Ensuring Integrity in Exempt Securities Offerings with Bad Actor Verification Reports

Welcome to our one-stop solution for Bad Actor Verification Services – an essential step in maintaining the integrity of exempt securities offerings. In the complex landscape of financial transactions, it is required to verify the backgrounds of certain persons and entities involved to safeguard investors and maintain trust in the market. Our Bad Actor Verification solution is designed to help covered persons in exempt securities offerings navigate regulatory compliance seamlessly.

Who are Covered Persons?

Covered persons include (i) the issuer and its predecessors, (ii) affiliated issuers, (iii) certain officers (depending on the offering exemption (iv) directors, general partners, or managing members of an issuer, (v) beneficial owners of 20% or more of an issuer’s outstanding voting equity securities, calculated on the basis of voting power, (vi) promoters, (vii) compensated solicitors, and certain other individuals or entities involved in the offering.

What is a Bad Actor Verification?

A Bad Actor Verification, sometimes referred to as a Bad Actor Check or BAC, is a comprehensive background check carried out on individuals participating in exempt securities offerings that examines whether they are subject to any court or administrative orders or sanctions due to financial or securities fraud. These checks identify any criminal convictions, court injunctions and orders, orders of certain regulatory authorities, suspensions or expulsions, or other such disqualifying events pertaining to securities law violations and fraud. Many background checks often examine a wide array of sanctions and watch lists in both the U.S. and abroad.

When are Bad Actor Verifications Required?

Bad Actor Verifications are required during the preparation and execution of exempt securities offerings. Rule 506(d) of Regulation D, Rule 262 of Regulation A, and Rule 503 of Regulation Crowdfunding prohibit issuers and covered persons from participating in an exempt securities offering if they have been disqualified as a “bad actor.” However, the SEC created a “reasonable care” exception from these prohibitions if the issuer can establish that it didn’t know and could not have known in the exercise of reasonable care that a disqualification existed due to a disqualified covered person. To qualify for the exception, an issuer must make a factual inquiry into whether any covered persons are disqualified. Therefore, to circumvent the prohibition, and, consequently, to qualify for the reasonable care exception, issuers conducting offerings under Regulation A, Regulation D, and Regulation Crowdfunding of the Securities Act are required to perform Bad Actor Verifications on covered persons involved in the offering.

Why Bad Actor Verifications are Essential

  • Investor Protection: Bad Actor Verifications are essential for protecting investors from being defrauded out of their investments. These checks prevent individuals who may have a history of securities law violations or fraud from exploiting securities exemptions to perpetrate further fraudulent activities.
  • Regulatory Compliance: The SEC imposes stringent requirements and disqualifications on issuers and their affiliates to ensure fair and transparent financial markets. Bad Actor Verifications are a critical component of compliance with these regulations.
  • Market Integrity and Investor Confidence: Upholding market integrity is crucial for the long-term success of exempt securities offerings. Bad Actor Verifications contribute to maintaining trust in the financial system and instilling confidence among investors by preventing individuals with a tainted history from participating in these offerings.
  • Risk Mitigation: Conducting Bad Actor Verifications and excluding disqualified covered persons mitigates the risk of potential legal and financial liabilities for issuers and other participants in the offering process. This helps prevent reputational damage and legal disputes that could arise from associating with individuals with a history of misconduct.

In the dynamic world of finance, ensuring the integrity of exempt securities offerings is paramount. Our Bad Actor Verification Services are tailored to meet the specific needs of covered persons, providing a robust solution for compliance, risk mitigation, and investor protection. Partner with us to navigate the complexities of regulatory requirements and build a foundation of trust for your exempt securities offerings.