Quick Answer
Regulation D strips its exemptions from an issuer connected to specific bad conduct. An injunction tied to a missing Form D filing disqualifies the small-offering exemption and either uncapped safe harbor; a broader bad-actor disqualification also reaches directors, general partners, large owners, promoters, and paid solicitors who have a felony conviction, a regulatory bar, or another listed disqualifying event.
These two disqualification provisions are separate and stack. An issuer could clear the bad-actor check entirely and still lose its exemption because a court enjoined it over a Form D violation, or vice versa; either one, on its own, is enough to close the door.
What Triggers the Injunction-Based Disqualification?
- The small-offering exemption and either uncapped safe harbor become unavailable to an issuer, or its predecessor or affiliate, that is subject to a court order (temporary, preliminary, or permanent) enjoining it for failing to comply with the Form D filing requirement.
- The SEC may excuse this disqualification for good cause.
Exam Tip: Gotchas
- This disqualification requires an actual court injunction tied to a Form D violation. A late Form D filing, by itself, does not automatically disqualify an issuer from Regulation D.
Who Counts as a Bad Actor, and What Does It Reach?
The bad-actor disqualification removes the exemption for either uncapped safe harbor, and by cross-reference, the small-offering exemption too, when the issuer or specified persons connected to the offering have a disqualifying event. Covered persons include:
- The issuer itself, any predecessor of the issuer, and any affiliated issuer
- Directors, executive officers, general partners, and managing members of the issuer
- Any other officer who participates in the offering
- Owners of 20% or more of the issuer's voting equity, measured by voting power
- Promoters connected with the issuer in any capacity at the time of the sale
- Anyone paid, directly or indirectly, for soliciting purchasers
- Where the issuer is a pooled investment fund, its investment manager
- The general partners and managing members of that investment manager or that solicitor
- Directors and executive officers of that manager, that solicitor, or their general partner or managing member, plus any other officer of those who participates in the offering
Exam Tip: Gotchas
- "Participating in the offering" limits other officers only. A director or an executive officer is a covered person whether or not they touched the offering. A scenario that clears a director because they had no role in the deal is testing this.
- The list reaches past the issuer's own payroll. For a private fund, the fund's investment manager, that manager's general partner, and their participating officers are all covered. A clean issuer does not save an offering when the manager behind it has a disqualifying event.
What Events Trigger Bad-Actor Disqualification, and How Far Back Do They Reach?
| Disqualifying event | Lookback |
|---|---|
| Felony or misdemeanor conviction tied to a securities purchase or sale, a false SEC filing, or the business of an underwriter, broker, dealer, municipal securities dealer, investment adviser, or paid solicitor of securities purchasers | 10 years generally; 5 years for the issuer, its predecessors, and affiliated issuers |
| Court injunction or restraining order for the same categories of conduct | Entered within 5 years, and still in effect at the time of sale |
| SEC cease-and-desist order for a scienter-based antifraud violation, or for violating the Securities Act's core registration requirement | Entered within 5 years |
| SEC order against a broker, dealer, municipal securities dealer, or investment adviser doing any one of three things: suspending or revoking the person's registration, placing limitations on the person's activities, functions, or operations, or barring the person from associating with any entity or from participating in the offering of any penny stock | While the order remains in effect |
| Final order of a state securities commission, a state bank, savings-association, or credit-union authority, a state insurance commission, a federal banking agency, the Commodity Futures Trading Commission, or the National Credit Union Administration, that bars the person from associating with an entity that agency regulates, from the business of securities, insurance, or banking, or from savings association or credit union activities, or that rests on a fraudulent, manipulative, or deceptive act | A bar, while it is in effect; a fraud-based final order, entered within 10 years |
| Suspension or expulsion from membership in, or suspension or bar from association with a member of, a registered national securities exchange or a registered securities association, for conduct inconsistent with just and equitable principles of trade | No stated lookback; applies while the person is suspended, expelled, or barred |
| A registration statement or Regulation A offering statement the person filed, or was named in as an underwriter, that became the subject of a refusal order, a stop order, or an order suspending the Regulation A exemption, or that is under investigation for one | Entered within 5 years, or the proceeding is pending at the time of sale |
| United States Postal Service false representation order | Entered within 5 years, or a temporary restraining order or preliminary injunction is in effect |
When Does a Disqualifying Event Not Bar the Offering?
Four things stop a bad-actor event from removing the exemption:
- The conviction, order, judgment, decree, suspension, expulsion, or bar happened before September 23, 2013. That date governs the two uncapped safe harbors. The small-offering exemption carries its own, later cutoff: it is unavailable only where the issuer would be disqualified on or after January 20, 2017, and a matter before that date must instead be disclosed in writing to each purchaser a reasonable time before the sale.
- The SEC waives it for good cause, deciding the exemption need not be denied.
- Before the sale, the court or regulator that entered the order says in writing that it should not cause disqualification.
- The issuer shows it did not know, and with reasonable care could not have known, that the disqualification existed. Reasonable care always requires a factual inquiry into whether any disqualification exists.
A pre-2013 event escapes disqualification but not disclosure. The issuer must still describe it in writing to each purchaser a reasonable time before the sale. Missing that disclosure does not by itself cost the exemption if the issuer did not know of the matter and could not have known of it with reasonable care.
Exam Tip: Gotchas
- These disqualifying-event categories reach far beyond SEC action. A state insurance commissioner's fraud order, an exchange or association expulsion, and a Postal Service false-representation order each disqualify an issuer just as an SEC order does.
- Lookback periods are not uniform across these categories. A felony conviction looks back 10 years generally but only 5 years for the issuer itself; an injunction or cease-and-desist order looks back 5 years and must still be in effect or still operative at the time of sale.
What Should You Check on Exam Day?
- Distinguish the injunction-based disqualification, which needs an actual court order tied to a Form D violation, from the broader bad-actor disqualification. A late Form D filing alone does not disqualify.
- Match a bad-actor question to the right covered person, and remember the list includes the issuer's predecessors and affiliates, and a pooled fund's investment manager.
- Confirm the lookback period fits the specific disqualifying event; they are not all the same number of years.
- Remember the bad-actor disqualification reaches state and self-regulatory orders, not only SEC actions.
- Check a bad-actor event's date against the exemption claimed: September 23, 2013 for the uncapped safe harbors, January 20, 2017 for the small-offering exemption. An earlier event needs written disclosure, not disqualification.