On December 20, 2024, the Securities and Exchange Commission (the “SEC”), announced settled charges against two private companies and one registered investment adviser for failing to timely file Forms D, a violation of Rule 503 of Regulation D. The settling parties were fined between $60,000 and $195,000.
All securities offerings in the United States must be registered under the Securities Act of 1933 unless the offering meets one of several exemptions from registration. One of the most commonly relied upon exemptions, which is provided by Section 4(a)(2) of the Securities Act, exempts transactions by an issuer not involving any public offering. Rules 504 and 506 of Regulation D under the Securities Act each provide a “safe harbor” pursuant to which securities offerings conducted in accordance with those rules are deemed not to involve a public offering, giving the issuer comfort that the offering will meet the requirements of the Section 4(a)(2) exemption. While not a prerequisite to obtaining the benefits of the safe harbor, Rule 503 of Regulation D independently obligates issuers conducting offerings pursuant to Rules 504 and 506 to file a Form D with the SEC within 15 days after the first sale of securities.
Each of the respondents in the settled actions conceded that it had engaged in a “general solicitation,” meaning that, without the safe harbor provided by Regulation D, it would not have been eligible to rely on the Section 4(a)(2) exemption. Accordingly, because the offerings would have been unlawful without reliance on either Rule 504 or Rule 506(c) (each of which permits general solicitation), each of the issuers was required to file a Form D, and the failure to do so violated Rule 503.
Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, emphasized the importance of Form D filings: “Form D filings are crucial sources of information on private capital formation, and compliance with the requirement to make such filings in a timely manner is vital to the Commission’s efforts to promote investor protection while also facilitating capital formation, especially with respect to small businesses.” These enforcement actions are an important reminder that the timely filing of a Form D is not optional when conducting offerings pursuant to Rules 504 and 506, even though it is not a condition to the availability of the safe harbor. Furthermore, compliance does not end with the initial Form D filing: Forms D must be amended in specific circumstances. Accordingly, any issuer conducting an offering that continues after the initial Form D filing should continue to monitor compliance with the exemptions from registration on which it is relying.
