Rule 506 of Regulation D under the Securities Act of 1933 is the most widely used of three Regulation D private offering safe harbor exemptions from registration under the Act, accounting for an estimated 90 percent to 95 percent of all Regulation D offerings. In 2012 alone, it is estimated that amount of capital raised in Rule 506 private offerings (debt and equity combined) was $898 billion, compared to $1.2 trillion in registered offerings.
Effective Sept. 23, 2013, the Securities and Exchange Commission (SEC) adopted amendments to Rule 506 disqualifying private securities offerings involving certain felons and other bad actors from relying on the Rule 506 safe harbor exemption. Although inside counsel may have a good understanding of its own officers and directors, the breadth of the people covered by this rule is broad and the look-back period of five years in many, ten years in some, cases is long. Inside counsel may want to consider how to deal with large investors, brokers and even potential targets and acquirers in this new environment.