An Essay on Rule 506 of Regulation D; Its Questionable Origins, Regulatory Oblivion and Judicial Revitalization
Manning G. Warren III
University of Louisville - Louis D. Brandeis School of Law
January 12, 2010
Securities Regulation Law Journal, Vol. 38, No. 1, Spring 2010
This essay, based on the author’s presentation last September to the annual meeting of the North American Securities Administration Association (NASAA), addresses several issues related to Rule 506, the most widely-used of the SEC’s transactional exemptions from federal registration of securities offerings. First, the essay questions the validity of Rule 506, given its claimed statutory base in Section 4(2) of the Securities Act of 1933. Second, the essay reaffirms the burden of proof required of issuers on the functionally equivalent issues of preemption and exemption following the metamorphosis of Rule 506 securities to “covered securities” under the National Securities Market Improvement Act of 1996. The essay concludes with suggested regulatory and statutory solutions aimed at restoring the preventive authority of the states in combating securities fraud in their local marketplaces. This restoration would certainly be concordant with the Obama Administration’s directive last spring to all federal departments and agencies to respect the vital role of the states in the pursuit of their regulatory prerogatives, and, thus, to strengthen the core principles of federalism.
Number of Pages in PDF File: 18
Keywords: corporate finance, covered securities, securities, federalism, Regulation D, securities fraud, preemption, private offerings, securities registration, blue sky law, rulemaking authority
JEL Classification: G1, G18, G2, G24, G28, G3, G31, G32, G34, G38, K2, K22, K23, L5, L51Accepted Paper Series
Date posted: January 13, 2010 ; Last revised: January 21, 2010
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