Donald Trump & Rule 506(d) bad actor

Lauren LeibowitzPrincipal at 1st BridgeHouse Securities, LLC, CrowdfundBeat Sr. Guest editor,

On July 10, 2013, the Securities and Exchange Commission adopted bad actor disqualification provisions for Rule 506 of Regulation D under the Securities Act of 1933, to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The disqualification and related disclosure provisions appear as paragraphs (d) and (e) of Rule 506 of Regulation D.

donald-trump-apprentice

 

 

 

 

 

As a result of Rule 506(d) bad actor disqualification, an offering is disqualified from relying on Rule 506(b) and 506(c) of Regulation D if the issuer or any other person covered by Rule 506(d) has a relevant criminal conviction, regulatory or court order or other disqualifying event that occurred on or after September 23, 2013, the effective date of the rule amendments. Under Rule 506(e), for disqualifying events that occurred before September 23, 2013, issuers may still rely on Rule 506, but will have to comply with the disclosure provisions of Rule 506(e). Since Donald Trump is a serial entrepreneur he should be aware whether any of his past or current convictions, regulatory and order events will define him as a bad actor or trigger a mandatory disclosure.

COVERED PERSONS

The rule covers the issuer, including its predecessors and affiliated issuers, as well as:

Directors and certain officers, general partners, and managing members of the issuer.
20 percent beneficial owners of the issuer.
Promoters.
Investment managers and principals of pooled investment funds.
Persons compensated for soliciting investors as well as the general partners, directors, officers, and managing members of any compensated solicitor.
DISQUALIFYING EVENTS

Under the final rule, a “disqualifying event” includes:

Criminal convictions in connection with the purchase or sale of a security, making of a false filing with the SEC or arising out of the conduct of certain types of financial intermediaries. The criminal conviction must have occurred within 10 years of the proposed sale of securities (or five years in the case of the issuer and its predecessors and affiliated issuers).
Court injunctions and restraining orders in connection with the purchase or sale of a security, making of a false filing with the SEC, or arising out of the conduct of certain types of financial intermediaries. The injunction or restraining order must have occurred within five years of the proposed sale of securities.
Final orders from the Commodity Futures Trading Commission, federal banking agencies, the National Credit Union Administration, or state regulators of securities, insurance, banking, savings associations, or credit unions that …
Bar the issuer from associating with a regulated entity, engaging in the business of securities, insurance or banking, or engaging in savings association or credit union activities, or… Are based on fraudulent, manipulative, or deceptive conduct and are issued within 10 years of the proposed sale of securities.

Certain SEC disciplinary orders relating to brokers, dealers, municipal securities dealers, investment companies, and investment advisers and their associated persons.
SEC cease-and-desist orders related to violations of certain anti-fraud provisions and registration requirements of the federal securities laws.

SEC stop orders and orders suspending the Regulation A exemption issued within five years of the proposed sale of securities.
Suspension or expulsion from membership in a self-regulatory organization (SRO) or from association with an SRO member.
U.S. Postal Service false representation orders issued within five years before the proposed sale of securities.

DISCLOSURE OF PRE-EXISTING DISQUALIFYING EVENTS

Disqualification applies only for disqualifying events that occur after September 23, 2013 But matters that existed before September 23, 2013 and would otherwise be disqualifying are subject to a mandatory disclosure requirement to investors. It’s always recommended that questions regarding disclosure requirements should be discussed with a Securities Attorney.

THE VERDICT

Donald Trump has been involved in as many as 169 federal lawsuits since 1983. The bad actor disqualifying events are mostly focused with securities related issues therefor not all convictions, regulatory and order events result in a disqualification.

In January 2002, Trump Hotels and Casino Resorts (“THCR”) was issued a cease and desist order from the SEC. The SEC found that in October 1999 Trump Hotels, through the conduct of its CEO (Trump), its CFO, and its treasurer, violated antifraud provisions Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by knowingly or recklessly issuing a materially misleading press release. The company, which consented to the issuance of the SECs order without admitting or denying the findings, was ordered to stop doing such things. Says one SEC official: “This case demonstrates the risks involved in mishandling pro forma reporting.”

As of now, Donald Trump is not disqualified as a bad actor since the disqualifying event occurred before September 23, 2013. If Donald Trump is ever a covered person of an Issuer raising capital through a Regulation D 506(b) or a 506(c) exemption, then the Issuer will most likely be required to include a disclosure in its offering materials.

 

Tags: , , , , , , ,

HEADLINE NEWS

Daily MailNick Clegg crowdfunding former Deputy PM appeals donations ...Daily MailLib Dem MP Nick Cleg is 'crowdfunding' to help bankroll the publication of thousands of party leaflets for canvassing ahead of the re-election bid in Sheffield ...and more » [...]

OregonLive.comCrowdfunding efforts for Portland stabbing victims top $700000 in less than 48 hoursOregonLive.comThe crowdfunding campaigns sprang up soon after news reports spread of the attack. Two are designed to help all three families with medical costs and to alleviate any financ [...]

Android Authority (blog)Crowdfunding project of the week: BIKI is an underwater drone that ...Android Authority (blog)Drones are fun, but they can only move through air. We know plenty of you prefer to go underwater. If so, BIKI is for you.and more » [...]

Hall alone in vote against rape kit crowdfundingRockwall County Herald Banner“Rape kit testing is far too important to rely on an undependable funding source like crowdfunding. This is a core function of government and as such it should be funded by government. Victims deserve to know [...]

Virginia Tech launches its own crowdfunding site to reach new generation of donorsRoanoke TimesOne of the first four pilot projects that went live on Jump, Tech's crowdfunding website, lets users pay for as little as one local child to attend educational programming by the Moss A [...]

New York MagazineFacebook Rolls Out Crowdfunding to EveryoneNew York MagazineDepending on your perspective, the rise in popularity of crowdfunding is either a fantastic new way that the internet lets strangers help each other out, or emblematic of the decay of institutional safeguards [...]

Youris.comCrowdfunding boosts green powerYouris.comWith state subsidies falling, crowdfunding platforms are increasingly stepping in to help make green power projects a reality. For individual investors, injecting anything from a few euros to hundreds of thousands, they are a tangiabl [...]

Tech City NewsWhy are more and more tech firms turning to crowdfunding?Tech City NewsWhen Facebook bought virtual reality firm Oculus VR for £2bn (£1.3m) in 2014, the crowdfunding world looked on with amazement. Oculus, founded in California in 2012, had raised its crucial first $2m o [...]

Crowdfund InsiderResearch on Risk Shows Crowdfunding Has Significant Fraud Immunity: Here's WhyCrowdfund InsiderIt may be counterintuitive but the research has been done and the results are now in – and it's as we've been saying for almost five years. Fraud in crowdfund [...]

Finance MagnatesEthereum Alternative Æternity Starts Phase Two of Crowdfunding CampaignFinance MagnatesÆternity's blockchain is built from scratch with most of the transactions done off-chain for speed and efficiency. Avi Mizrahi | News (CryptoCurrency) | Monday, 29/05/2017|14:55 [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

CrowdFund Beat Media

Teacher turns to crowdfunding to buy greenhouse for Nunavut students upflow.co/l/bqoI pic.twitter.com/chHa3MnCfT

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |