As we enter 2025, compliance with U.S. securities regulations remains a critical focus for startups and early-stage companies. Historically, the U.S. Securities and Exchange Commission (SEC) has been relatively lax in enforcing the timely filing of a notice of sale of securities on Form D. However, the SEC recently announced charges against two private companies and one registered investment adviser for failing to timely file a Form D for unregistered securities offerings. The penalties and enforcement actions underscore the importance of adhering to filing deadlines when raising capital through private offerings.
The SEC’s Recent Enforcement Actions:
The SEC’s recent enforcement action targeted two privately held companies, Pipe Technologies, Inc. (a fintech firm) and Underdog Sports Holdings, Inc. (an online fantasy sports platform), along with a registered investment adviser, GRID 202 LLC (doing business as Re-Envision Wealth). These entities failed to file a Form D within the required 15-day window after their first sale of securities. Nearly $300 million in unregistered securities offerings went unreported until the SEC intervened. As a result, they were collectively fined $430,000 for these violations.
Why Form D Matters:
Regulation D offers exemptions from the Securities Act’s registration requirements for certain types of securities offerings. While these exemptions provide a streamlined way for startups to raise capital, they come with specific compliance obligations—one of which is the timely filing of Form D.
Form D is a notice filing required for companies relying on Regulation D exemptions from securities registration. It must be filed within 15 calendar days after the first sale of securities in a private offering. Timely Form D filings help maintain transparency in the private capital markets by providing the SEC with important information about private securities offerings so they can track capital formation, assess the scope of the Regulation D market, and ensure investor protection. When companies fail to file Form D, or fail to timely file, it undermines the ability of regulators, investors, and other market participants to evaluate whether a company is in compliance with federal securities laws. Failure to comply can lead to significant penalties, as demonstrated by the recent SEC enforcement actions.
What Does This Mean For You?
The SEC’s recent enforcement actions signal that the agency is taking enforcement of the Regulation D market very seriously. When engaging in private offerings that rely on Regulation D, you should as well.
- Timeliness is Key: The SEC is actively monitoring Form D compliance for private offerings. If your company is relying on Regulation D exemptions to raise capital, make sure a Form D is filed within 15 days after the first sale of securities. Companies should also be prepared to file amendments for any material changes to the offering.
- Consequences Can Be Severe: Missing the 15-day deadline can result in costly fines, loss of future eligibility for Regulation D exemptions, additional scrutiny from regulators, and increased liability risks.
- Stay Ahead of Compliance: While Regulation D offers significant advantages for private companies, it also comes with regulatory requirements that must be adhered to. Beyond Form D, make sure your offering complies with all applicable rules, including those related to investor accreditation, state securities laws, and other disclosure requirements. Companies should work closely with legal counsel to ensure proper compliance with all securities regulations.
Timely and accurate filing of Form D is crucial for maintaining exemption status and avoiding regulatory penalties. SA&M attorneys regularly counsel startups, emerging growth companies, and their officers and directors on securities law compliance, disclosure responsibilities, and SEC reporting obligations. If you're raising capital under Regulation D or preparing for a private offering, we can help you with the following:
- Form D Filings: Timely and accurate preparation of Form D to ensure compliance with SEC requirements.
- Securities Law Compliance: Comprehensive guidance on securities laws, including exemptions from registration and safe harbors under Regulation D.
- Capital Raise Strategy: Legal support for structuring and executing private capital raises.
For more information, please contact Samantha Goldstein at , or Scott Alderton at .
**This client alert does not create an attorney-client relationship with any person. The information contained in this client alert is provided for general informational purposes only and should not be construed as legal advice on any subject matter. The content is not intended to be a substitute for professional legal counsel or services. Should you have any questions or require clarification on matters discussed in this alert, we encourage you to contact our firm.
