The staff of the SEC’s Division of Corporation Finance has issued some new interpretations of the new “bad actor” rules (506(d) and 506(e) of Regulation D).  The staff has indicated that funds that continuously offer their securities must update the bad actor inquiry “periodically through bring-down of representations, questionnaires and certifications, negative consent letters, periodic re-checking of public databases, and other steps, depending on the circumstances.”  The staff also narrowed the definition of “affiliated issuer” to those affiliates participating in the same offering (i.e. subject to offering integration pursuant to Rule 502(a)).  With respect to solicitors, the staff defines covered persons as those actively involved including conducting due diligence, preparing offering materials, structuring, or advising the issuer.  The staff also provides additional guidance on some of the technical interpretations around solicitors, disqualifying actions, and disclosure.  

OUR TAKE: We recommend that firms conduct annual “bad actor” due diligence reviews to demonstrate compliance.  These interpretations reflect some of the initial questions raised by the industry.  Expect more questions and answers as the “bad actor” due diligence becomes embedded in the private offering world.