In early December, FINRA’s new Rule 5123 went into effect. The Rule requires members selling securities issued by non-members in a private placement to file the private placement memorandum, term sheet or other offering documents with FINRA within 15 days of the date of the first sale of securities, or indicate that there were no offering documents used. In connection with the effectiveness of the Rule, FINRA issued frequently asked questions on the process as well as rolled out the Private Placement Filing System in the FINRA Firm Gateway. I just received a memo from the experts at Morrison & Foerster which details the substantive FAQs that you should know about:
The substantive FAQs include the following:
- If there have been material changes to the offering documents that were originally filed, the amended version must be filed. FINRA notes that “Typically, the issuer will offer rescission rights to investors if there is a material change in the offering document.”
- In a contingency offering involving an escrow, FINRA, based on SEC guidance in respect of filings of Form D, takes the position that the “date of first sale” is the date on which the investor is irrevocably contractually committed to invest,” which could be the date the issuer receives the investor’s subscription agreement or check.
- Exemptions are applied on a firm-by-firm basis; different firms in the same private placement may have different filing obligations. For example, a firm that sells solely to institutional accredited investors (Rule 501(b)(1), (2), (3) or (7)), would not have to file pursuant to Rule 5123(b)(1)(J) but another firm in the same offering that sold to accredited investors that are natural persons would be required to file under Rule 5123.
- Whether a firm that introduces a prospective investor to an issuer and receives a fee is required to file under Rule 5123 depends on the relevant facts and circumstances; there was no specific guidance beyond that warning.
- Firms participating in crowdfunding offerings under the JOBS Act will not be required to file under Rule 5123.
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