SEC Approves Amended FINRA Rule 5123 on Private Placement of Securities

On June 7, 2012, the Securities and Exchange Commission (the “SEC”) approved a revised version of Financial Industry Regulatory Authority (“FINRA”) Rule 5123 (“Rule 5123”) on an accelerated basis. The new rule will marginally increase the reporting burdens on FINRA member firms that sell certain private placements to certain classes of accredited investors. The effective date for Rule 5123 has not yet been determined.

Under revised Rule 5123, FINRA member firms that sell a security in a nonpublic offering are required to:

(1)  submit to FINRA a copy of any existing offering document, including Private Placement Memoranda, term sheets, or other offering documents, used in connection with a private placement within 15 calendar days of the date of the first sale, in addition to any material amendments to documents that were previously-filed; or

(2)  indicate to FINRA that no such offering documents were used in connection with such sale.

FINRA will use the information gathered from Rule 5123 filings to aid in the detection and prevention of fraud and to assist with the identification of problematic terms and conditions found in private placement offering documents. All documents filed pursuant to Rule 5123 will receive confidential treatment and will only be used for the purpose of determining compliance with FINRA rules and other relevant regulatory purposes.

Various exemptions from the Rule 5123 filing requirements are available depending on the type of offering and the type of purchasers that are involved. We encourage all FINRA member firms to carefully review the requirements and exemptions contained in the SEC order granting accelerated approval of FINRA Rule 5123 (the “Rule 5123 Order”).

The Rule 5123 Order is available by clicking here.

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