a list of private placements they are selling or have sold and information pertaining to such offerings. These updated filing forms are designed to provide FINRA with some of the information that FINRA examiners need to evaluate the risks of such private placement activity.[5]

[1] FINRA Rule 5122 governs the disclosure and filing requirements for FINRA members that participate in a private placement of securities issued by a broker-dealer or an affiliate.

[2] FINRA Rule 5123 requires FINRA members that participate in a private placement to file a copy of the relevant offering documents with FINRA within 15 calendar days of the first sale.

[3] FINRA’s CRD program covers the registration records of broker-dealer firms and their associated individuals, including their qualification, employment, and disclosure histories.

[4] Rule 3280 governs private securities entered into by persons that are associated with a FINRA member.

[5] For further information about a broker-dealer’s diligence obligations in connection with private placements, see Regulatory Notice 10-22.