Three Firms That Engaged in General Solicitation Settle with SEC for Failure to Timely File Forms D

On December 20, 2024, the Securities and Exchange Commission (SEC or the “Commission”) announced charges against several entities that failed to file a Form D within 15 days of a private sale of securities. These entities, two private companies and one registered investment adviser that was the sponsor of private funds, each agreed to cease and desist from violating the charged provisions and to pay a civil penalty, without admitting or denying the charges.

Under the Securities Act of 1933, as amended (the “Securities Act”), an offer and sale of securities must either be registered or meet the requirements for an exemption from registration. Exemptions from registration are not mutually exclusive, and an issuer may be able to rely on more than one exemption. Certain rules included in Regulation D under the Securities Act, including Rule 506, provide a safe harbor exemption from registration. Rule 503 of Regulation D requires issuers relying on Rule 506 and similar private offering exemptions to file Form D with the SEC within 15 calendar days after the first sale of securities in the offering.

Failure to comply with Rule 503 does not result in the loss of the registration exemption, but is itself a violation of Regulation D, and in these actions, the SEC brought charges for violation of these filing obligations. Historically, the SEC has not prioritized enforcement of Rule 503, and therefore these cases were somewhat surprising.

In the settlement orders, the SEC noted that a failure to file Form D:

1. impedes the SEC’s ability to accurately assess the scope of the private offering market and appropriately balance the need to protect investors while also promoting capital formation;
2. harms the SEC’s ability to “monitor and enforce compliance” with federal and state securities laws or other self-regulatory organizations; and
3. prevents investors and other market participants from conducting proper research and analysis of potential companies.

A key fact in each of the settlements was that the three charged entities, directly, or through entities under their control, “engaged in certain communications that constituted general solicitation for these offerings.” As a result, the offerings would have been ineligible for Section 4(a)(2) of the Securities Act, which exempts from registration transactions not involving a public offering. Because the offerings involved general solicitations, the issuers had to rely on Rule 504 or Rule 506(c) of Regulation D, each of which permit general solicitation but require the filing of Form D within 15 days of the first sale of securities in the offering. As implied by the enforcement actions, an entity that relies on Rule 506(b) and therefore does not engage in general solicitation, may still qualify for a registration exemption under Section 4(a)(2) of the Securities Act, but without the benefit of the safe harbor. The Commission did not pursue enforcement against issuers relying on Rule 506(b) for failure to timely file a Form D in connection with an offering, suggesting that the Commission’s enforcement posture for failure to timely file a Form D may, for now, be limited to offerings involving a general solicitation.

Nonetheless, given the Commission’s recent enforcement actions, issuers should take particular care, when relying on Rule 504 or 506, to timely file their Form D.