anomalous result that an issuer could make an offering to hundreds of
non-accredited investors in reliance on the integration safe harbor,
triggering reporting requirements under the Exchange Act, without a
public offering. We propose, therefore, to lower the safe harbor time
frame to 90 days rather than the 30 days recommended by the Advisory
Committee.\134\ We believe 90 days is appropriate, as it would permit
an issuer to rely on the safe harbor once every fiscal quarter.\135\
This reduction in time should provide additional flexibility to
issuers, while still requiring them to wait a sufficient period of time
before initiating a substantially similar offer in reliance on the safe
harbor.\136\
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    \133\ See Advisory Committee Final Report at 96.
    \134\ Both the Advisory Committee and the ABA recommended
reducing the time frame for the integration safe harbor to 30 days.
Their proposals do not address our concerns that such a short time
frame could result in public offerings conducted under the guise of
private offerings. See ABA Private Offering Letter, n. 24 above, at
33 and Advisory Committee Final Report at 94.
    \135\ For issuers that provide quarterly reports, the 90-day
requirement would provide time and transparency for investors and
the market to take into account the offering and its results.
    \136\ The five-factor test would continue to apply, providing
issuers with flexibility where they are making separate offerings
within the 90-day time frame.
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    The same integration analysis as applies to other Regulation D
offerings would apply to offerings made under proposed Rule 507.
Accordingly, an issuer would not be able to take advantage of the safe
harbor in Rule 502(a) for any sales to investors that are not large
accredited investors within the safe harbor period after the
publication of a general announcement as permitted by Rule 507. The new
90-day safe harbor would apply to Rule 507 offerings, allowing issuers
to make offerings without integration concerns after waiting the
requisite period of time.
Request for Comment
     As proposed, we would reduce the time frame for the
integration safe harbor from six months to 90 days. Is 90 days an
appropriate time frame for the safe harbor? Is 90 days still too long a
delay for issuers seeking capital in reliance on the integration safe
harbor? Would this reduction increase the possibility that issuers will
use the safe harbor and undertake serial offerings?
     Some commentators have suggested that a 30-day integration
safe harbor would be appropriate. We are concerned that such a short
time period could encourage serial private offerings that would
otherwise be integrated and effectively allow unregistered public
offerings. If we were to reduce the time period of the safe harbor,
should we limit the total number of non-accredited investors to whom an
issuer may sell over the course of the year? If so, how many non-
accredited investors would be an appropriate limitation per year--100,
140, 210 or some other number?
     The five-factor test provides issuers with an analytical
framework to differentiate offers so that they need not be integrated.
Does the five-factor test provide sufficient guidance for issuers to
make their analysis? If not, how could we improve the factors to
provide clearer guidance? Should we provide additional factors? Would
the proposed 90-day time frame obviate the need to revise the test?
     Would the interaction between the general announcement
permitted by proposed Rule 507 and the proposed 90-day integration safe
harbor present opportunities for abuse? Could issuers use the general
announcement permitted by proposed Rule 507 to test the waters before
deciding whether to undertake either a registered public offering or
unregistered exempt offering under Regulation D? Should we permit this
use of a Rule 507 general announcement? Should we modify proposed Rule
507 to prohibit such a practice?
2. Disqualification Provisions
    In conjunction with the proposed revisions to Regulation D, we have
considered the need for general ``bad actor'' disqualification
provisions for all offerings under Regulation D. Our concern arises
from the number of recidivists we see in problematic Regulation D
offerings. Before the National Securities Markets Improvement Act of
1996,\137\ recidivists

were excluded from most Rule 506 offerings by state disqualification
provisions. The National Securities Markets Improvement Act preempts
the states from enforcing those provisions in favor of federal
regulation, raising the question whether federal disqualification
provisions should be adopted to replace them.
    We propose that availability of all Regulation D exemptions be
conditioned on the application of bad actor disqualification
provisions. By deterring recidivists from participating in our primary
private and limited offering marketplaces, we intend to improve the
effectiveness of Regulation D offerings for a significant majority of
companies, especially smaller companies, that do not have bad actors
associated with their securities offerings and will not be disqualified
under the proposed provisions.
    Currently, in Regulation D, only Rule 505 provides disqualification
provisions.\138\ Rule 505 refers issuers to the substantive
disqualification provisions of Rule 262 \139\ under Regulation A,\140\
essentially incorporating those provisions by reference. Under those
provisions, issuers are barred from relying on the exemption where the
issuer, any of its predecessors, any affiliated issuers, any director,
officer or general partner of the issuer, any beneficial owner of 10
percent or more of any class of its equity securities, any promoter of
the issuer presently connected with the issuer, any underwriter of the
securities to be offered, or any partner, director or officer of the
underwriter have committed relevant violations of laws and regulations.
The Model Accredited Investor Exemption \141\ and the Uniform
Securities Act of 2002 \142\ also provide for similar disqualification
provisions for these types of issuers and associated persons.
    The exemption in proposed Rule 507 and the proposal to reduce the
time that issuers must wait to rely on the integration safe harbor
would provide issuers with greater flexibility in preparing and
conducting private offerings. Given this proposed increase in
flexibility, as well as enforcement issues we have confronted with
recidivists involved in purported Regulation D offerings,\143\ we
believe it is appropriate to propose that certain issuers be precluded
from relying on any of the Regulation D exemptions if they or the
persons designated in proposed Rule 502(e) have violated the law. We
are proposing a rule that is based generally on the provisions in
Regulation A, the Model Accredited Investor Exemption and the Uniform
Securities Act of 2002.\144\ In the interests of coordination and
uniformity, we drew extensively from the Model Accredited Investor
Exemption, but have modified some of the provisions, taking into
account provisions of the Uniform Securities Act. The proposed
disqualification provisions all relate to determinations by regulators
and courts of problematic behavior or wrongdoing. It is our intent that
the Commission's adoption of disqualification provisions based on
provisions in use in many states will lead to increased uniformity in
federal and state securities regulation.\145\
    Exempt private and limited offerings under Regulation D do not
provide the protections that registration would afford. We believe that
registration, with its incumbent rights for investors and duties of the
issuer, is more appropriate for offerings by issuers and persons that
have been subject to determinations of violations of law or wrongdoing
than offerings relying on Regulation D exemptions. Thus, we believe it
would be prudent to preclude certain persons who have been shown to
have acted improperly from relying on Regulation D to make or be
involved with unregistered offers and sales of securities.
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    \137\ Pub. L. 104-290.
    \138\ 17 CFR 230.505(b)(2)(iii).
    \139\ 17 CFR 230.262.
    \140\ 17 CFR 230.251 through 230.263. Regulation A is an
exemption from Securities Act registration, promulgated under
Section 3(b) of the Securities Act, 15 U.S.C. 77c(b), for public
offerings not exceeding $5 million in any 12-month period.
    \141\ According to NASAA, as of 1999, 33 states plus the
District of Columbia and Puerto Rico had adopted a form of this
exemption and seven more states had bills pending in their
legislatures. See North American Securities Administrators
Association, Written Statement before the House Small Business
Committee, Government Programs and Oversight Subcommittee (Oct. 14,
1999).
    \142\ See http://www.uniformsecuritiesact.org. According to the

drafting committee, as of April 27, 2007, the Act had been enacted
in 11 states and the U.S. Virgin Islands and is endorsed by NASAA,
the Securities Industry and Financial Markets Association (formerly
known as the Securities Industry Association) and the American Bar
Association.
    \143\ See, e.g., SEC v. Calvo, 378 F.2d 1211, 1216 (11th Cir.
2004).
    \144\ In response to the Advisory Committee's proposed
recommendations, NASAA commented that any new exemption in
Regulation D should ``contain at least disqualification provisions
like those contained in Rule 505(b)(2)(iii), Rule 1.B of the NASAA
Uniform Limited Offering Exemption (1983), and Section D of the
Model Accredited Investor Exemption.'' See NASAA Letter, n. 48
above.
    \145\ Several provisions of the federal securities laws call for
greater uniformity in federal and state securities regulation. See,
e.g., Securities Act Sec.  19(d), 15 U.S.C. 77s(d).
---------------------------------------------------------------------------

    As proposed, the disqualification provisions in new Rule 502(e)
would apply to all offerings made in reliance on Regulation D,
precluding reliance by the issuer on Regulation D if the issuer itself
is disqualified or the presence of any of the enumerated persons
disqualifies the issuer.\146\ The disqualification provisions under
proposed Rule 502(e) would apply to:
---------------------------------------------------------------------------

    \146\ In conjunction with this proposal, we also propose to
delete the current disqualification provisions in Rule
505(b)(2)(iii).
---------------------------------------------------------------------------

     The issuer, any predecessor of the issuer, and any
affiliated issuer;
     Any director, executive officer, general partner, or
managing member of the issuer;
     Any beneficial owner of 20 percent or more of any class of
the issuer's equity securities; and
     Any promoter connected with the issuer.
    The persons and entities we propose to subject to the
disqualification provisions are substantially similar to those in
Regulation A and the Model Accredited Investor Exemption, except that
we do not propose to include underwriters.\147\ Both Regulation A and
the Model Accredited Investor Exemption include underwriters among the
classes of persons to whom disqualification provisions apply.\148\
Underwriters generally do not directly control the issuer or determine
for an issuer whether to conduct an offering. In weighing the balance
of adding the disqualification provisions, we determined that adding
provisions throughout Regulation D would have positive effects on the
private and limited offering equity markets. In order to limit the
burden of expanding these provisions, we propose to limit the
application, and therefore the due diligence burden, to the issuer and
those persons whom we regard as having substantial influence over the
issuer.\149\
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    \147\ We propose to add managing members to the traditional list
of directors, officers, and general partners to indicate clearly
that managing members of limited liability companies are intended to
be included in the provision. We also propose to limit the
provisions to ``executive officers'' rather than ``officers'' and to
20 percent beneficial owners rather than 10 percent beneficial
owners as provided in Rule 262 of Regulation A. We believe that
limiting the scope of these provisions to executive officers and 20
percent beneficial owners would be appropriate, given their greater
influence on the policies of the issuer as compared to officers and
10 percent beneficial owners.
    \148\ The term ``underwriters'' is used in both Regulation A and
the Model Accredited Investor Exemption. The term underwriters
includes selling broker-dealers, who are commonly called
underwriters in Regulation A offerings and placement agents in
private offerings.
    \149\ We have chosen not to use in this context the concept of
``affiliate,'' which we use in other rules under the Securities Act
to designate certain persons with control relationships with
issuers. Rule 505 of Regulation D currently refers issuers to the
disqualification provisions of Rule 262 of Regulation A. Under the
proposed disqualification provisions, Rule 505 would refer to Rule
502(e) and not to the disqualification provisions in Regulation A.

---------------------------------------------------------------------------

    Proposed Rule 502(e) provides six disqualification provisions that
would preclude an issuer from relying on Regulation D. Each of the
disqualification provisions requires a determination by a government
official or agency or self-regulatory organization that the relevant
person has violated the law or engaged in other wrongdoing. These
provisions apply where the issuer or the covered persons:
     Filed a registration statement within the last five years
that is the subject of a currently effective permanent or temporary
injunction or an administrative stop order; \150\
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    \150\ Rule 262(a)(1) provides that the issuer, any of its
predecessors or any affiliated issuer ``has filed a registration
statement which is the subject of any pending proceeding or
examination under Section 8 of the Act, or has been the subject of
any refusal order or stop order thereunder within five years prior
to the filing of the offering statement required by Rule 252.'' As
proposed, the provision would not be limited to the issuer and the
language of the provision would apply more generally to court
injunctions and stop orders or similar orders by the Commission or
state securities agencies. The proposed language tracks Section
306(a)(3) of the Uniform Securities Act.
---------------------------------------------------------------------------

     Was convicted of a criminal offense in the last 10 years
that was in connection with the offer, purchase or sale of a security
or involved the making of a false filing with the Commission; \151\
---------------------------------------------------------------------------

    \151\ Rule 262 provides disqualification provisions for ``any
felony or misdemeanor in connection with the purchase or sale of any
security or involving the making of any false filing with the
Commission.'' Under Rule 262, the disqualification of issuers,
predecessors and affiliated issuers is for five years, while for any
director, officer or general partner of the issuer, beneficial owner
of 10 percent or more of any class of its equity securities, any
promoter of the issuer presently connected with it in any capacity,
any underwriter of the securities to be offered, or any partner,
director or officer of any such underwriter the disqualification is
for 10 years. The proposed provision tracks Rule 262 instead of the
Model Accredited Investor Exemption or Uniform Securities Act,
because the language focuses on securities-related offenses while
the other models use broader language. The proposal uses the term
``criminal offense'' instead of specifying ``felony or misdemeanor''
as used in Rule 262 and uniformly applies a 10-year disqualification
for these more egregious acts. This provision would substantially
cover situations addressed in Rule 262(a)(3) and Rule 262(b)(3).
---------------------------------------------------------------------------

     Has been subject to an adjudication or determination
within the last five years by a federal or state regulator that the
person violated federal or state securities or commodities law or a law
under which a business involving investments, insurance, banking or
finance is regulated; \152\
---------------------------------------------------------------------------

    \152\ This provision is based on Section 412(d)(6) of the
Uniform Securities Act, but more generally includes ``federal or
state regulator'' and ``federal or state securities or commodities
laws or a law under which a business involving investments,
insurance, banking, or finance is regulated'' instead of providing a
specific list of relevant statutes. The Model Accredited Investor
Exemption contains a similar, but more limited provision that
disqualifies a person if they are ``currently subject to any state
or federal administrative enforcement order or judgment * * *
finding fraud or deceit in connection with the purchase or sale of
any security.''
---------------------------------------------------------------------------

     Is subject to an order, judgment or decree by a court
entered within the last five years that restrains or enjoins the issuer
or a person from engaging in any conduct or practice involving
securities and other similar businesses, including an order for failure
to comply with Rule 503 (the filing of Form D); \153\
---------------------------------------------------------------------------

    \153\ We sought to simplify the provisions in Rule 262(a)(2) and
(b)(2) of Regulation A by following the Model Accredited Investor
Exemption provision (D)(1)(d). Rather than refer to ``involving
fraud or deceit in connection with the purchase or sale of any
security,'' we broadened the application to a business ``involving
securities, commodities, investments, insurance, banking, or
finance'' as suggested by the Uniform Securities Act. We did not,
however, include a business involving franchises as in the Uniform
Securities Act list. We also added a specific reference to Rule 503,
which is being moved from current Rule 507, as discussed below.
---------------------------------------------------------------------------

     Is subject to a cease and desist order entered within the
last five years issued under federal or state securities or similar
laws; \154\ or
---------------------------------------------------------------------------

    \154\ This provision, while similar to the provisions in Rule
502(e)(1)(iii) and (iv), is based on Section 412(12) of the Uniform
Securities Act.
---------------------------------------------------------------------------

     Is subject to a suspension or expulsion from membership in
or association with a member of a national securities exchange or
national securities association for an act or omission constituting
conduct inconsistent with just and equitable principles of trade.\155\
---------------------------------------------------------------------------

    \155\ This provision is substantially similar to Rule 262(b)(4)
and seeks to bar similar persons to those covered by Uniform
Securities Act Section 412(13).
---------------------------------------------------------------------------

    The length of disqualification from reliance on Regulation D in the
proposal is generally five years. For more egregious conduct resulting
in a criminal conviction, we propose disqualification for 10
years.\156\ We believe that these disqualification provisions would
provide a deterrent effect, as well as offer protection to investors
from recidivists who have violated securities and related laws and
rules in the past.
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    \156\ The period of disqualification generally follows the
periods provided in Regulation A. The disqualification period for
issuers convicted of a criminal offense would be increased from five
to 10 years to conform with the disqualification for other criminal
offenders and to better conform with the Uniform Securities Act.
---------------------------------------------------------------------------

    Proposed subparagraphs (i), (iii), (iv), and (v) of Rule 502(e)(1)
enumerate the various administrative and civil orders, judgments, and
determinations that would trigger disqualification for an issuer.
Proposed subparagraph (ii) provides a similar disqualification
provision for criminal convictions, and proposed subparagraph (vi)
provides a disqualification provision that relates to decisions of
self-regulatory organizations. Each disqualification provision relates
to a failure to comply with laws or regulations, raising concerns that
the person may continue to disregard laws and regulations relating to
the offering of securities. For this reason, we believe an issuer
should not be allowed to rely on Regulation D if the issuer or one of
the covered persons meets the disqualification provisions in proposed
Rule 502(e).
    In order to combine all of the disqualification provisions in the
same rule, we propose to remove the disqualification provision relating
to failure to comply with Rule 503 (the filing of Form D) that is found
in current Rule 507 and replace the substance of that provision with a
clause in proposed Rule 502(e)(1)(iv). Proposed Rule 502(e)(1)(iv)
would specifically indicate that an order for failure to comply with
Rule 503 of Regulation D would trigger the disqualification provision.
Proposed Rule 502(e)(2) would expand upon the concept in current Rule
507 and allow the Commission, upon a showing of good cause, to waive
any of the enumerated disqualification provisions in proposed Rule
502(e)(1).\157\ Proposed Rule 502(e)(2) also would provide a safe
harbor for an offering by an issuer, if that issuer establishes that it
did not know and reasonably could not have known that the
disqualification existed.\158\
---------------------------------------------------------------------------

    \157\ The waiver provision tracks the preliminary language in
Rule 262 and provides flexibility for the Commission. The Commission
staff has, and would continue to have, delegated authority to act on
waiver requests under Rule 262 of Regulation A and Rule 505, and we
are proposing a similar delegation for all other Regulation D
disqualification waiver requests. See II.E.3 below.
    \158\ The Model Accredited Investor Exemption provides
exemptions from disqualification where a waiver is provided or where
the issuer establishes that it did not know and in the exercise of
reasonable care, based on a factual inquiry, could not have known of
the disqualification. Regulation A does not include the exemption
where an issuer reasonably could not have known. Due to the broad
application of the proposed Rule, we have proposed similar
exemptions to those in the Model Accredited Investor Exemption
providing for waiver and for an issuer that reasonably could not
have known. We have not included the requirement for a factual
inquiry to establish the reasonable basis as in the Model Accredited
Investor Exemption.
---------------------------------------------------------------------------

Request for Comment
     Should we limit the disqualification provisions to Rule
505 exemptions only, as is currently the case, rather than applying
these provisions to all Regulation D exemptions? Are there any

current disqualifications not included in the proposed rule that we
should include? Are any persons not covered who should be?
     What would be the effects on disqualified issuers? How
many issuers would be affected?
     Unlike the Regulation A, Regulation E \159\ and current
Rule 505 disqualification provisions, proposed Rule 502(e) excludes
selling broker-dealers, underwriters, and placement agents from the
disqualification provisions. Should selling broker-dealers,
underwriters, and placement agents be covered in the disqualification
provisions? Would including selling broker-dealers, underwriters, and
placement agents give issuers an incentive to check their backgrounds
before engaging them for an offering? If they were included, should
there be an exemption for persons who continue to be licensed or
registered to conduct securities related business in the jurisdiction
where the order, judgment, or decree creating the disqualification was
entered, as is the case in the Model Accredited Investor Exemption?
---------------------------------------------------------------------------

    \159\ 17 CFR 230.601 through 230.610a. Regulation E is an
exemption from Securities Act registration, promulgated under
Section 3(c) of the Securities Act, 15 U.S.C. 77c(c), for securities
of small business investment companies.
---------------------------------------------------------------------------

     Does the proposed rule adequately cover the
disqualification provisions of Regulation A, which currently apply to
Rule 505? For example, proposed Rule 502(e)(1)(iii) would disqualify
persons subject to an adjudication or determination by a federal or
state regulator that the person violated securities or commodities laws
or a law under which a business involving investments, insurance,
banking, or finance is regulated. Under Rule 262(a)(5), a United States
Postal Service false representation order and certain other orders and
injunctions are specifically enumerated. Does the proposed rule
adequately cover these and other related orders and injunctions? If
not, should we revise the proposed rule to specifically cover United
States Postal Service orders and injunctions or other specific
circumstances?
     Should the disqualification provisions for being currently
subject to an order, judgment, decree, or cease and desist order apply
as long as the person is subject to the order, no matter when the order
was entered into, or should the provisions apply only to orders entered
into within the last five years, as proposed?
     The length of disqualification in the proposed rules
generally is consistent with our current Rule 262 provisions in
Regulation A. The proposal increases the length of disqualification for
criminally convicted issuers from 5 years to 10 years. Under the
Uniform Securities Act of 2002, a person convicted of a felony
involving the business of securities is permanently barred from relying
on the exemption. Should such felony convictions permanently disqualify
a person? Is 10 years an appropriate disqualification period? Is 5
years an appropriate length of time to protect investors adequately
from persons who have been determined to have violated or have been
sanctioned for violations of securities-related and similar laws and
regulations?
     How should the Commission phase in the new
disqualification provisions, if adopted? Should we ``grandfather''
individuals and entities from the consequences of the new
disqualification provisions if an issuer commences an offering before
the effectiveness of proposed Rule 502(e)? With respect to offerings
commenced before the effectiveness of proposed Rule 502(e), should we
subject individuals and entities that become newly associated with the
issuer after effectiveness to all the consequences of the new
disqualification provisions? In these cases, should we provide any
special waiver provisions and/or condition any waiver on providing
disclosure in the offering document regarding any past disqualifying
events?
     Would mandatory disclosure of the adverse orders,
judgments, and determinations be an adequate substitute for
disqualification? \160\ If so, how should disclosure be mandated and
enforced?
---------------------------------------------------------------------------

    \160\ We recently proposed changes to Form D, the form required
of issuers relying on Regulation D, that would include requiring
each issuer submitting the form to certify that it is not
disqualified from relying on Regulation D for one of the reasons
stated in proposed Rule 502(e). See Release No. 33-8814 (June 29,
2007) [72 FR 37376].
---------------------------------------------------------------------------

     The proposed rule provides an exemption from the
disqualification provisions if, in the exercise of reasonable care, the
issuer could not have known that a disqualification existed. Is this
appropriate? If so, should an issuer be required to establish that
reasonable care was based on a factual inquiry, as required in the
Model Accredited Investor Exemption? Are there circumstances where no
factual inquiry would be necessary? Would the requirement for a factual
inquiry be burdensome?
     Should we revise the disqualification provisions in
Regulation A and Regulation E to conform with proposed Rule 502(e)?
What changes specific to Regulation A or Regulation E should we make to
the proposed disqualification provisions?

D. Possible Revisions to Rule 504

    Rule 504 of Regulation D is known as the ``seed capital''
exemption. It is limited to offerings by non-reporting companies that
do not exceed an aggregate annual amount of $1 million. Rule 504 places
substantial reliance upon state securities laws, because the size and
local nature of these offerings has not appeared to warrant imposing
significant federal regulation.
    Rule 504 sets forth the requirements for four separate exemptions
from the registration requirements of the Securities Act. Among these
is Rule 504(b)(1)(iii),\161\ which provides an exemption from
registration for offers and sales of securities that are conducted
``according to state law exemptions from registration that permit
general solicitation and general advertising so long as sales are made
only to `accredited investors' as defined in [Rule 501(a)].'' \162\
Securities sold without registration in reliance on this provision are
not subject to the limitations on resale established in Rule 502(d)
and, as such, are not ``restricted securities'' for purposes of Rule
144(a)(3)(ii).
---------------------------------------------------------------------------

    \161\ 17 CFR 230.504(b)(1)(iii).
    \162\ Rule 501(a) has been discussed at length at various places
above. The other three Rule 504 exemptions, which would not be
affected by the possible revisions we are discussing here, are
contained in:
    (a) The introductory clause of Rule 504(b)(1), 17 CFR
230.504(b)(1) (exemption for offers and sales of restricted
securities that do not involve general solicitation and
advertising); and
    (b) Rules 504(b)(1)(i) and 504(b)(1)(ii), 17 CFR
230.504(b)(1)(i) and 230.504(b)(1)(ii) (exemptions for offers and
sales of unrestricted securities that may involve general
solicitation and advertising if the offering is registered under
appropriate state securities laws that require the public filing and
delivery of a disclosure document to investors before sale).
    In a companion release, we have proposed to amend Form D, the
notice that must be filed with us when an issuer sells securities in
a Regulation D offering, to require issuers relying on Rule 504 to
specify the precise Rule 504 exemption on which they are relying.
See Release No. 33-8814 (June 29, 2007) [72 FR 37376]. One of the
purposes of this change is to provide us with better information on
the extent of use of the different types of Rule 504 offerings.
---------------------------------------------------------------------------

    We added Rule 504(b)(1)(iii) as a new exemption to Rule 504 in
1999.\163\ It was an attempt to apply the appropriate federal
securities law treatment to offerings made under state registration
exemptions that satisfied its conditions. As an example of these
exemptions, we cited the Model Accredited Investor

Exemption, which was a model exemption developed in 1997 by the North
American Securities Administrators Association.\164\ It was our
understanding at the time that securities issued under Rule
504(b)(1)(iii) generally could not be transferred under state law, and
that immediate resale generally would not be possible.\165\
---------------------------------------------------------------------------

    \163\ See Release No. 33-7644 (Feb. 25, 1999) [64 FR 11090].
Previously, securities sold under Rule 504 were not deemed
restricted securities.
    \164\ Id. A copy of the Model Accredited Investor Exemption is
available on the NASAA Web site at http://www.nasaa.org/content/Files/Model%5FAccredited%5FInvestor%5FExemption.pdf
.

    \165\ See Release No. 33-7644, n. 38.
---------------------------------------------------------------------------

    The addition of Rule 504(b)(1)(iii) in 1999 was part of a series of
changes designed to deter abusive practices in Rule 504 offerings while
not impeding legitimate ``seed capital'' offerings. The Commission had
been concerned for some time with abusive practices in Rule 504
offerings, many of which involved ``pump and dump'' schemes for
securities of non-reporting companies that traded over the counter. At
the time, we stated that we would monitor the use of Rule 504 as
revised and contact state securities regulators regarding their
experience with these offerings. We further stated that if abusive
practices involving Rule 504 continued, we would consider stronger
measures in the future.\166\
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    \166\ Id. Other suggested measures included the expansion of
disqualification provisions similar to those in Rule 505(b)(2)(iii)
and Rule 262. We propose to expand such disqualification provisions
to all Regulation D offerings in this release. See II.C.2 above.
---------------------------------------------------------------------------

    In recent years, the Commission has taken enforcement action
against numerous ``pump and dump'' schemes, most of which involve the
securities of small companies without large market capitalization or
significant market following.\167\ Several of these cases have involved
claims of purported compliance with Rule 504(b)(1)(iii) and state
securities laws that are submitted to transfer agents as the basis for
the issuance of securities without restrictive legends to permit
immediate resale. In informal discussions, state securities regulators
also have raised concerns about abusive practices involving Rule
504(b)(1)(iii) offerings. These factors lead us to question whether we
should amend Rule 504(b)(1) to provide that the limitations on resale
set forth in Rule 502(d) would apply to securities sold in a Rule
504(b)(1)(iii) transaction. Such an amendment would result in those
securities being ``restricted securities'' for purposes of Rule 144.
---------------------------------------------------------------------------

    \167\ See, e.g., SEC v. Integrated Services Group Inc., Lit.
Release No. 19476 (Nov. 29, 2005) (reporting complaint filed in S.D.
Tex.); SEC v. Custom Designed Compressor Systems, Inc., Lit. Release
No. 19101 (Feb. 28, 2005) (reporting complaint filed in D. N.M.).
---------------------------------------------------------------------------

    In a companion release, we have proposed to amend Rule 144 to
provide that non-affiliates receiving restricted securities of non-
reporting companies would be eligible to resell those securities after
12 months without any restrictions.\168\ A 12-month holding period
would be consistent with the Model Accredited Investor Exemption. If we
adopt the Rule 144 proposal and revise Rule 504(b)(1) to provide that
securities sold in a Rule 504(b)(1)(iii) transaction are ``restricted
securities,'' the resale restrictions will be less stringent than under
current Rule 144.\169\
---------------------------------------------------------------------------

    \168\ See Release No. 33-8813 (June 22, 2007) [72 FR 36822].
    \169\ For resales of securities by non-affiliates of the issuer,
current Rule 144 requires a one-year holding period followed by an
additional year when resales are subject to manner of sale
restrictions, volume limitations, current public information
requirements, and notice requirements. Unlimited resales may occur
after the second year.
---------------------------------------------------------------------------

Request for Comment
     The Commission seeks comment as to whether Regulation D
should be amended so that securities sold in reliance on Rule
504(b)(1)(iii) pursuant to a state law exemption that permits sales
only to accredited investors would be subject to the limitations on
resale in Rule 502(d) and, as such, be deemed ``restricted securities''
for purposes of Rule 144.\170\
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    \170\ We envision that any such amendment would not affect the
resale status of securities sold under the exemptions in Rules
504(b)(1)(i) and 504(b)(1)(ii), which exempt certain offerings of
securities that are registered under a state securities law that
requires the public filing and delivery of a disclosure document to
investors before sale. As such, the resale limitations of Rule
502(d) would continue not to apply to securities sold in
transactions that are exempted by those rules and those securities
would not be ``restricted securities'' for purposes of Rule 144.
---------------------------------------------------------------------------

     If Regulation D were amended to make securities issued
under Rule 504(b)(1)(iii) ``restricted securities,'' would the
amendment impose a significant burden on start-up and other smaller
companies? If you believe so, please explain your reasons, given the
resale restrictions typically required under state securities law
exemptions. Do any states have resale restrictions that are narrower
than would apply to ``restricted securities''?

E. Other Proposed Conforming Revisions

1. Proposed Amendments to Rule 215
    We propose to amend Rule 215 to conform the definition of
``accredited investor'' in Rule 215 with the definition in Rule 501(a)
of Regulation D. Rule 215 defines accredited investor under Section
2(a)(15) of the Securities Act \171\ for purposes of Section 4(6) of
the Securities Act and would track the proposed definition in Rule
501(a) of Regulation D.
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    \171\ 15 U.S.C. 77b(a)(15).
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2. Proposed Amendment to Rule 144A
    Rule 144A currently provides a safe harbor under Section 5 of the
Securities Act for offers and resales of securities to a qualified
institutional buyer or to an offeree or purchaser that the seller and
any person acting on the seller's behalf reasonably believe is a
qualified institutional buyer. A general announcement of an offering
published by an issuer in accordance with Rule 507 may be deemed
inconsistent with the requirement under Rule 144A that offers be made
solely to such persons. As a result, we propose to add a Preliminary
Note 8 to Rule 144A to clarify that publication of a general
announcement of an offering in accordance with Rule 507 would not
preclude resales pursuant to Rule 144A.
Request for Comment
     As proposed, Preliminary Note 8 to Rule 144A would not
make any distinctions based on the type of security that is being
offered pursuant to Rule 507. Should the Preliminary Note only apply to
debt securities, as opposed to equity, because debt securities are more
likely to be sold to institutional investors?
3. Delegated Authority
    Under Rule 30-1,\172\ the Commission has delegated to the Director
of the Division of Corporation Finance the authority to grant
applications for exemptions to the disqualification provisions under
Regulation A and Rule 505. As we are proposing to include
disqualification provisions for all Regulation D offerings, we propose
to revise Rule 30-1(c) to delegate authority to the Director of the
Division of Corporation Finance to grant applications for exemptions to
the disqualification provisions of Regulation D.
---------------------------------------------------------------------------

    \172\ 17 CFR 200.30-1(b)(1), 200.30-1(c).
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III. General Request for Comment

    The Commission is proposing these revisions. We welcome your
comments. We solicit comment, both specific and general, on each
component of the proposals. We request and encourage any interested
person to submit comments regarding:
     The proposals that are the subject of this release;

     Additional or different revisions to Regulation D; and
     Other matters that may have an effect on the proposals
contained in this release.
    In December 2006, the Commission proposed to add a new category of
accredited investor, defined as accredited natural person, under the
Securities Act.\173\ We are taking the opportunity to solicit further
comment on the questions we asked in connection with that proposal,
especially in light of the new proposals in this release. Are there any
differences in the regulation of operating and private pooled
investment vehicles that we should consider in crafting harmonious
rules for limited offerings? Finally, we solicit comment on whether any
additional conforming amendments are necessary.
---------------------------------------------------------------------------

    \173\ See Private Pooled Investment Vehicle Release.
---------------------------------------------------------------------------

    Comment is solicited from the point of view of both issuers and
investors, as well as of capital formation facilitators, such as
broker-dealers, and other regulatory bodies, such as state securities
regulators. Any interested person wishing to submit written comments on
any aspect of the proposal is requested to do so.

IV. Paperwork Reduction Act

    The proposals contain ``collection of information'' requirements
within the meaning of the Paperwork Reduction Act of 1995.\174\ The
title of these requirements is:
---------------------------------------------------------------------------

    \174\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

     ``Form D'' (OMB Control No. 3235-0076).\175\
---------------------------------------------------------------------------

    \175\ Form D was adopted pursuant to Sections 2(a)(15), 3(b),
4(2), 19(a) and 19(c)(3) of the Securities Act (15 U.S.C. 77b(15),
77c(b), 77d(2), 77s(a) and 77s(c)(3)).
---------------------------------------------------------------------------

    We adopted Regulation D and Form D as part of the establishment of
a series of exemptions for offerings and sales of securities under the
Securities Act.\176\ We are submitting these requirements to the Office
of Management and Budget (``OMB'') for review and approval in
accordance with the Paperwork Reduction Act and its implementing
regulations.\177\
    We propose to make changes in four principal areas involving
Regulation D, as well as to make other conforming changes, relating to:
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    \176\ In a companion release, Release No. 33-8814, we are
proposing changes to Form D that would require that Form D be filed
electronically. If Form D is required to be filed electronically,
filers will be required to file Form ID in order to be able to file
electronically. If the proposal to require electronic Form D is
adopted, any increase in the number of companies filing Form D will
result in an increase in the number of Form ID filings.
    \177\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

     Creating a new exemption from the registration provisions
of the Securities Act for offers and sales of covered securities to
``large accredited investors'';
     Revising the definition of the term ``accredited
investor'' to clarify it and reflect developments since its adoption;
     Shortening the timing required by the integration safe
harbor for Regulation D offerings; and
     Providing uniform disqualification provisions to apply
throughout Regulation D.\178\
---------------------------------------------------------------------------

    \178\ Currently under Regulation D, only Rule 505 offerings are
subject to disqualification provisions. The proposal would subject
issuers making any offering in reliance on Regulation D to similar
disqualification provisions.
---------------------------------------------------------------------------

We also are soliciting comment on whether to amend Rule 504 of
Regulation D so that securities sold pursuant to a state law exemption
that permits sales only to accredited investors would be deemed
``restricted securities'' for purposes of Rule 144.

    The information collection requirements related to the filing with
the Commission of Form D are mandatory to the extent that an issuer
elects to make an offering of securities in reliance on the relevant
exemption. Responses are not confidential. The hours and costs
associated with preparing and filing forms and retaining records
constitute reporting and cost burdens imposed by the collection of
information requirements. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
requirement unless it displays a currently valid OMB control number.

A. Summary of Information Collections

    Form D contains collection of information requirements, requiring
an issuer to file a notice of sale of securities pursuant to Regulation
D or Section 4(6) of the Securities Act. The Form D is required to
include basic information about the type of filing, the issuer, certain
related persons, and the offering. Form D is filed by issuers as a
notice of sales without registration under the Securities Act based on
a claim of exemption under Regulation D or Section 4(6) of the
Securities Act. The information is needed for implementing the
exemptions and monitoring their use.
    We propose to amend Form D to add a check box to indicate an
offering relying on the proposed Rule 507 exemption. We do not believe
the proposed change will have any effect on the paperwork burden of the
form. However, we believe the overall effect of the proposals will be
to increase the number of forms that are filed with the Commission.
While we anticipate an increase in the number of filings, we believe
that most issuers that are seeking capital in the private equity
markets would do so even without the proposed amendments. We believe
the following proposals are likely to increase the number of exempt
offerings and therefore the number of forms filed:
     The proposal to create a new exemption from the
registration provisions of the Securities Act for offers and sales to
large accredited investors permitting limited advertising, providing
issuers a new option for offering securities;
     The proposals to clarify the definition of accredited
investor will slightly increase the pool of accredited investors and,
due to the increased pool of investors, is likely to marginally
increase the number of offerings to those investors; \179\ and
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    \179\ We propose to add an ``investments-owned'' standard to the
current standards under accredited investor. We anticipate that will
increase the pool of accredited investors from 8.47 percent of U.S.
households to 8.69 percent of U.S. households. See n. 90. Most of
the additional clarification supports current staff positions on who
may qualify as an accredited investor and should not significantly
affect the size of the investor pool, though it may increase
awareness among those groups of their ability to qualify.
---------------------------------------------------------------------------

     The proposal to shorten the timing of the integration safe
harbor will allow issuers to conduct more frequent offerings using the
safe harbor.\180\
---------------------------------------------------------------------------

    \180\ We anticipate the reduction in the safe harbor waiting
period will increase the number of Forms D filed, but do not believe
it will increase the number of Forms ID filed, as any increase in
Forms D will be from repeat filers.

On the other hand, some of our proposals are likely to decrease the
---------------------------------------------------------------------------
number of exempt offerings and therefore the number of forms filed:

     The proposal to revise the disqualification provisions
applicable to Rule 505 and apply those provisions to all offerings
relying on Regulation D may have the effect of reducing the number of
forms filed.\181\
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    \181\ We believe that very few issuers will be subject to the
disqualification provisions and expect the number of Forms D filed
will be minimally affected. We believe the revisions are necessary
in order to exclude a small number of recidivists who have been
found by regulators and courts to have violated applicable laws and
regulations.
---------------------------------------------------------------------------

     The proposal to require for the determination of
accredited investors status that an individual may count only 50
percent of any joint investments with their spouse unless both persons
sign the investment documentation may reduce the pool of accredited
investors where spouses decide not to invest together.

     To the extent that an amendment to revise Rule 504 to
treat securities sold pursuant to a state law exemption that permits
sales only to accredited investors as ``restricted securities'' for
purposes of Rule 144 may result in potentially greater limitation on
resale than may exist under state securities laws, this could have the
effect of slightly reducing the number of forms filed.

B. Paperwork Reduction Act Burden Estimates

    According to our Office of Filings and Information Services, in
2006, 16,829 companies made 25,329 Form D filings. The annual number of
Form D filings rose from 17,390 in 2002 to 25,239 in 2006 for an
average increase of approximately 2,000 Form D filings per year.
Assuming the number of Form D filings continues to increase by 2,000
filings per year for each of the next three years, the average number
of Form D filings in each of the next three years would be about
29,300.\182\
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    \182\ Our current OMB information collection estimate indicates
that we expect 17,480 Form D filings per year. In conjunction with
the Private Pooled Investment Vehicle Release, OMB revised the Form
D information collection estimates to reflect an expected decrease
in responses from 17,500 Form D filings to 17,480. However, based on
the new data, we are increasing our estimated number of Form D
filings.
---------------------------------------------------------------------------

    As described above, we estimate that our proposals, if adopted,
would have mixed effects on the number of Forms D filed with the
Commission. Use of the new exemption, the shortened delay for the
Regulation D safe harbor, and the slight increase in the pool of
accredited investors due to the revised accredited investor definition
likely would raise the number of Forms D filed. The utility of the
established exemptions, particularly Rule 506, makes large numbers of
Regulation D-exempt offerings that otherwise would not have been filed
unlikely. In addition, the new disqualification provisions, some
aspects of the revised definition of accredited investor, and the
possible revisions to Rule 504 may slightly lower the number of
filings.
    We estimate that if the proposed rules are adopted, the burden for
responding to the collection of information in Form D would not
increase for most companies because the information required in the
form would not change. Balancing the increasing and decreasing effects
of the proposals, for purposes of the Paperwork Reduction Act, we
estimate an annual increase in the number of Form D filings of five
percent, or approximately 1,500 filings.\183\
---------------------------------------------------------------------------

    \183\ To arrive at this estimate, we multiplied the number of
Form D filings estimated per year (29,300) by 5 percent and rounded
up to the nearest 100.
---------------------------------------------------------------------------

    For purposes of the Paperwork Reduction Act, we estimate that, over
a three-year period, the average burden estimate will be four hours per
Form D. This burden is reflected as a one-hour burden of preparation on
the company and a cost of $1,200 per filing. Our burden estimates
represent the average burden for all issuers. We expect that the burden
and costs could be greater for larger issuers and lower for smaller
issuers. For Form D notices, we estimate that 25 percent of the burden
of preparation is carried by the company internally and that 75 percent
of the burden of preparation is carried by outside professionals
retained by the issuer at an average cost of $400 per hour.\184\ The
portion of the burden carried by outside professionals is reflected as
a cost, while the portion of the burden carried by the company
internally is reflected in hours. We estimate the proposals will
incrementally increase the number of Form D filings and therefore the
filing burden by 1,500 hours of company personnel time and $1,800,000.
Based on this increase, we estimate that the annual compliance burden
in the proposed collection of information requirements in hours for
issuers making Form D filings will be an aggregate 30,800 hours of
company personnel time and $36,960,000 for the services of outside
professionals per year.
---------------------------------------------------------------------------

    \184\ The hourly cost estimate is based on our consultations
with several registrants and law firms and other persons who
regularly assist registrants in preparing and filing with the
Commission.
---------------------------------------------------------------------------

    We request comment on the accuracy of our estimates. Pursuant to 44
U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i) Evaluate
whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (ii) evaluate the accuracy
of the Commission's estimate of burden of the proposed collection of
information; (iii) determine whether there are ways to enhance the
quality, utility, and clarity of the information to be collected; and
(iv) evaluate whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
    Persons submitting comments on the collection of information
requirements should direct the comments to the Office of Management and
Budget, Attention: Desk Officer for the Securities and Exchange
Commission, Office of Information and Regulatory Affairs, Washington,
DC 20503, and should send a copy to Nancy M. Morris, Secretary,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090, with reference to File No. [S7-18-07]. Requests for
materials submitted to OMB by the Commission with regard to these
collections of information should be in writing, refer to File No. [S7-
18-07], and be submitted to the Securities and Exchange Commission,
Records Management, Office of Filings and Information Services,
Washington, DC 20549. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this release. Consequently, a comment to OMB is assured of having its
full effect if OMB receives it within 30 days of publication.

C. Paperwork Reduction Act--Accredited Natural Person

    In December 2006, the Commission proposed to add a new category of
accredited investor, defined as accredited natural person, under the
Securities Act.\185\ We do not believe that the additional questions
regarding that proposal on which we solicit comment in this release
change our analysis under the Paperwork Reduction Act provided in the
Private Pooled Investment Vehicle Release. We solicit comment on that
conclusion and on whether our estimates continue to be accurate.
---------------------------------------------------------------------------

    \185\ See Private Pooled Investment Vehicle Release.
---------------------------------------------------------------------------

V. Cost-Benefit Analysis

A. Background and Summary of Proposals

    Adopted in 1982, Regulation D was designed as a comprehensive
scheme for exemptions from the registration provisions of the
Securities Act for smaller companies attempting to sell securities in
private or limited offerings. We are proposing revisions to Regulation
D in order to clarify certain rules and definitions and to add a new
exemption. The proposed changes include:
     Providing issuers a more flexible exemption in proposed
Rule 507 that would allow limited advertising in offerings of covered
securities made exclusively to large accredited investors,

a new category of investor proposed in Rule 501(a);
     Revising the definition of the term ``accredited
investor'' to clarify it and reflect developments since its adoption,
including adding alternative investments-owned standards to the
definition, accounting for future inflation, clarifying the list of
legal entities that may qualify as accredited investors and clarifying
the meaning of ``joint investments'';
     Shortening the timing required by the integration safe
harbor for Regulation D offerings from six months to 90 days; and
     Providing uniform disqualification provisions to apply
throughout Regulation D.
    We also are soliciting comment on whether to amend Rule 504 of
Regulation D so that securities sold pursuant to a State law exemption
that permits sales only to accredited investors would be deemed
``restricted securities'' for purposes of Rule 144.
    We have identified certain costs and benefits that may result from
the proposals. We encourage commenters to identify, discuss, analyze
and supply relevant data regarding these or any additional costs and
benefits.

B. Benefits

    We believe the proposals will benefit investors by providing a new
offering exemption to issuers, clarifying our existing rules and
barring certain recidivists from offering securities in Regulation D
exempt offerings. The benefits discussed are difficult to quantify and
value. Generally, we believe the proposals will reduce the cost of
Regulation D exempt offerings and thereby encourage issuers to
substitute this form of offering for more costly alternatives, thereby
lowering the cost of capital generally. The benefits of the proposals
may include the following:
     Proposed Rule 507 would allow for limited advertising in
offerings made exclusively to large accredited investors. Permitting
limited advertising in an exempt offering would provide issuers more
efficient access to the pool of potential investors and capital. This
may reduce the cost of capital formation by allowing issuers to contact
investors directly, and avoid the need for financial intermediaries to
provide unnecessary costly assistance in the effort to raise capital.
Finally, offerings of covered securities are preempted from state
registration requirements permitting issuers to more readily offer
their securities nationally.
     The proposal to revise the definition of accredited
investor would add alternative investments-owned standards to the
current accredited investor standards. We believe an investments-owned
standard is both easier to establish and a more accurate indicator of
whether an investor needs the protections afforded by registration,
providing issuers a potentially better way of identifying accredited
investors.\186\ We believe the proposed standards would decrease the
cost of establishing accredited investor qualification and slightly
expand the number of accredited investors, thereby increasing the pool
of potential investors and thus potentially benefiting investors by
decreasing the cost of capital.
---------------------------------------------------------------------------

    \186\ If the criteria to determine accredited investor status
are easier to apply, the cost of determining accredited investor
status and the risk of sales to non-accredited investors would
decrease. This would also lower the risk that the issuer may need to
make a rescission offer or that an investor may inappropriately
invest in an offering.
---------------------------------------------------------------------------

     The proposal would revise the accredited investor
thresholds to account for future inflation, to clarify the meaning of
``joint investments'' and to clarify the list of legal entities that
may qualify as accredited investors. Greater clarity in the rule would
generally benefit investors by making the rule easier to apply and
easing regulatory burdens on issuers.
     The proposal to shorten the Regulation D integration safe
harbor from six months to 90 days would provide issuers greater
flexibility to conduct more frequent offerings to meet unpredictable
financing needs. Greater flexibility would allow issuers to better time
their offerings, benefiting investors by potentially lowering the cost
of capital.
     The proposal to establish uniform bad actor
disqualification provisions to apply throughout Regulation D would
preclude certain issuers from relying on Regulation D exemptions. We
believe these disqualification provisions will help to keep recidivists
out of the limited and private offering market. By deterring bad actors
from conducting exempt offerings under Regulation D, we believe we may
reduce fraud in the market, thereby ultimately lowering the cost of
capital.
     An amendment to revise Rule 504 to treat securities sold
pursuant to a state law exemption that permits sales only to accredited
investors as ``restricted securities'' for purposes of Rule 144 would
likely have a deterrent affect on abusive practices, such as ``pump and
dump'' schemes for securities of non-reporting companies that trade
over the counter.

C. Costs

    Our proposals may impose some costs on investors by placing
additional regulatory burdens on issuers. We have estimated for our
Paperwork Reduction Act analysis that the proposals will increase the
number of Form D filings by 1,500, resulting in $2,062,500 in
additional costs relating to the filing of additional Forms D.\187\
Many of the costs are dependent on a number of factors, but may
include:
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    \187\ We estimate that the burden of preparation for the 1,500
additional Form D filings carried by outside professionals will cost
$1,800,000 and an additional 1,500 hours of company personnel time
which we estimate to be valued at $175 per hour.
---------------------------------------------------------------------------

     Proposed Rule 507 would allow limited advertising in an
exempt offering to large accredited investors. If the proposed rule is
successful, issuers may substitute Rule 507 offerings for registered
offerings, resulting in investors losing some of the informational and
enforcement benefits of federal securities registration. Investors in
the covered securities to be offered under Rule 507 in lieu of
registered offerings also may incur costs due to the lost benefits of
state registration and oversight.
     We expect that the majority of Rule 507 offerings would be
undertaken by issuers in lieu of Rule 506 offerings, since all large
accredited investors eligible to participate in Rule 507 offerings also
would be eligible to participate in Rule 506 offerings. We believe the
informational, enforcement and state registration and oversight
benefits of Rule 507 would be the same as those of Rule 506, with no
difference in costs to investors.
     Proposed Rule 507 may also cause certain issuers to
undertake an offering of securities that they otherwise may not have
undertaken in the absence of the new rule. The costs to conduct a Rule
507 offering, including attorney and accountant fees, as well as the
costs related to limited advertising permissible in Rule 507 offerings,
would be in lieu of the costs of other traditional financing methods,
such as bank loans or the costs of not raising additional capital.
     If there is an increase in fraudulent activity through the
limited advertising and solicitation allowed under proposed Rule 507,
such activity could discourage the use of the exemption and other
Regulation D exemptions generally, and thereby have the unintended
consequences of increasing the cost of capital formation above what
would occur in the absence of the rule amendment.

     The proposal to account for future inflation in the
definition of accredited investor would limit the growth and could
shrink the pool of accredited investors, imposing costs on investors by
increasing issuers' cost of capital relative to what would occur in the
absence of the rule amendment.
     The proposal to establish uniform disqualification
provisions to apply throughout Regulation D may disqualify certain
issuers from undertaking Regulation D exempt offerings relative to what
would occur without the rule amendment. The application of the proposed
disqualification provisions would add an additional cost to offerings
for investigations in order to determine whether any of the
participants in the offering will cause the issuer to be
disqualified.\188\ In addition, a disqualified issuer would not have
access to Regulation D, which would likely impose costs on investors by
increasing the cost of raising capital for the issuer.
---------------------------------------------------------------------------

    \188\ Under the current rules, disqualification provisions are
included in Rule 505, but do not apply to Rule 504 or Rule 506. As
proposed, the new disqualification provisions would apply to all
Regulation D exemptions. Therefore, new costs would apply to
offerings under Rules 504, 506 and 507. Costs would likely decrease
for Rule 505 offerings, since the proposed disqualification
provisions would not include ``underwriters,'' which are currently
included in the Rule 505 disqualification provisions.
---------------------------------------------------------------------------

     An amendment to revise Rule 504 to treat securities sold
pursuant to a state law exemption that permits sales only to accredited
investors as ``restricted securities'' for purposes of Rule 144 could
result in potentially greater limitations on resale than may exist
under state securities laws.

D. Request for Comment

    We solicit comments on the costs and benefits of the proposed
revisions. We request your views on the costs and benefits described
above, as well as on any other costs and benefits that could result
from the adoption of these proposals. We encourage commenters to
identify, discuss, analyze, and supply relevant data regarding these or
any additional costs and benefits. Specifically, we ask the following:
     What are the costs and benefits of limited advertising and
greater flexibility in the proposed Rule 507 exemption?
     What are the nature and extent of the costs and benefits
to investors that would result from amending the accredited investor
standards as proposed? Are there costs to accredited investors relating
to the application of the investments-owned standard?
     What are the costs and benefits of the shortened 90-day
integration safe harbor?
     What are the costs and benefits of the disqualification
provisions we propose for Regulation D?
     What would be the costs and benefits if we revised Rule
504 to treat securities sold pursuant to a state law exemption that
permits sales only to accredited investors as ``restricted securities''
for purposes of Rule 144?
    In general, we request comment on all aspects of this cost-benefit
analysis, including identification of any additional costs or benefits
of the proposals not already defined, that may result from the adoption
of these proposed amendments and rules. We generally request comment on
the competitive benefits or anticompetitive effects that may impact any
market participants if the proposals are adopted as proposed. We also
request comment on what impact the proposals, if adopted, would have on
efficiency and capital formation. Commenters are requested to provide
empirical data and other factual support for their views to the extent
possible.

E. Accredited Natural Person

    In December 2006, the Commission proposed to add a new category of
accredited investor, defined as accredited natural person, under the
Securities Act.\189\ We do not believe that the additional questions
regarding that proposal on which we solicit comment in this release
change the cost-benefit analysis we provided in connection with that
proposal. We solicit comment on that conclusion. For example, would
changing the thresholds on who can invest materially affect investors
in or issuers of pooled investment vehicles? We also welcome further
comments on all aspects of that analysis.
---------------------------------------------------------------------------

    \189\ See Private Pooled Investment Vehicle Release.
---------------------------------------------------------------------------

VI. Consideration of Burden on Competition and Promotion of Efficiency,
Competition and Capital Formation

A. General

    Section 2(b) of the Securities Act \190\ requires us, when engaging
in rulemaking where we are required to consider or determine whether an
action is necessary or appropriate in the public interest, to consider,
in addition to the protection of investors, whether the action will
promote efficiency, competition, and capital formation. The proposals
are intended to modernize and streamline Regulation D without
compromising investor protection.
---------------------------------------------------------------------------

    \190\ 15 U.S.C. 77b(b).
---------------------------------------------------------------------------

    We do not believe most of the proposals will place a significant
burden on or otherwise affect competition. The proposed Rule 507
exemption, the revisions to the definition of accredited investor and
the Regulation D safe harbor would apply equally to all issuers and
should encourage additional Regulation D offerings. The limited
advertising permitted in the proposed Rule 507 exemption may provide
issuers with a competitive alternative to using finders and private
placement agents to locate prospective investors in exempt offerings.
This may help to reduce an issuer's costs of raising capital. The
proposed disqualification provisions may provide a competitive
disadvantage for issuers subject to them, as such issuers would be
required to take appropriate actions to no longer be subject to the
disqualification, seek a waiver or raise capital through a registered
offering rather than use Regulation D. We believe any disadvantage
would be tempered by an issuer's ability to avoid disqualification by
dissociating from the disqualified person or seeking a waiver.
    We believe our proposals may positively affect efficiency and
capital formation. The proposals to provide a new exemption that allows
limited advertising in offerings made exclusively to large accredited
investors and to shorten the time frame of the Regulation D integration
safe harbor should both promote more efficient allocation of resources
and increase capital formation, by allowing issuers greater flexibility
in their choice of the method and timing of their offerings. We believe
the proposals to add alternative investments-owned standards and to
clarify the definition of accredited investors would promote efficiency
by providing clearer guidance on the application of the accredited
investor standard. The proposal to account for future inflation may
reduce the number of accredited investors and add complications when
calculating new accredited investor thresholds in the future, but also
would limit the erosion of the accredited investor threshold over time.
Finally, the application of bad actor disqualification provisions to
all offerings under Regulation D would require issuers to determine
whether executive officers and other related parties would subject the
issuer to the disqualification provisions. Issuers subject to the
disqualification provisions would be able to seek capital through
registered offerings, with their heightened

protections for investors. Although this would add costs to an issuer's
capital formation, we believe this provision would serve more generally
to promote capital formation by providing additional investor
protection and inspiring greater confidence in the private equity
markets.
    We are soliciting comment on whether to amend Rule 504 so that
securities sold pursuant to a state law exemption that permits sales
only to accredited investors would be deemed ``restricted securities''
for purposes of Rule 144. Given the resale restrictions typically
required under state securities law exemptions, if this amendment were
adopted, we do not believe it would have a material affect on issuers'
ability to raise capital.
    We request comment on whether the proposed amendments, if adopted,
would promote or burden efficiency, competition and capital formation.
Finally, we request commenters to provide empirical data and other
factual support for their views if possible. We believe adoption of the
proposed revisions to Regulation D would have a minor impact on
competition, and would have a positive impact on the efficiency of
raising capital and on capital formation.

B. Accredited Natural Person

    In December 2006, the Commission proposed to add a new category of
accredited investor, defined as accredited natural person, under the
Securities Act.\191\ We do not believe that the additional questions
regarding that proposal on which we solicit comment in this release
change our analysis under Section 2(b) of the Securities Act with
respect to that proposal. We solicit comment on that conclusion. For
example, would harmonized definitions increase the efficiency of
limited offerings? Would different investment thresholds affect capital
formation? We also welcome further comments on all aspects of that
analysis.
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    \191\ See Private Pooled Investment Vehicle Release.
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VII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in
accordance with 5 U.S.C. 603. It relates to proposed revisions to
Regulation D under the Securities Act.

A. Reasons for the Proposed Action

    Our objective in this effort is to clarify and modernize our rules
to bring them into line with the realities of modern market practice
and communications technologies without compromising investor
protection. Action in this area also is timely because our Advisory
Committee on Smaller Public Companies made a number of recommendations
relating to private and limited offerings in its final report dated
April 23, 2006. We propose to revise Regulation D to provide additional
flexibility to issuers and to clarify and improve the application of
the rules through:
     Creating a new exemption from the registration provisions
of the Securities Act for offers and sales of covered securities to
``large accredited investors'';
     Revising the definition of the term ``accredited
investor'' to clarify it and reflect developments since its adoption;
     Shortening the timing required by the integration safe
harbor for Regulation D offerings; and
     Providing uniform disqualification provisions to apply
throughout Regulation D.

B. Objectives

    The goal of Regulation D was to facilitate capital formation
consistent with the protection of investors through simplification and
clarification of existing exemptions, expansion of their availability
and greater uniformity between federal and state exemptions. Our
proposals offer revisions that would continue to simplify and clarify
the exemptions and facilitate capital formation for smaller issuers,
while protecting investors.
    We propose to provide issuers with a more flexible safe harbor
exemption in Rule 507 that would allow limited advertising in offerings
made exclusively to large accredited investors. Proposed Rule 507 would
permit issuers to publish a limited announcement of their offering,
thereby providing issuers with greater access to potential investors
and reducing their costs of raising capital. We also propose to adjust
the definition of accredited investor:
     To add alternative investments-owned standards along with
the current total asset and net worth standards, because an
investments-owned standard may be easier to use and may provide a more
accurate method to assess an investor's need for the protections of
registration under the Securities Act;
     To adjust the dollar-amount thresholds in Rule 501 to
account for inflation so that the thresholds will not erode over time;
     To clarify the list of legal entities that may qualify as
accredited investors to eliminate existing uncertainty regarding the
list;
     To clarify under the definition of ``joint investments''
that only 50 percent of the assets held jointly by spouses should be
used in determining an individual's accredited investor status.

    In addition, we propose to shorten the Regulation D integration
safe harbor from six months to 90 days to provide flexibility to
issuers to meet financing needs, which often are unpredictable.
Finally, we propose that certain issuers be precluded from relying on
Regulation D if they are subject to the disqualification provisions in
proposed Rule 502(e). We believe these disqualification provisions will
serve to guard against fraud in exempt offerings and improve the
market's perceptions of these offerings, thereby reducing the cost of
capital.
    We are soliciting comment on whether to amend Rule 504 so that
securities sold pursuant to a state law exemption that permits sales
only to accredited investors would be deemed ``restricted securities''
for purposes of Rule 144. Given that Rule 504 issuers tend to be small
entities, this amendment would affect small entities, to the extent
that Rule 144 restrictions would be greater than current state law
restrictions.

C. Legal Basis

    The amendments are being proposed under the authority set forth in
Sections 2(a)(15), 3(b), 4(2), 4(6), 18, 19, and 28 of the Securities
Act.

D. Small Entities Subject to the Proposed Rules

    The proposals would affect issuers that are small entities. For
purposes of the Regulatory Flexibility Act under our rules, an issuer
is a ``small business'' or ``small organization'' if it has total
assets of $5 million or less as of the end of its most recent fiscal
year.\192\ For purposes of the Regulatory Flexibility Act, an
investment company is a small entity if it, together with other
investment companies in the same group of related investment companies,
has net assets of $50 million or less as of the end of its most recent
fiscal year. The proposed amendments would apply to all issuers that
rely on Regulation D for an exemption to Securities Act registration.
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    \192\ 17 CFR 230.157.
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    All issuers that offer securities in reliance on Regulation D must
file a Form D with the Commission. However, the vast majority of
companies filing Form D are not required to provide financial reports
to the Commission. As previously noted, in 2006, 16,829 issuers filed
Form D. We believe that many of these issuers are small entities,

but we currently do not collect information on total assets to
determine if they are small entities for purposes of this analysis.

E. Reporting, Recordkeeping and Other Compliance Requirements

    None of our proposed revisions to Regulation D would increase in
any material way the information or time required to complete the Form
D that must be filed with the Commission in connection with a
Regulation D transaction. Our proposed revisions would also not require
any further disclosure than is currently required in offerings made in
reliance on Regulation D, other than requiring each issuer submitting a
Form D to certify that it is not disqualified from relying on
Regulation D for one of the reasons stated in proposed Rule
502(e).\193\
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    \193\ In a companion release, we are proposing this change to
Form D. See Release No. 33-8814 (June 29, 2007) [72 FR 37376].
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    Proposed Rule 507 would permit an issuer to publish a limited
advertisement and to solicit large accredited investors. The
limitations of the advertisement are detailed in Rule 507(b)(2)(ii).
The exemption builds on the accredited investor definition in
Regulation D, requiring that an issuer evaluate whether investors meet
the large accredited investor eligibility requirements. The same
systems and procedures an issuer would use to determine accredited
investor eligibility would be required to determine large accredited
investor eligibility. Issuers may need to establish new procedures if
they intend to make an offering on their own and relied on financial
intermediaries to establish the procedures in the past.
    Proposed Rule 502(e), establishing uniform disqualification
provisions throughout Regulation D, would require issuers to determine
whether the issuer, any predecessor of the issuer, any affiliated
issuer, any director, executive officer, general partner or managing
member of the issuer, any beneficial owner of 20 percent or more of any
class of its equity securities, or any promoter currently connected
with the issuer is subject to any of the disqualification provisions.

F. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no rules that conflict with or duplicate
the proposed rules.

G. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objective of our
proposals, while minimizing any significant adverse impact on small
entities. In connection with the proposed amendments and rules, we
considered the following alternatives:
     The establishment of different compliance or reporting
requirements or timetables that take into account the resources
available to small entities;
     The clarification, consolidation, or simplification of the
rule's compliance and reporting requirements for small entities;
     The use of performance rather than design standards; and
     An exemption from coverage of the proposed rules, or any
part thereof, for small entities.
    Regulation D provides exemptions to the registration requirements
under the Securities Act. The proposed amendments to Regulation D would
apply equally to all issuers that rely upon these exemptions. The
regulation is designed to facilitate access to capital by providing
exemptions to registration under the Securities Act. These exemptions
allow issuers to raise capital without having to expend the time and
resources necessary to undertake a registered public offering. Our
proposals are intended to further the goals of Regulation D through
simplification and clarification of the exemptions, expansion of their
availability and by providing greater uniformity between federal and
state exemptions.
    With respect to the establishment of special compliance
requirements or timetables under the proposals for small entities, we
do not think this is feasible or appropriate. Our proposals are
designed to further facilitate issuers' access to capital for both
large and small issuers. Excepting small entities from our proposals
would increase, rather than decrease, their regulatory burden.
Nevertheless, we request comment on whether it is feasible or
appropriate for small entities to have special requirements or
timetables for compliance with our proposals.
    With respect to clarification, consolidation and simplification of
Regulation D's compliance and reporting requirements for small
entities, we believe our proposals are designed to streamline and
modernize Regulation D for all issuers, both large and small.
Nevertheless, we request comment on ways to clarify, consolidate, or
simplify any part of the proposed amendments and rules.
    With respect to the use of performance or design standards, we do
not consider using performance rather than design standards to be
consistent with our statutory mandate of investor protection in the
present context. Because the proposed rules seek compliance with
specific standards without seeking to achieve pre-determined levels of
capital formation or offering activity, design standards are necessary
to achieve the objective of the proposals. Nevertheless, we request
comment on these matters.
    With respect to exempting small entities from coverage of these
proposed rules, we believe such changes would be impracticable. These
proposed rules are designed to facilitate an issuer's access to
capital, regardless of the size of the issuer. We have endeavored
throughout these proposed amendments and rules to minimize the
regulatory burden on all issuers, including small entities, while
meeting our regulatory objectives. Nevertheless, we request comment on
ways in which we could exempt small entities from coverage of any
unduly onerous aspects of our proposed amendments and rules.

H. Request for Comment

    We encourage comments with respect to any aspect of this initial
regulatory flexibility analysis. In particular, we request comments
regarding:
     The number of small entities that may be affected by the
proposals;
     The existence or nature of the potential impact of the
proposals on small entities discussed in the analysis; and
     How to quantify the impact of the proposed rules.

Commenters are asked to describe the nature of any impact and provide
empirical data supporting the extent of the impact. Such comments will
be considered in the preparation of the final regulatory flexibility
analysis, if the proposals are adopted, and will be placed in the same
public file as comments on the proposed amendments themselves.

I. Accredited Natural Person

    In December 2006, the Commission proposed to add a new category of
accredited investor, defined as accredited natural person, under the
Securities Act.\194\ We do not believe that the additional questions
regarding that proposal on which we solicit comment in this release
change our Initial Regulatory Flexibility Analysis provided on that
proposal. We solicit comment on that conclusion and welcome further
comments on all aspects of that analysis.
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    \194\ See Private Pooled Investment Vehicle Release.

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VIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\195\ a rule is ``major'' if it has resulted, or is likely
to result in:
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    \195\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
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     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment or
innovation.
    We request comment on whether our proposals would be a ``major
rule'' for purposes of SBREFA. We solicit comment and empirical data
on:
     The potential effect on the U.S. economy on an annual
basis;
     Any potential increase in costs or prices for consumers or
individual industries; and
     Any potential effect on competition, investment or
innovation.

IX. Statutory Basis and Text of Proposed Amendments

    The amendments are being proposed under the authority set forth in
Sections 2(a)(15), 3(b), 4(2), 4(6), 18, 19 and 28 of the Securities
Act, as amended.

Text of Proposed Amendments

List of Subjects

17 CFR Part 200

    Authority delegations (Government agencies).

17 CFR Part 230 and 239

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, Title 17, Chapter II of the Code
of Federal Regulations is proposed to be amended as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

    1. The authority citation for part 200, Subpart A, continues to
read, in part, as follows:

    Authority: 15 U.S.C. 77o, 77s, 77sss, 78d, 78d-1, 78d-2, 78w,
78ll(d), 78mm, 80a-37, 80b-11, and 7202, unless otherwise noted.
* * * * *
    2. Amend Sec.  200.30-1 by revising paragraph (c) to read as
follows:

Sec.  200.30-1  Delegation of authority to Director of Division of
Corporation Finance.

* * * * *
    (c) With respect to the Securities Act of 1933 (15 U.S.C. 77a et
seq.) and Regulation D thereunder (Sec.  230.501 et seq. of this
chapter), to authorize the granting of applications under Rule
502(e)(2)(ii) (Sec.  230.502(e)(2)(ii) of this chapter) upon the
showing of good cause that it is not necessary under the circumstances
that the exemption under Regulation D be denied.
* * * * *

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    3. The authority citation for part 230 continues to read in part as
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r,
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w,
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37,
unless otherwise noted.
* * * * *
    4. Amend Sec.  230.144A by adding Preliminary Note 8 to read as
follows:

Sec.  230.144A  Private resales of securities to institutions.

* * * * *
    8. The publication of a general announcement of an offering in
accordance with Rule 507 (17 CFR 230.507) would not preclude resales
pursuant to Rule 144A.
* * * * *
    5. Amend Sec.  230.146 by adding paragraph (c) to read as follows:

Sec.  230.146  Rules under section 18 of the Act.

* * * * *
    (c) Definition of Qualified Purchaser. For purposes of Section
18(b)(3) of the Act (15 U.S.C. 77r(b)(3)), the term ``qualified
purchaser'' shall mean any large accredited investor as defined in
Sec.  230.501(k) with respect to an offer or sale in compliance with
Sec.  230.507, but this paragraph does not prohibit a state from
imposing notice filing requirements that are substantially similar to
those imposed by the Commission for transactions with such investors.
    6. Revise Sec.  230.215 to read as follows:

Sec.  230.215  Accredited investor.

    The term accredited investor as used in section 2(a)(15)(ii) of the
Securities Act of 1933 (15 U.S.C. 77b(a)(15)(ii)) shall include the
following persons:
    (a) Any bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
section 2(a)(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or business development company as
defined in section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000 or investments in excess of $5,000,000
(each as adjusted for inflation in accordance with the Note to this
Sec.  230.215); or any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of
such statute, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or investments in
excess of $5,000,000 (each as adjusted for inflation in accordance with
the Note to this Sec.  230.215) or, if a self-directed plan, with
investment decisions made solely by persons that are accredited
investors;
    (b) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
    (c) Any corporation (including any non-profit corporation),
Massachusetts or similar business trust, partnership, limited liability
company, Indian tribe, labor union, governmental body, or other legal
entity with substantially similar legal attributes, not formed for the
specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000 or investments in excess of $5,000,000 (each as
adjusted for inflation in accordance with the Note to this Sec.
230.215);
    (d) Any director, executive officer, general partner, or managing
member of the issuer of the securities being offered or sold, or any
director, executive officer, general partner, or managing member of a
general partner or managing member of that issuer;
    (e) Any natural person whose individual net worth, or aggregate net
worth with that person's spouse, at the time of purchase exceeds
$1,000,000 or whose individual investments, or joint investments with
that person's spouse, at the time of purchase exceeds $750,000 (each as
adjusted for inflation in accordance with the Note to this Sec.
230.215);
    (f) Any natural person who had an individual income in excess of
$200,000

in each of the two most recent years or aggregate income with that
person's spouse in excess of $300,000 in each of those years (each as
adjusted for inflation in accordance with the Note to this Sec.
230.215) and has a reasonable expectation of reaching the same income
level in the current year;
    (g) Any trust, with total assets in excess of $5,000,000 or
investments in excess of $5,000,000 (each as adjusted for inflation in
accordance with the Note to this Sec.  230.215), not formed for the
specific purpose of acquiring the securities offered, whose purchase is
directed by a sophisticated person as described in Rule 506(b)(2)(ii);
and
    (h) Any entity in which all of the equity owners are accredited
investors.

    Note to Sec.  230.215: The dollar amounts of the accredited
investor thresholds as set forth in paragraphs (a), (c), (e), (f)
and (g) of this section shall be adjusted for inflation every five
years, with the first adjustments effective July 1, 2012, by
appropriate publication by the Commission in the Federal Register.
The inflation adjustments shall be computed by: Dividing the annual
value of the Personal Consumption Expenditures Chain-Type Price
Index (or any successor index thereto), as published by the
Department of Commerce, for the calendar year preceding the calendar
year in which the adjustment is being made by the annual value of
such index (or successor) for the calendar year ending December 31,
2006; and multiplying the dollar amounts by the quotient obtained.
The adjusted dollar amounts shall be rounded to the nearest multiple
of $10,000.

    Instruction to Sec.  230.215: All terms used in the definition of
``accredited investor'' shall have the meaning indicated in Sec.
230.501.
    7. The general authority citation for Part 230, Regulation D--Rules
Governing the Limited Offer and Sale of Securities Without Registration
Under the Securities Act of 1933 is revised to read as follows:

Regulation D--Rules Governing the Limited Offer and Sale of Securities
Without Registration Under the Securities Act of 1933

    Authority: Section 230.501 to 230.508 issued under 15 U.S.C.
77c, 77d, 77r, 77s, and 77z-3.
* * * * *

Sec. Sec.  230.501 through 230.508  [Amended]

    8. Amend Preliminary Note 2 to Regulation D, consisting of
Sec. Sec.  230.501 through 230.508, by revising the reference to
``19(c)'' to read ``19(d)''.
    9. Amend Sec.  230.501 by:
    a. Revising paragraph (a).
    b. Redesignating paragraphs (g) and (h) as paragraphs (i) and (l).
    c. Revising the reference in newly redesignated paragraph
(l)(1)(ii) that reads ``(h)(1)(i) or (h)(1)(iii)'' to read ``(l)(1)(i)
or (l)(1)(iii)''.
    d. Revising the reference in newly redesignated paragraph
(l)(1)(iii) that reads ``(h)(1)(i) or (h)(1)(ii)'' to read ``(l)(1)(i)
or (l)(1)(ii)''.
    e. Revising the reference in Note 2 to newly redesignated paragraph
(l) that reads ``paragraph (h)(3) and the disclosure required by
paragraph (h)(4)'' to read ``paragraph (l)(3) and the disclosure
required by paragraph (l)(4)''.
    f. Adding new paragraphs (g), (h), (j) and (k).
    The revisions and additions read as follows:

Sec.  230.501  Definitions and terms used in Regulation D.

* * * * *
    (a) Accredited investor. ``Accredited investor'' shall mean any
person who comes within any of the following categories, or who the
issuer reasonably believes comes within any of the following
categories, at the time of the sale of the securities to that person:
    (1) Any bank as defined in section 3(a)(2) of the Act, or any
savings and loan association or other institution as defined in section
3(a)(5)(A) of the Act, whether acting in its individual or fiduciary
capacity; any broker or dealer registered pursuant to section 15 of the
Securities Exchange Act of 1934; any insurance company as defined in
section 2(a)(13) of the Act; any investment company registered under
the Investment Company Act of 1940 or business development company as
defined in section 2(a)(48) of that Act; any Small Business Investment
Company licensed by the U.S. Small Business Administration under
section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a state, its political subdivisions,
or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, if such plan has total
assets in excess of $5,000,000 or investments in excess of $5,000,000
(each as adjusted for inflation in accordance with the Note to
paragraph (a)); or any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in section 3(21) of
such statute, which is either a bank, savings and loan association,
insurance company, or registered investment adviser, or if the employee
benefit plan has total assets in excess of $5,000,000 or investments in
excess of $5,000,000 (each as adjusted for inflation in accordance with
the Note to paragraph (a)) or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
    (2) Any private business development company as defined in section
202(a)(22) of the Investment Advisers Act of 1940;
    (3) Any corporation (including any non-profit corporation),
Massachusetts or similar business trust, partnership, limited liability
company, Indian tribe, labor union, governmental body, or other legal
entity with substantially similar legal attributes, not formed for the
specific purpose of acquiring the securities offered, with total assets
in excess of $5,000,000 or investments in excess of $5,000,000 (each as
adjusted for inflation in accordance with the Note to paragraph (a));
    (4) Any director, executive officer, general partner, or managing
member of the issuer of the securities being offered or sold, or any
director, executive officer, general partner, or managing member of a
general partner or managing member of that issuer;
    (5) Any natural person whose individual net worth, or aggregate net
worth with that person's spouse, at the time of purchase exceeds
$1,000,000 or whose individual investments, or joint investments with
that person's spouse, at the time of purchase exceeds $750,000 (each as
adjusted for inflation in accordance with the Note to paragraph (a));
    (6) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or aggregate income with
that person's spouse in excess of $300,000 in each of those years (each
as adjusted for inflation in accordance with the Note to paragraph (a))
and has a reasonable expectation of reaching the same income level in
the current year;
    (7) Any trust, with total assets in excess of $5,000,000 or
investments in excess of $5,000,000 (each as adjusted for inflation in
accordance with the Note to paragraph (a)), not formed for the specific
purpose of acquiring the securities offered, whose purchase is directed
by a sophisticated person as described in Rule 506(b)(2)(ii); and
    (8) Any entity in which all of the equity owners are accredited
investors.

    Note to paragraph (a): The dollar amounts of the accredited
investor thresholds as set forth in paragraphs (a)(1), (a)(3),
(a)(5), (a)(6) and (a)(7) of this section and the large accredited
investor thresholds as set forth in paragraphs (k)(1) through (k)(3)
of this section shall be adjusted for inflation every five years,
with the first adjustments effective July 1, 2012, by appropriate
publication by the Commission in the Federal Register. The inflation
adjustments shall be computed by: Dividing the annual value of the
Personal

Consumption Expenditures Chain-Type Price Index (or any successor
index thereto), as published by the Department of Commerce, for the
calendar year preceding the calendar year in which the adjustment is
being made by the annual value of such index (or successor) for the
calendar year ending December 31, 2006; and multiplying the dollar
amounts by the quotient obtained. The adjusted dollar amounts shall
be rounded to the nearest multiple of $10,000.

* * * * *
    (g) Governmental body. ``Governmental body'' shall mean any:
    (1) Nation, state, county, town, village, district or other
jurisdiction of any nature;
    (2) Federal, State, local, municipal, foreign or other government;
    (3) Governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official or
entity and any court or other tribunal);
    (4) Multi-national organization or body; or
    (5) Body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory or taxing
authority or power of any nature.
    (h) Investments. ``Investments'' shall mean:
    (1) Securities (as defined by section 2(a)(1) of the Act), other
than securities issued by an issuer that is controlled by the
prospective purchaser that owns such securities, unless such issuer is:
    (i) An investment company, as defined in section 3(a) of the
Investment Company Act of 1940 (15 U.S.C. 80a-3(a)), or a company that
would be an investment company under section 3(a) but for the
exclusions from that definition provided by sections 3(c)(1) through
3(c)(9) of the Investment Company Act (15 U.S.C. 80a-3(c)(1) through
3(c)(9)), or the exclusions provided by Sec.  270.3a-6 or Sec.  270.3a-
7 of this chapter, or a commodity pool;
    (ii) A company that:
    (A) Files reports pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); or
    (B) Has a class of securities that are listed on a ``designated
offshore securities market'' as such term is defined by Regulation S
under the Act (Sec. Sec.  230.901 through 230.904); or
    (iii) A company with shareholders' equity of not less than $50
million (determined in accordance with generally accepted accounting
principles) as reflected on the company's most recent financial
statements, provided that such financial statements present the
information as of a date within 16 months preceding the date on which
the prospective purchaser acquires the offered securities;
    (2) Real estate held for investment purposes;
    (3) Commodity interests held for investment purposes. For purposes
of this section, commodity interests means commodity futures contracts,
options on commodity futures contracts, and options on physical
commodities traded on or subject to the rules of:
    (i) Any contract market designated for trading such transactions
under the Commodity Exchange Act (7 U.S.C. 1 et seq.) and the rules
thereunder (17 CFR 1.1 through 190.10); or
    (ii) Any board of trade or exchange outside the United States, as
contemplated in Part 30 of the rules under the Commodity Exchange Act
(17 CFR 30.1 through 30.12);
    (4) Physical commodities held for investment purposes. For purposes
of this paragraph, physical commodities means any physical commodity
with respect to which a commodity interest is traded on a market
specified in paragraph (h)(3)(iii) of this section;
    (5) To the extent not securities, financial contracts (as such term
is defined in section 3(c)(2)(B)(ii) of the Investment Company Act of
1940 (15 U.S.C. 80a-3(c)(2)(B)(ii))) entered into for investment
purposes; and
    (6) Cash and cash equivalents (including foreign currencies) held
for investment purposes. For purposes of this section, cash and cash
equivalents include:
    (i) Bank deposits, certificates of deposit, bankers acceptances and
similar bank instruments held for investment purposes; and
    (ii) The net cash surrender value of an insurance policy.

    Note 1 to paragraph (h): Solely for the purpose of determining
``investment purposes'' in this paragraph (h), real estate shall not
be considered to be held for investment purposes by a prospective
purchaser if it is used by the prospective purchaser, a sibling,
spouse or former spouse, a direct lineal descendant by birth or
adoption, or spouse of such lineal descendant or ancestor for
personal purposes or as a place of business, or in connection with
the conduct of the trade or business of the prospective purchaser or
such related person, provided that real estate owned by a
prospective purchaser who is engaged primarily in the business of
investing, trading or developing real estate in connection with such
business may be deemed to be held for investment purposes.
Residential real estate shall not be deemed to be used for personal
purposes if deductions with respect to such real estate are not
disallowed by section 280A of the Internal Revenue Code (26 U.S.C.
280A).

    Note 2 to paragraph (h): Solely for the purpose of determining
``investment purposes'' in this paragraph (h), a commodity interest
or physical commodity owned, or a financial contract entered into,
by the prospective purchaser who is engaged primarily in the
business of investing, reinvesting, or trading in commodity
interests, physical commodities or financial contracts in connection
with such business may be deemed to be held for investment purposes.

    Note 3 to paragraph (h): Solely for the purpose of determining
whether a prospective purchaser meets the dollar-amount investor
thresholds in Regulation D, the aggregate amount of investments
owned and invested on a discretionary basis shall be the
investments' fair market value on the most recent practicable date
or their cost provided that in the case of commodity interests, the
amount of investments shall be the value of the initial margin or
option premium deposited in connection with such commodity
interests. There shall be deducted from the amount of such
investor's investments the amount of any outstanding indebtedness
incurred to acquire or for the purpose of acquiring the investments
owned by such person.

* * * * *
    (j) Joint investments. ``Joint investments'' shall mean:
    (1) In the case of a purchase binding on both spouses and where
both spouses sign the investment documentation, the aggregate of their
investments held individually and their investments held jointly or as
community property or similar shared ownership interest; or
    (2) In the case of a purchase made by an individual spouse or where
only an individual spouse signs the investment documentation, the
aggregate of the investments held individually by the purchaser and 50
percent of any investments held jointly with the individual's spouse or
as community property or similar shared ownership interest.
    (k) Large accredited investor. ``Large accredited investor'' shall
mean an accredited investor as defined in paragraph (a) of this
section, except that:
    (1) Any person described in paragraph (a)(1), (a)(3), or (a)(7) of
this section required to have a dollar amount of assets shall instead
be required to have investments in excess of $10,000,000 (as adjusted
for inflation in accordance with the Note to paragraph (a) of this
section);
    (2) Any person described in paragraph (a)(5) of this section shall
be required to have investments, or joint investments with that
person's spouse, in excess of $2,500,000 (as adjusted for inflation in
accordance with the Note to paragraph (a) of this section);
    (3) Any person described in paragraph (a)(6) of this section shall
be required to

have had an individual income in excess of $400,000 in each of the two
most recent years or aggregate income with that person's spouse in
excess of $600,000 in each of those years (each as adjusted for
inflation in accordance with the Note to paragraph (a) of this section)
and have a reasonable expectation of reaching the same income level in
the current year; and
    (4) All of the equity owners of entities described in paragraph
(a)(8) of this section shall be required to be large accredited
investors.
* * * * *
    10. Amend Sec.  230.502 by:
    a. Revising the references that read ``six months'' in paragraph
(a) to read ``90 days'' and revising the reference that reads ``six
month periods'' in paragraph (a) to read ``90-day periods''.
    b. Adding to the first sentence of paragraph (c) the phrase ``or
Sec.  230.507(b)(2)(ii)'' after the phrase ``Except as provided in
Sec.  230.504(b)(1)''.
    c. Adding paragraph (e).
    The addition reads as follows:

Sec.  230.502  General conditions to be met.

* * * * *
    (e) Disqualification provisions. (1) An issuer may not rely on
Regulation D if the issuer, any predecessor of the issuer, any
affiliated issuer, any director, executive officer, general partner, or
managing member of the issuer, any beneficial owner of 20 percent or
more of any class of its equity securities, or any promoter currently
connected with the issuer:
    (i) Within the last 5 years, has filed a registration statement
that is the subject of a currently effective permanent or temporary
injunction of a court or an administrative stop order or similar order
entered by the Commission or the securities commission (or any agency
or office performing like functions) of any state;
    (ii) Within the last 10 years, has been convicted of a criminal
offense in connection with the offer, purchase or sale of any security
or involving the making of a false filing with the Commission;
    (iii) Within the last 5 years, has been the subject of an
adjudication or determination, after notice and opportunity for
hearing, by a Federal or State regulator that the person violated
Federal or State securities or commodities law or a law under which a
business involving investments, insurance, banking, or finance is
regulated; or
    (iv) Is currently subject to any order, judgment or decree of any
court of competent jurisdiction, entered within the last 5 years,
temporarily, preliminarily or permanently restraining or enjoining such
party from engaging in or continuing to engage in any conduct or
practice involving securities, commodities, investments, insurance,
banking, or finance, including an order for failure to comply with
Sec.  230.503;
    (v) Is currently subject to a cease and desist order, entered
within the last 5 years, issued under Federal or State securities,
commodities, investment, insurance, banking or finance laws; or
    (vi) Is suspended or expelled from membership in, or suspended or
barred from association with a member of, a national securities
exchange registered under section 6 of the Exchange Act or a national
securities association registered under section 15A of the Exchange Act
for any act or omission to act constituting conduct inconsistent with
just and equitable principles or trade.
    (2) Paragraph (e)(1) of this section shall not apply if:
    (i) Upon a showing of good cause and without prejudice to any other
action by the Commission, the Commission determines that it is not
necessary under the circumstances that the exemption be denied; or
    (ii) The issuer establishes that it did not know, and in the
exercise of reasonable care could not have known, that a
disqualification existed under paragraph (e)(1).

Sec.  230.503  [Amended]

    11. Amend Sec.  230.503 paragraph (a) by revising the reference
that reads ``Sec.  230.504, Sec.  230.505, or Sec.  230.506'' to read
``Sec.  230.504, Sec.  230.505, Sec.  230.506, or Sec.  230.507''.

Sec.  230.504  [Amended]

    12. Amend Sec.  230.504 paragraph (b)(1) by revising the reference
that reads ``230.502(a), (c) and (d)'' to read ``230.502(a), (c), (d)
and (e)''.

Sec.  230.505  [Amended]

    13. Amend Sec.  230.505 by removing paragraph (b)(2)(iii).
    14. Amend Sec.  230.506 by adding a Note at the end to read as
follows:

Sec.  230.506  Exemption for limited offers and sales without regard to
dollar amount of offering.

* * * * *

    Note to Sec.  230.506: Securities sold in compliance with Sec.
230.506 are ``covered securities'' within the meaning of section 18
of the Act by reason of section 18(b)(4)(D) of the Act, which limits
state regulation as provided in section 18 of the Act.

    15. Revise Sec.  230.507 to read as follows:

Sec.  230.507  Exemption for limited offers and sales to large
accredited investors.

    (a) Exemption. Offers and sales of securities that satisfy the
conditions in paragraph (b) of this section by an issuer shall be
exempt from the provisions of section 5 of the Act under section 28 of
the Act.
    (b) Conditions to be met.-- (1) General conditions. To qualify for
an exemption under this section, offers and sales must satisfy all the
terms and conditions of Sec. Sec.  230.501 and 230.502(a), (c), (d) and
(e) to the extent not superseded by paragraph (b)(2)(ii) of this
section.
    (2) Specific Conditions.--(i) Limitation on purchasers. All
purchasers are or the issuer reasonably believes that all purchasers
are large accredited investors.
    (ii) Limited announcement. Notwithstanding Sec.  230.502(c), offers
and sales of securities may qualify for exemption under this section if
the issuer or a person acting on the issuer's behalf publishes in
written form an announcement of a proposed offering that prominently
states that sales will be made to large accredited investors only, no
money or other consideration is being solicited or will be accepted
through the announcement, and the securities have not been registered
with or approved by the U.S. Securities and Exchange Commission and are
being offered and sold pursuant to an exemption from registration, and
the announcement contains no more than the following optional
information:
    (A) The name and address of the issuer;
    (B) The name, type, number, price and aggregate amount of
securities being offered and a brief description of the securities;
    (C) A description of what ``large accredited investor'' means;
    (D) Any suitability standards and minimum investment requirements
for prospective purchasers in the offering;
    (E) A brief description of the business of the issuer in 25 or
fewer words; and
    (F) The name, address and telephone number of a person to contact
for additional information.
    (iii) Additional Information. The issuer or a person acting on the
issuer's behalf may provide information in addition to the announcement
permitted under subparagraph (b)(2)(ii) of this section to a
prospective purchaser only if the issuer reasonably believes that the
prospective purchaser is a large accredited investor. Information may
be delivered to prospective purchasers through an electronic database
that is restricted to large accredited investors.

    Note 1 to Sec.  230.507: Securities sold to large accredited
investors in compliance with

Sec.  230.507 are ``covered securities'' within the meaning of
section 18 of the Act by reason of section 18(b)(3) of the Act and
Sec.  230.146(c), which limits state regulation as provided in
section 18 of the Act.

    Note 2 to Sec.  230.507: A private pooled investment vehicle
that would be an investment company but for the exclusion provided
by Sec.  3(c)(1) or Sec.  3(c)(7) of the Investment Company Act may
not rely on Sec.  230.507.

Sec.  230.508  [Amended]

    16. Amend Sec.  230.508 by:
    a. Revising the references that read ``Sec.  230.504, Sec.  230.505
or Sec.  230.506'' in paragraph (a), (a)(3) and (b) to read ``Sec.
230.504, Sec.  230.505, Sec.  230.506 or Sec.  230.507''.
    b. Revising the reference that reads ``and paragraph (b)(2)(i) of
Sec.  230.506'' in paragraph (a)(2) to read ``, paragraph (b)(2)(i) of
Sec.  230.506 and paragraph (b)(2)(i) of Sec.  230.507''.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    17. The general authority citation for part 239 continues to read
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3,
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 78mm,
80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-
29, 80a-30, and 80a-37, unless otherwise noted.
* * * * *
    18. Amend Form D (referenced in Sec.  239.500), by adding a check
box that reads ``Rule 507'' between the ``Rule 506'' and ``Section
4(6)'' check boxes in the ``Filing Under'' information requested in the
forepart of the Form.

    Note: The text of Form D does not, and the amendments will not,
appear in the Code of Federal Regulations.

    Dated: August 3, 2007.

    By the Commission.
Nancy M. Morris,
Secretary.
 [FR Doc. E7-15506 Filed 8-9-07; 8:45 am]

BILLING CODE 8010-01-P