Rule 506(d) Bad Actor Representations, Warranties, and Covenants

Summary

These clauses include standard representations, warranties, and covenants to address the "bad actor" disqualification provision of Rule 506(d) (17 C.F.R. § 230.506) of Regulation D under the Securities Act of 1933, as amended (Securities Act). These clauses may be included in a placement agency agreement or similar agreement for a securities offering that is subject to Rule 506(d). This template includes practical guidance and drafting notes. Securities offerings relying on the exemptions from registration provided by Rule 504 (17 C.F.R. § 230.504), Rule 506(b), or Rule 506(c) of Regulation D are subject to the "bad actor" disqualifications of Rule 506(d). Rule 506(d) prohibits an issuer from relying on Rule 506 if an issuer or certain persons associated with the issuer or the offering (i.e., "covered persons") have been the subject of a disqualifying event. Rule 504(b)(3) provides that the "bad actor" disqualification provisions of Rule 506(d) apply to Rule 504 offerings. Note, Regulation A (17 C.F.R. §§ 230.251 et seq.) and Regulation Crowdfunding (17 C.F.R. §§ 227.100 et seq.) also have similar bad actor disqualification provisions. Both the issuer and the placement agents of the securities offering are covered persons subject to Rule 506(d). Accordingly, each party may require the other party to provide representation and warranties that is not subject to any disqualification provisions that could delay or prevent the offering. For information regarding Rule 506 and Regulation D, including the enhanced due diligence required to ensure compliance with the "bad actor" disqualification in Rule 506(d), see Regulation D Offerings. For a template of a "bad actor" disqualification questionnaire, see Rule 506(d) Bad Actor Disqualification Questionnaire. For more information on private placements, see Private Placements Resource Kit. For a full listing of key content covering Regulation D offerings, see Regulation D Resource Kit.