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Don’t Forget Form D - Recent SEC Enforcement Actions Emphasize the Importance of Timely Filing Form D
By Robert R. Boeche, Partner of Shustak Reynolds & Partners, P.C. posted on Friday, March 14, 2025.
Robert R. Boeche II
Partner
Location: San Diego, California
Phone: (619) 696-9500 (Ext. 122)
Direct: (619) 546-5502
Email: [email protected]
On December 20, 2024, the Securities Exchange Commission announced that it had settled with multiple entities for failing to timely file Form D for several unregistered securities offerings in violation of Rule 503 of Regulation D under the Securities Act of 1933 (the “Securities Act”). [1] These entities include:
1. GRID 202 LLC (“GRID”), a registered investment adviser which does business as Re-Envision Wealth; [2]
2. Pipe Technologies Inc., a privately held financial technology company; [3] and
3. Underdog Sports Holdings, Inc., a privately held corporation that operates an online fantasy sports website and mobile app. [4]
In signing these settlement agreements with the SEC, the above-mentioned parties agreed to cease and desist from violating the charged provisions and to pay the respective civil penalties of $60,000; $195,000; and $175,000. [5] This marks a shift in the SEC’s approach to exempt securities offerings as the SEC has rarely brought charges simply for failure to file a Form D.
Background
Regulation D provides issuers with a non-exclusive method to conduct securities offering that are exempt from registration under Section 5 of the Securities Act. [4] Under Rule 503 of Regulation D, the Securities Act states that an issuer offering or selling securities in reliance on Rule 504 or 506 of the Act must file a notice of sales on Form D with the SEC for each new offering of securities no later than 15 calendar days after the first sale of securities in the offering. [6]
In 2009, the SEC published a “Compliance and Disclosure Interpretations” (“C&DI”) related to Regulation D. The SEC stated that “The filing of a Form D is a requirement of Rule 503(a), but it is not a condition to the availability of the exemption pursuant to Rule 504 or 506 of Regulation D” [7]
Impact on the Private Equity Industry
Historically, the failure to timely file Form D was treated by the SEC as a minor offense. This approach fostered a belief in the private equity industry that such failure, absent other (and likely more egregious) violations, was not likely to lead to monetary penalties or other sanctions from the SEC. In fact, several took the position that reliance on Reg D did not “require” a Form D filing, but rather that such filing merely “perfected” an issuer’s reliance on the exemption. [8]
However, in the settlement agreements, the SEC clearly states that “While a failure to provide such notice does not result in a loss of the exemption from Section 5, the failure to comply with the requirements of Rule 503 itself is a violation of the Securities Act and rules promulgated thereunder.” [9]
Common in each action, the SEC highlights three consequences associated with the failure to file Form D, including:
1. It impedes the SEC’s ability to fully assess the scope of the Regulation D market;
2. It hinders the SEC’s ability to monitor and enforce compliance with the requirements of Regulation D as well as state regulators and self-regulatory organizations’ ability to monitor and enforce other securities rules and laws; and
3. It impacts investors and other market participants. [10]
The penalties imposed by the SEC evidence that issuers relying upon registration exemptions under Regulation D must prioritize timely filing of a Form D with respect to each of the issuers’ offerings. Should you have questions concerning compliance with Form D, or questions concerning exempt securities offerings, our firm regularly advises clients on FINRA and SEC regulations, and we are closely monitoring these developments.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes.
We represent many investment advisors, financial professionals, broker-dealers, registered representatives, investors and businesses.
Attorney Robert R. Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
[1] See, https://www.sec.gov/newsroom/press-releases/2024-210.
[2] See, In the Matter of Grid 202 LLC d/b/a Re-Envision Wealth, https://www.sec.gov/files/litigation/admin/2024/33-11346.pdf.
[3] See, In the Matter of Pipe Technologies Inc., https://www.sec.gov/files/litigation/admin/2024/33-11347.pdf.
[4] See, In the Matter of Underdog Sports Holdings, Inc., https://www.sec.gov/files/litigation/admin/2024/33-11348.pdf.
[5] See, https://www.sec.gov/newsroom/press-releases/2024-210.
[6] See, In the Matter of Grid 202 LLC d/b/a Re-Envision Wealth, https://www.sec.gov/files/litigation/admin/2024/33-11346.pdf.
[7] See, Question 257.07, https://www.sec.gov/rules-regulations/staff-guidance/compliance-disclosure-interpretations/securities-act-rules.
[8] See Question 257.08, https://www.sec.gov/rules-regulations/staff-guidance/compliance-disclosure-interpretations/securities-act-rules
[9] See, In the Matter of Grid 202 LLC d/b/a Re-Envision Wealth, https://www.sec.gov/files/litigation/admin/2024/33-11346.pdf.
[10] Id.
