Identify the
“Bad Actors”
in Private Offerings Under Rule 506
by Charles Kaufman and Jor Law
In 2010, as part of the aftermath of the Global Financial Crisis
of 2008, Congress adopted the Dodd-Frank Wall Street Reform and
Consumer Protection Act. While mainly targeting the financial
services industry, the act also required the Securities and
Exchange Commission to adopt rules banning specified felons and
other “bad actors” from participating in private offerings of
securities under Rule 506 of Regulation D under the Securities
Act of 1933. The SEC fulfilled its mandate by adopting Rule
506(d) in 2013. This rule requires a company to investigate the
background of its officers, directors, owners and other associates
before using Rule 506 - the most powerful capital-raising tool
available to private companies and private investment funds,
and one on which many EB-5 offerings also rely. As a result,
this type of investigation has become a key component of the due
diligence process for companies and projects raising EB-5 funds.
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EB5 INVESTORS MAGAZINE