An Essay on Rule 506 of Regulation D; Its Questionable Origins, Regulatory Oblivion and Judicial Revitalization

Securities Regulation Law Journal, Vol. 38, No. 1, Spring 2010

18 Pages Posted: 13 Jan 2010 Last revised: 21 Jan 2010

Manning G. Warren III

University of Louisville - Louis D. Brandeis School of Law

Date Written: January 12, 2010

Abstract

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.

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, L51

Suggested Citation

Warren, Manning G., An Essay on Rule 506 of Regulation D; Its Questionable Origins, Regulatory Oblivion and Judicial Revitalization (January 12, 2010). Securities Regulation Law Journal, Vol. 38, No. 1, Spring 2010. Available at SSRN: https://ssrn.com/abstract=1535339

Manning G. Warren III (Contact Author)

University of Louisville - Louis D. Brandeis School of Law ( email )

Wilson W. Wyatt Hall
Louisville, KY 40292
United States

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