Private Equity/Venture Services

The Securities and Exchange Commission (SEC) has adopted amendments to its rules, known as Regulation D, governing private securities offerings. The amendments purport to modernize and streamline the reporting process with respect to private offerings and to enhance information availability to the investing public and regulators alike. I'm not so sure you can simultaneously streamline the process while increasing the information available.

The amended rules require the mandatory notice filing on Form D to be filed electronically rather than on paper, after a phase-in period in which issuers can file in either format. The data resulting from those filings will be publicly available through the SEC's Web site and is expected to be interactive and searchable. The overall goal of these changes is to ease the burden of filing and to provide easier access to information to investors and regulators.

Another purported goal of the electronic filing requirement is to coordinate efforts among regulators. The ultimate goal would be to have filing with the SEC become a one-stop-shop, eliminating the need to file in individual states. Have you ever tried to convince state securities regulators in New York or Florida, or any other state with a peculiar securities regulation regime, that the SEC has any jurisdiction or even influence over them whatsoever? Only a securities lawyer can relate to that quandary.

A noticeable source of conflict arises from the content changes to Form D.  Among many other things, the new Form D will: require revenue range information for most issuers (subject to an option to decline to disclose); reduce disclosures regarding use of the proceeds to include only commissions and similar fees and payments to related parties; and permit a limited amount of "free writing" in response to certain questions.

Some additional amendments include: decreasing requirements to identify related parties; removing the requirement of a description of the business and replacing it with a code identifying the issuer's industry; and limiting reporting of minimum investment amounts so as to avoid affecting employee incentive plans adversely.

Essentially, the SEC has its heart in the right place with these amendments. The goals of streamlining the process for private offerings and increasing investor and regulator access to information are good ones, but they conflict with one another to some extent. Each amendment, insofar as it relates to the content of the required disclosures, either favors streamlined disclosure or favors increased access to information. You can't have it both ways.