For a long time, companies have been seeking to know the identities of their shareholders so that they can more efficiently communicate with them (many shareholders are OBOs, whose identities are shielded from the company). This is a desire that I always believed had little chance of becoming reality given the pushback by those investors who wish to remain anonymous.
Thus, I was surprised to see this Gibson Dunn memo, which describes the recent G8 Summit and how leaders agreed on eight core principles to clamp down on money-laundering, tax evasion and tax avoidance. The first principle is “companies should know who ultimately owns and controls them and that information should be adequate, accurate, and current.” So if the USA ultimately fully complies, companies would get their dream fulfilled. Wow!
FINRA’s New Private Placement Due Diligence Form
Last week, FINRA filed a proposal with the SEC that would amend Rule 5123, its private placement rule, to require that FINRA members file a Private Placement Form electronically via FINRA Firm Gateway – and the form would include “due diligence-related information concerning the offering, the issuer and its management” via a series of questions. These questions go far beyond the notice-type information required before this rulemaking.
Although FINRA states that a member can respond “unknown” if the member does not know the requested information, the rule filing references FINRA Regulatory Notice 10-22, which provided guidance on the scope of a firm’s responsibilities to conduct a reasonable investigation of private placement issuers in fulfillment of its suitability obligations. While some of the requested information should be found in the offering document, it appears possible that the inability of a FINRA member to respond to a question could be viewed by the FINRA Staff as indicating that the member has not conducted an adequate “reasonable-basis” suitability review of the issuer and the offering since FINRA designates the questions as “due diligence-related.”
FINRA requested immediate effectiveness of the rule change and has asked the SEC to waive an otherwise required 30-day delay on implementation so that the change can be imposed immediately. Thus, unless the SEC Staff disagrees with FINRA’s waiver request within 60 days and suspends the new rule, the rule change was effective as of June 20th. The SEC has not yet published its release regarding the rule change.
Specifically, the Private Placement Form includes these questions:
- Whether the offering is a contingency offering;
- Whether independently audited financial statements are available for the issuer’s most recently completed fiscal year;
- Whether the issuer is able to use offering proceeds to make or repay loans to, or purchase assets from, any officer, director or executive management of the issuer,
sponsor, general partner, manager, advisor or any of the issuer’s affiliates;
- Whether the issuer has a board of directors comprised of a majority of independent directors or a general partner that is unaffiliated with the firm;
- Whether the issuer has engaged, or does the member anticipate that the issuer will engage, in a general solicitation in connection with the offering or sale of the
- Whether the issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuer’s affiliates has
been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last 10 years.
CII Petition: Bar Directors Who Don’t Get Majority Support to From Continuing to Serve
Last week, CII petitioned the NYSE and Nasdaq asking them to amend their standards for listed companies to require that directors who do not receive a majority of votes in uncontested elections resign promptly and not be reappointed.
Ricky, The Honey Badger: Celebrating the 4th!
– Broc Romanek