The Advisors' Blog

On Friday, Corp Fin issued a slew of new Compliance & Disclosure Interpretations, most of which relate to Rule 701, which exempts offers and sales of compensatory awards issued pursuant to a compensatory benefit plan by a private company to employees, directors, officers, consultants, advisers, and other individuals providing bona fide services to the company. Here are the updates to the Securities Act Rules CDIs:

New Question 271.26 clarifies when companies must provide disclosure under Rule 701(e)(1)–(6) if the aggregate sales price of securities sold under this exemption during a consecutive 12-month period exceeds $10 million.

New Question 271.27 states that the Rule 701 exemption is lost for the entire offering during the 12-month period in which the $10 million threshold is exceeded if the issuer fails to provide the required Rule 701(e) disclosure within a reasonable period before the date of sale.

Revised Questions 271.10, 271.12, 271.14, 271.16, 271.23 and 271.24 are updated solely to replace outdated references to $5 million with $10 million (which was updated in Rule 701(e) in 2018).

The other updated CDI addresses the definition of “ineligible issuer” (Securities Act Rules CDI 203.03 (redline)). A new CDI confirms a new CIK is not required following a reorganization (Securities Act Forms CDI 101.06), and another states that the failure to check the SRC status box does not result in loss of SRC status or the ability to use SRC accommodations (Regulation S-K CDI 102.06). 

– Meredith Ervine