SEC
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Securities Laws

Common Securities Violations

Unregistered Offerings

With limited exception, offerings of securities in the U.S. must be registered with the SEC. An offering that is not registered, or that fails to meet/adhere to the requirements for exemption, constitutes a violation (and sales, or attempted sales, are a serious crime).

Non-public offerings are among the more common exceptions to the registration requirement. This exemption, sometimes referred to as the “private placement” exemption, is established by Section 4(a)(2) of the Securities Act, and generally applies to offerings in which purchasers are informed, “sophisticated investors” who have agreed not to resell the securities to the public.

Notwithstanding these general parameters, however, this exemption leaves much to interpretation, and thus a safe harbor is included in Rule 506 of Regulation D. In addition, in Rules 504-506, Regulation D sets forth some other common exceptions to registration, which generally turn on one or more of the following:

  • the size/duration of the offering (e.g., an offering of $1 million or less over a 12-month time period faces the least restrictions in qualifying for exemption);
  • the means of solicitation (public advertising is often a hitch);
  • the level of disclosure provided; and
  • the characteristics of the investors and/or the securities.

The JOBS Act (discussed in Section I.H., supra) required certain amendments to existing exemptions and creation of new ones to make it easier, particularly for smaller companies, to raise capital without SEC registration.

In recent years, on average, 3.3% of all SEC whistleblower tips have involved this type of securities violation.

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