Sale of Private Placements Frequently Asked Questions (FAQ)


Filing Requirements

  1. How do member firms file with FINRA?
  2. How does a firm gain access to the Private Placement Filing System?
  3. Can a third party file offering documents on behalf of member firms?
  4. Does each member firm selling securities in a private placement have to file the offering documents?
  5. What are responsibilities of the other selling member firms to confirm that a filing has been made when one firm is designated to make a filing with FINRA?
  6. What documents are member firms required to file?
  7. How can member firms comply with their filing requirements under Rule 5123 for private placements when no offering document is used?
  8. In what format should the documents be submitted?
  9. Is there a size limit (megabytes) on the documents that are filed?
  10. Rule 5123 requires member firms to file the "private placement memorandum, term sheet or other offering document." What are examples of other types of offering documents?
  11. If an offering document has material changes after the member firm has filed the documents, does the firm have to file the amended document?
  12. When does the 15-day period commence for filing with FINRA?
  13. For a contingency offering, does the "date of first sale" pertain to when investors submit their money or when escrow is broken?

 

Disclosure

  1. What are the disclosure requirements for private placements in Rule 5123?

 

Exemptions

  1. Are private placements sold to institutional accounts exempt from the filing requirements of Rule 5123?
  2. Which private placements sold to accredited investors must firms file under Rule 5123?
  3. Which private placements sold to accredited investors are not required to be filed under Rule 5123?
  4. Are the exemptions of Rule 5123(b) applied on a firm-by-firm basis? For example, if one member firm is exempt from the filing requirements because it meets one of the filing exemptions of Rule 5123(b) but another firm does not meet any of the filing exemptions, do all firms have a filing obligation?
  5. Does a member firm that introduces a prospective investor to an issuer for a fee need to file the private placement under Rule 5123?
  6. Are crowdfunding offerings required to be filed pursuant to Rule 5123?

 

Contact Information

  1. Who should member firms contact regarding general inquiries and questions?

 

Filing Requirements

 

 

1. How do member firms file with FINRA?
Effective December 3, 2012, in order to satisfy filing requirements under Rules 5122 and 5123, firms must file the offering documents used in connection with the sale of an applicable private placement via the Private Placement Filing System in FINRA Firm Gateway unless the offering meets one of the enumerated exemptions under the applicable rule.
2. How does a firm gain access to the Private Placement Filing System?
Most firms will already have entitlement rights to the Private Placement Filing System through Firm Gateway. For an individual to gain access he should contact the firm's Super Account Administrator (SAA) who can assign user access rights to the Private Placement Filing System for themselves, employees at the firm and third parties who file on behalf of the firm.

To determine whether your firm has an SAA, log in to the Firm Gateway, click on "My Account" and view information from the "Applications & Administrators" link. If a firm does not have an SAA, the firm can request one by completing and submitting the SAA Entitlement Form.

Firms that need assistance with Firm Gateway may call FINRA at (301) 869-6699.
3. Can a third party file offering documents on behalf of member firms?
Yes. Firms can provide access to the Private Placement Filing System to consultants, law firms or other third parties through the firm's Super Account Administrator. Third parties can then file offering documents on behalf of the firms.
4. Does each member firm selling securities in a private placement have to file the offering documents?
Firms can individually file the offering documents with FINRA or designate a firm to file the offering documents on their behalf.
5. What are responsibilities of the other selling member firms to confirm that a filing has been made when one firm is designated to make a filing with FINRA?
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.
6. What documents are member firms required to file?
Rule 5123 requires firms to file offering documents that were used to sell the private placement, which can include the private placement memorandum, term sheet or other offering documents.
7. How can member firms comply with their filing requirements under Rule 5123 for private placements when no offering document is used?
Firms must make a filing with the Private Placement Filing System and indicate that no offering documents were used.
8. In what format should the documents be submitted?
Offering documents that firms submit must be in a searchable PDF format.
9. Is there a size limit (megabytes) on the documents that are filed?
Yes. The maximum size limit for one document submission is 50 megabytes. Member firms can submit multiple documents in a filing.
10. Rule 5123 requires member firms to file the "private placement memorandum, term sheet or other offering document." What are examples of other types of offering documents?
Any other type of document that sets forth the terms of the offering.
11. If an offering document has material changes after the member firm has filed the documents, does the firm have to file the amended document?
Yes. Rule 5123 requires that firms file materially amended versions of the offering documents that were originally filed. Typically the issuer will offer rescission rights to investors if there is a material change in the offering document.
12. When does the 15-day period commence for filing with FINRA?
Member firms must make a filing with FINRA within 15 days from the date the firm makes the first sale of securities in the private placement.
13. For a contingency offering, does the "date of first sale" pertain to when investors submit their money or when escrow is broken?
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." (See SEC Release 33-8891 (February 6, 2008). See also SEC Release No. 33-6455, at Question 82 (March 4, 1983)).

FINRA will apply the same standard in determining the date of first sale for purposes of the rule's filing requirements.

Disclosure

 

 

1. What are the disclosure requirements for private placements in Rule 5123?
Rule 5123 has no specific disclosure requirements. Firms should comply with the disclosure requirements in the exemption that they are relying upon from the registration requirements of the Securities Act of 1933. Any material misstatement or omission in offering documents for private placements is subject to the antifraud provisions of the federal securities laws.

Exemptions

 

 

1. Are private placements sold to institutional accounts exempt from the filing requirements of Rule 5123?
Private placements sold solely to institutional accounts (as defined in Rule 4512(c)) are exempt from the filing requirements of the rule (see Rule 5123(b)(1)(A)).
2. Which private placements sold to accredited investors must firms file under Rule 5123?
FINRA Rule 5123 requires that firms file private placements that are sold to accredited investors who are natural persons as defined by Regulation D Rule 501(a)(5) and (6), which include different income and asset requirements for natural persons:
  • Rule 501(a)(5) defines an accredited investor as a natural person whose individual net worth or joint net worth with a spouse exceeds a million dollars; and
  • Rule 501(a)(6) defines an accredited investor as a natural person with income exceeding $200,000 or joint income with a spouse of $300,000 in each of the two most recent years (and reasonably expects the same income level in the current year).
In addition, Rule 501(a)(4) defines accredited investor to include officers, directors and general partners of the issuer and Rule 501(a)(8) defines accredited investors to include entities in which all the equity owners are accredited investors. Therefore, private placements to investors or entities that meet the Rule 501(a)(4) and (8) definitions also must be filed.

Posted: 1/7/13

3. Which private placements sold to accredited investors are not required to be filed under Rule 5123?
Regulation D includes four categories of accredited investors that are not natural persons (Rule 501(a)(1), (2), (3) and (7)). Private placements sold solely to accredited investors defined in those categories are exempt from the Rule 5123 filing requirements. Those categories include the following:
  • a bank, insurance company, registered investment company, employee benefit plan or small business investment company;
  • a private business development company;
  • a charitable organization, corporation or partnership with assets exceeding $5 million; or
  • a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

Posted: 1/7/13

4. Are the exemptions of Rule 5123(b) applied on a firm-by-firm basis? For example, if one member firm is exempt from the filing requirements because it meets one of the filing exemptions of Rule 5123(b) but another firm does not meet any of the filing exemptions, do all firms have a filing obligation?
Certain exemptions in Rule 5123 apply to specific types of offerings. For those exemptions, if the offering satisfies the exemption then all firms selling securities in the offering are exempt from the filing requirements of Rule 5123. Other exemptions, principally in Rule 5123(b)(1), apply to sales to certain types of investors. For these, each firm must ensure that the sales transaction is made to an investor that is covered by an available exemption. For example, in the same offering, one firm could sell solely to a qualified institutional buyer (see Rule 5123(b)(1)(C)) and be exempt from the filing requirements of Rule 5123. Another firm may sell to non-accredited investors and must fulfill the filing requirements of Rule 5123.
5. Does a member firm that introduces a prospective investor to an issuer for a fee need to file the private placement under Rule 5123?
A firm that introduces a prospective investor to the issuer and receives a fee may be required to file the private placement with FINRA depending on the facts and circumstances. Rule 5123 requires that any firm that sells a private placement has a filing responsibility. Depending on the facts and circumstances, a firm that receives compensation and participates in a sales transaction may have a filing requirement under the rule.
6. Are crowdfunding offerings required to be filed pursuant to Rule 5123?
FINRA will not require member firms that participate in crowdfunding offerings (under the JOBS Act) to make a filing pursuant to Rule 5123.

Contact Information

 

 

1. Who should member firms contact regarding general inquiries and questions?
For general questions, please call the Corporate Financing Department at (240) 386-5520 or email.

For interpretative questions, please email the Corporate Financing Department.

For entitlement or system-related issues, please contact Firm Gateway at (301) 869-6699.