Private-Placement Disclosure Under FINRA’s Proposed Rule 5122

February 24, 2011Articles Westlaw News & Insights

As currently constituted, the Financial Industry Regulatory Authority Rule 5122 regulates member firms (or control entities) who issue the private placement of unregistered securities. A control entity is any entity that controls or is under common control of a member firm or its associated persons.

As a pre-condition to issuing unregistered securities, member firms or control entities must meet certain disclosure and filing requirements. In addition, at least 85 percent of the proceeds of a member firm’s private offering must be used for business purposes, not including "offering costs, discounts, commissions or any other cash or non-cash sales incentives." If a member firm subsequently learns that its offering of private securities does not conform with Rule 5122, it must promptly conform the offering to comply with the rule.

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