1. Does Rule 5110 apply to public offerings that also are regulated under Rule 2310?
Yes. Rule 2310 regulates the underwriting terms and arrangements of direct participation programs and unlisted real estate investment trusts (collectively, “Investment Programs”) that are publicly offered. All public offerings in which a member participates, with limited exceptions provided in Rule 5110(h), must be filed, including Investment Programs.
2. Are non-transaction based compensation (e.g., salaries) and non-cash compensation arrangements (e.g., gifts, training and education expenses, business and entertainment expenses and sales incentives) required to be disclosed in the prospectus of an Investment Program offering?
Yes. Rule 5110(b) requires that a description of each item of underwriting compensation must be disclosed in the section on distribution arrangements in the prospectus. For example, Rule 5110.01(a)(14) states underwriting compensation includes non-cash compensation, such as gifts, training and education expenses, sales incentives and business entertainment expenses. Regulatory Notice 08-35 (Allocation of Compensation) and Rule 5110.01(a)(5) clarify that wholesaling fees and expenses, which typically include salaries and other payments for marketing the offering are considered underwriting compensation, which must be disclosed. When applicable, the disclosure may provide that an issuer will reimburse up to a certain amount of expenses for training and education events of registered representatives engaged to distribute a particular offering. For additional guidance, see Rule 5110.05.
3. Are there sections of a prospectus or a Form 8-K filing in which underwriting compensation can be disclosed instead of in the section of the prospectus on distribution arrangements?
No. Rule 5110(b) requires disclosure of underwriting compensation in the prospectus in the section on distribution arrangements. For additional guidance, see Rule 5110.05.
