Proposed Amendments to FINRA Rule 5122 Addressing Private Placements – Regulatory Notice 11-04

FINRA issued a proposed amendment to Rule 5122 requiring disclosure in the offering document of the intended use of offering proceeds, expenses, and the amount of selling compensation to be paid to he broker-dealer and its associated persons, in any private placement in which a participating broker-dealer (or its control entity) is the issuer. In addition, the rule requires: at least 85 percent of the offering proceeds must be used for the business purposes identified in the offering document and each offering document to be submitted to FINRA to allow the staff to conduct ex post reviews to assess compliance with the rule and to identify problematic terms and conditions.

Further, the proposed amendments expand Rule 5122 to reach all private placements in which a member firm participates—not just those in which the member firm (or its control entity) is the issuer—while retaining nearly all of the existing exemptions, including those for offerings sold solely to certain institutions, qualified purchasers and other sophisticated investors. However, to reflect the broader scope of the proposed rule and its prior experience with Rule 5122, FINRA proposes to eliminate the exemption for offerings in which a member acts primarily in a wholesaling capacity.

Comment Period Expires: March 14, 2011

To see the full text of Notice 11-04 and proposed amendments, please follow this link to FINRA’s website.

Please contact California-based Evans & Kob PC regarding any of your securities or regulatory questions at

Link: Broker-Dealer Advisory Services and Securities Offerings practice areas.

Leave a Comment