FINRA Private Placement

FINRA Private Placement Update

Back in December 2012, FINRA established some new rules, processes and systems for FINRA private placement offerings and related filings. FINRA, the Financial Industry Regulatory Authority, Inc., is the private corporation that acts as a self-regulatory body for broker-dealers and financial exchange markets. FINRA is the organization that took up the tasks overseeing the investment industry, including private placements, from NASD (the National Association of Securities Dealers, Inc.) and the self-regulatory services of the New York Stock Exchange.

The FINRA private placement requirements pursuant to Rules 5122 and Rule 5123 mean that as of December 2012 all private placement memorandum (PPM) documents or offering documents that were used for the sales of certain private placement securities have to be handled in a specified way. The offering memorandum (OM) or private placement memorandum (PPM) documents that apply must be filed via the Private Placement Filing System through the FINRA Firm Gateway. There are certain exemptions listed under the rule for these filing requirements, and PPM helps clients understand the nuances and ensure regulatory compliance.

It is essential for firms offering private placement securities for sale comply with the proper FINRA private placement processes. For instance, if multiple firms are involved in selling the private placement offering, FINRA private placement rules say that each firm is responsible for verifying that the private placement offering and related documents like the private placement memorandum (PPM) are properly registered through the system. The selling firms can designate a single firm to do the filing for them, but it must be done and they are responsible themselves to make sure it’s done properly:

Each selling firm that sells the private placement has a responsibility to ensure that the offering documents are filed with FINRA. Only the designated firm will be able to access the filing through Firm Gateway. If a designated firm fails to file the offering documents, none of the selling firms will have complied with Rule 5123’s filing requirements. Selling firms should arrange to receive confirmation from the designated filer to ensure that the filing was made. (See more here)

FINRA Private Placement

The required FINRA private placement filings include all the documents that were used in making the offering and selling the securities to investors. These include offering memorandum (OM) or private placement memorandum (PPM), term sheet, and all applicable offering documents. These filings must be made within 15 days of the date that the first securities are actually sold as part of the private placement offering. As FINRA explains:

The SEC discusses the date of first sale in the context of the filing of Form D. The SEC states “that the date of first sale is the date on which the investor is irrevocably contractually committed to invest, which, depending on the terms and conditions of the contract, could be the date on which the issuer receives the investor’s subscription agreement or check.”

All this can sound complicated for the entrepreneur or growth company seeking to raise investment capital using a private placement. Fortunately, PPM is expert in FINRA filings and can help with all private placement needs, including the private placement memorandum and consultation to ensure full compliance with Reg D (Regulation D) and all relevant FINRA and SEC rules.

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