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SEC issues new Compliance and Disclosure Interpretations

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Jan 07, 2014

The SEC’s Division of Corporation Finance recently issued new Compliance and Disclosure Interpretations (C&DIs) on (1) Securities Act Rules and (2) Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting.

The C&DIs clarify beneficial owners the Securities Act Rules section adds five questions and the Exchange Act sections add one question on the topic.

Note that Rule 506 of Regulation D is considered a "safe harbor" for the private offering exemption of Section 4, paragraph 2 of the Securities Act. Companies meeting certain requirements can utilize the Rule 506 exemption, allowing for unlimited capital to be raised through the private offering.

The following table provides a summary of the other C&DIs that were issued:

C&DI SectionQuestionSummary
Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting 105.06 Discusses under what circumstances the beneficial ownership of a party to the voting agreement is attributed to one or more other parties to the agreement.
Securities Act Rules 260.28 Clarifies that "[a] shareholder that becomes a 20% beneficial owner upon completion of a sale of securities is not a 20% beneficial owner at the time of the sale."
Securities Act Rules 260.29 Confirms that a "beneficial owner" should be interpreted the same way under Rule 506(d) as it is under Exchange Act Rule 13d-3.
Securities Act Rules 260.30 Verifies that beneficial ownership includes both direct and indirect interests.
Securities Act Rules 260.31 Clarifies whether the parties to a voting agreement for proxy voting in favor of director candidates are required to aggregate their holdings for the purposes of determining whether they, as a group or single party, are a 20% beneficial owner of the issuer and considered a covered person under Rule 506(d).
Securities Act Rules 260.32 Explains that an order issued by a court or regulator — in accordance with Rule 506(d)(2)(iii) — does not waive the disclosure obligation set forth in Rule 506(e).

More information can be found on the C&DI section of the SEC's Web site.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.