The SEC’s recent charges against private securities issuers highlights the importance of securities compliance. On December 20, 2024, the Securities and Exchange Commission (“SEC”) announced charges against several entities for failing to file Form D for their offerings. These charges resulted in substantial civil penalties totaling $430,000.
What is Form D?
Form D is a notice of sale of securities where an entity notifies the SEC that they’re raising capital through a private offering, exempt from registration requirements. Form D is brief, detailing basic information about the entity and its management. The purpose is to provide the SEC and investors with information about the offering and is used by the SEC to monitor private placements of securities and to detect securities violations.
Why file a Form D?
First, filing a Form D is a legal requirement. All securities offerings must either be registered under the Securities Act or qualify for an exemption. Several exemptions are offered under Regulation D. However, companies relying on a Regulation D exemption still must file a Form D within 15 days after the first sale of securities. Furthermore, filing a Form D evidences that a company is complying with securities law, provides investors with transparency and protects against fraud, and establishes a company’s reputation as a legitimate issuer.
What are the key requirements in a Form D?
To avoid penalties like those in the recent SEC charges, companies must ensure compliance with the following:
- Timeliness: Form D must be filed within 15 days after the first sale of securities.
- Accuracy: Form D must be complete and accurate – meaning thoroughly filled out and consistent with the offering documents.
- Information Requirements: The following information must be contained in the Form D: (a) name and address of the company, (b) type of organization, (c) state of organization, (d) name and address of the company’s key officers and directors, (e) description of securities being offered, (f) maximum raise, (g) the Regulation D exemption relied on, (h) use of proceeds from the offering, (i) number of investors who have already purchased securities in the offering, and (j) date of the first sale of securities.
- Payment of Filing Fees: The fee to file a Form D must be paid at the time of filing and is based on the maximum raise.
- Amendments: For any material changes to the information in the Form D, an amendment must be filed with the SEC. Similarly, if the offering is terminated, a notice of withdrawal must be filed with the SEC.
What are the penalties for failing to file a Form D?
Failure to file a Form D can result in a range of significant penalties. Penalties for failing to file a Form D can be civil fines, disqualification of the Regulation D exemption relied upon, cease and desist orders, injunctions, return of capital to investors, and criminal penalties. The recent SEC charges illustrate a fairly high civil penalty that could have been easily avoided.
Filing a Form D is simple and companies engaged in private securities offerings should prioritize compliance. Failure to file can result in penalties more severe than those in the recent charges. For any assistance, feel free to reach out – we are here to help.