SEC Proposes Rule To Protect Identity Theft under Dodd-Frank

The SEC published a proposed rule promulgated under Dodd-Frank to deal with issues of identity theft when dealing with broker/dealers, investment advisors, and other investment professionals. The rule would require SEC regulated entities to implement written identity theft policies and procedures to ensure investors’ identity remains confidential.  It uses what they call a program of “red flags.”

There is a 60 day comment period before the rules would go into effect from the February 28, 2012 publish date.

The press release can be found here.  The proposed rule can be found from the SEC website in pdf form.

HR 2930 & 2940, Crowdfunding, Intermediaries, and Rule 506 Changes Good For Startups?

There are definitely pros and cons with both HR 2930 and 2940. Having been in the position of a cash-strapped start-up trying to raise money, I can see the huge benefit of the changes for raising cash from small investors with intermediaries (basically a “finder”) and advertising rules. However, the lack of disclosure requirements could allow for fraud on potential investors and not enough oversight.

I am a little surprised I don’t see more posts regarding these from other corporate, startup, or securities lawyers. Here is a link to a good discussion on HR 2930 by the Securities Law Prof Blog.

Given that it appears that both HR 2930 and 2940 may pass the US Senate and be signed by the president and the recent recommendation by the Advisory Committee on Small and Emerging Companies for the SEC to make similar changes to SEC rules for 506 Reg D private placements, it appears these changes may take effect in the next several months. It may have some negative consequences on investors, but I think it will help with small startup companies fund raising abilities. There will be some work for corporate and securities lawyers to interpret and help companies implement these changes in the near future.

Stay tuned, I will try to keep track of the progress of these bills and provide updates as available on my blogs. and Twitter: @BarsnessLaw |

SEC Advised to Allow General Advertising in Rule 506 Offerings

In a January 6, 2012 letter, the Advisory Committee on Small and Emerging Companies advised the Securities and Exchange Commission’s chair, Honorable Mary L. Schapiro, that it should relax or modify existing restrictions on general solicitation and advertising of private placements. They are recommending that fund raising under Rule 506 with its restrictions to only using “accredited investors” and other investor protections are sufficient. They stated that the prohibition against general solicitation and advertising is not necessary and is too prohibitive in allowing companies the ability and access to raise capital under a Reg D Rule 506 offering.The SEC has not taken action yet on this advice; however, it is interesting to think that a private company looking to raise money could potentially use general advertising or solicitation to accredited investors. Would this create a sort of “public offering” of securities under Rule 506? The advisory letter is very brief, but one could see a rule change that allows companies some ability to publicly offer securities, provided they only accredited investors purchase the securities. This goes against the view that existing law and rules do not allow a company to even solicit the sale of securities to someone who is not already an accredited investor. Some clarification would be needed to allow companies and their counsel to navigate any changes, but this could ease things up for start up, emerging, or even steady growth companies that need access to capital. We will have to see what the SEC decides to do with this advice.