Regulation D Exemption Process
sec-oig.gov
March 31, 2009
Report No. 459
Results
Overall, we found that CF does not generally take action when CF staff learn that issuers have not complied with the requirements of the Regulation D exemptions. Further, CF does not substantively review the more than 20,000 Form D filings that it receives annually, which in 2008, identified total estimated offerings of $609 billion dollars.3
Our audit found that it is important for CF to further utilize the information that is provided in the Form D filings and take appropriate action when CF staff become aware of Regulation D abuses. Through our own analysis and our review of OCIE examinations, we identified several instances of misuse, non-compliance, and illegal acts regarding the Regulation D exemptions, as well as errors in the Form D filings. Further, we believe that the Form D filings contain valuable information regarding the size and nature of the reporting firms (including hedge funds), the amount of capital being raised, the types of exemptions that companies use, and the number of investors involved in Regulation D issuances. However, the Commission staff generally do not utilize this information, which, if aggregated, could identify the size and nature of Regulation D offerings. Using the database that the SEC launched on March 16, 2009, the Commission now has enhanced tools to analyze and make use of the Form D information.
Monitoring compliance with the requirements of the Regulation D exemptions is important to ensure the integrity of the Form D filing process and to ensure that companies appropriately use the exemptions. Taking action when deficiencies are identified helps to achieve the SEC’s mission of investor protection. Investor protection is particularly important with regard to Regulation D because offerings issued pursuant to Regulation D are exempt from SEC’s securities registration process.
We found that certain revisions should be made to Form D to better ensure that potential investors are not misled by the information in a Form D filing and to further clarify the information that is reported on the Form.
Our audit also found that firms lack formal, written guidelines from the SEC on filing waivers of disqualification pursuant to Rule 505 of Regulation D. Companies may seek these waivers when they are found to be non-compliant with certain provisions of the securities laws and therefore become disqualified from relying upon Rule 505. CF management told us that initial waiver requests are often deficient and firms typically need to redraft and resend the waiver requests to CF. Firms occasionally contact CF seeking written guidance on this process, but CF has not issued any formal written guidance describing how firms may apply for the waivers and when they are appropriate. Instead, CF provides oral guidance and refers requestors to the samples of successful waiver requests on the Commission’s website.
sec-oig.gov |
