PRA supporting statement (Form D proposing release) - 10-24-13

SUPPORTING STATEMENT FOR PROPOSED AMENDMENTS TO
REGULATION D, FORM D AND RULE 156
This supporting statement is part of a submission under the Paperwork Reduction Act of
1995, 44 U.S.C. §3501, et seq.
A. JUSTIFICATION
1. CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY
The Securities Act of 1933 (the “Securities Act”) generally requires that a registration
statement be filed with the Securities and Exchange Commission disclosing prescribed
information before securities may be offered for sale to the public. Under Section 3(b) of the
Securities Act, the Commission is authorized to exempt securities from registration if it finds that
registration for these securities is not necessary in the public interest or for the protection of
investors because of the small amount involved or the limited character of the public offering.
Under Section 4(a)(2) of the Securities Act, transactions by an issuer not involving any public
offering are exempt from registration. The Commission has adopted various rules (collectively
“Regulation D”) establishing several small issues or limited offering exemptions from the
registration requirements of Securities Act. The rules (Rules 504, 505, and 506) provide
exemptions for offerings that satisfy certain conditions, such as limitations on the type and/or
number of investors and, as applicable, limitation on dollar amount.
In addition, Section 4(a)(5) of the Securities Act exempts offers and sales of securities by
an issuer solely to one or more accredited investors, provided that the aggregate offering price of
the securities offered in the transaction does not exceed $5 million, there is no advertising or
public solicitation in connection with the transaction by the issuer or anyone acting on behalf of
the issuer, and the issuer files a prescribed notice with the Commission.
For all Regulation D offerings and offerings under Section 4(a)(5), Form D must be filed
with the Commission no later than 15 days after the first sale of securities in the offering. The
Form D is a simple notice that provides certain information about the issuer and the offering.
In Release No. 33-9416, the Commission proposed amendments to Regulation D and
Form D, as well as an amendment to Rule 156 under the Securities Act.1 In regard to the
amendments relating to Form D, the Commission proposed to require the advance filing of Form
D for a subset of Rule 506 offerings (specifically, offerings conducted in reliance on Rule 506(c)
of Regulation D) and to require the filing of a closing amendment to Form D after the
termination of all Rule 506 offerings. In addition, the Commission proposed to expand the
information requirements of Form D, primarily with respect to Rule 506 offerings, including
information on the types of general solicitation used and the methods used to verify the
accredited investor status of purchasers in Rule 506(c) offerings.

1

Amendments to Regulation D, Form D and Rule 156, Release No. 33-9416 (July 10, 2013) [78 FR 44806].

The Commission proposed an amendment to Rule 156 under the Securities Act that
would extend the guidance contained in the rule (which pertains to the types of information in
investment company sales literature that could be misleading for purposes of the federal
securities laws) to the sales literature of private funds.
The Commission also proposed new Rule 510T of Regulation D to require that an issuer
conducting an offering in reliance on Rule 506(c) submit to the Commission any written general
solicitation materials prepared by or on behalf of the issuer and used in connection with the Rule
506(c) offering. Under the proposed rule, which would expire two years after the effective
date of proposed Rule 510T, the written general solicitation materials would be required to be
submitted to the Commission through an intake page on the Commission’s website no later than
the date of first use of such materials in the offering.
Finally, the Commission proposed new Rule 509 of Regulation D to require a number of
legends and other disclosures in written general solicitation materials used in Rule 506(c)
offerings. Under proposed Rule 509, issuers would be required to include, in a prominent
manner, certain statements in these written general solicitation materials, including statements
that the securities may only be sold to accredited investors; that the securities are being offered in
reliance on an exemption from the registration requirements of the Securities Act; that the
Commission has not passed upon the merits of or given its approval to the securities and the
terms of the offering; and that investing in securities involves risk. In addition, under proposed
Rule 509, issuers that are private funds would be required to include a prominent legend in these
materials stating that the securities offered are not subject to the protections of the Investment
Company Act and would be required to comply with additional legend and disclosure
requirements if these materials include performance data.
The proposed amendments contain “collection of information” requirements within the
meaning of the Paperwork Reduction Act of 1995. The titles of these requirements are:


“Form D” (OMB Control No. 3235-0076); and



“Rule 506(c) General Solicitation Materials,” a proposed new collection of
information that consists of the following two subparts:
o Subpart A – “General Solicitation Materials under Rule 510T,” and
o Subpart B – “Legends and Other Disclosure under Rule 509.”

2. PURPOSE AND USE OF THE INFORMATION COLLECTION
Proposed Amendments Relating to Form D
An important purpose of Form D is to collect empirical data, which provides a continuing
basis for action by the Commission either in terms of amending existing rules and regulations or
proposing new ones. Further, Form D allows the Commission to elicit information necessary in

2

assessing the effectiveness of Regulation D and Section 4(a)(5) as capital-raising devices for
small businesses.
Rule 506(c) General Solicitation Materials
The purpose of the proposed requirement in Rule 510T to submit written general
solicitation materials to the Commission is to facilitate the Commission’s assessment of market
practices through which issuers would solicit potential purchasers of securities offered in reliance
on Rule 506(c).
The purpose of the proposed requirement in Rule 509 to include certain legends and
disclosures in written general solicitation materials used in Rule 506(c) offerings is to better
inform potential investors as to whether they are qualified to participate in Rule 506(c) offerings
and certain potential risks that may be associated with such offerings.
3. CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY
Form D is filed electronically using the Commission’s Electronic Data Gathering,
Analysis and Retrieval System.
Under proposed Rule 510T, written general solicitation materials used in Rule 506(c)
offerings would be submitted to the Commission through an intake page on the Commission’s
website.
4. DUPLICATION OF INFORMATION
Proposed Amendments Relating to Form D
We are not aware of any forms or rules that conflict with or substantially duplicate the
requirements of Form D.
Rule 506(c) General Solicitation Materials
We are not aware of any forms or rules that conflict with or substantially duplicate
proposed Rule 510T or proposed Rule 509.
5. REDUCING THE BURDEN ON SMALL ENTITIES
Regulation D is a comprehensive set of exemptions from Securities Act registration
relating to small issues and small issuers. Regulation D was designed to simplify and clarify
existing exemptions and to expand their availability to small issuers. The proposed amendments
would apply to all issuers, including small entities, and would not vary depending on the size of
the issuer. We believe that many of the issuers in Rule 506 offerings are small entities, but we
currently do not collect information on total assets of companies and net assets of funds that use
Rule 506 to determine if they are small entities.

3

6. CONSEQUENCES OF NOT CONDUCTING COLLECTION
Proposed Amendments Relating to Form D
As stated above, an important purpose of Form D is to collect empirical data, which
provides a continuing basis for action by the Commission in terms of amending existing rules
and regulations or proposing new ones. In addition, the information in Form D filings has been
useful for a number of other purposes, such as serving as a source of information for investors
and facilitating the enforcement of the federal securities laws and the enforcement efforts of state
securities regulators and the Financial Industry Regulatory Authority.
Rule 506(c) General Solicitation Materials
Failure to require the submission of written general solicitation materials to the
Commission, pursuant to Rule 510T, through an intake page on the Commission’s website would
make it more difficult for the Commission to assess market practices through which issuers
solicit potential purchasers of securities offered in reliance on Rule 506(c).
Failure to require certain legends and disclosures in written general solicitation materials
used in a Rule 506(c) offering, pursuant to Rule 509, would provide investors with less
information on which to base an investment decision in connection with the Rule 506(c)
offering.
7. SPECIAL CIRCUMSTANCES
Not applicable.
8. CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY
The Commission has issued a proposing release soliciting comment on the new
“collection of information” requirements and associated paperwork burdens.2 A copy of the
proposing release is attached. In response to the solicitation for comment in the proposing
release, registrants, investors, and other market participants provide comments. In addition, the
Commission and staff participate in ongoing dialogue with representatives of various market
participants through public conferences, roundtables and meetings. The Commission will
consider all comments received prior to publishing the final rule as required by 1320.11(f).
Comments received on the proposal are available at http://www.sec.gov/comments/s7-0613/s70613.shtml.
9. PAYMENT OR GIFT TO RESPONDENTS
Not applicable.

2

See Release No. 33-9416.

4

10. CONFIDENTIALITY
Not applicable.
11. SENSITIVE QUESTIONS
Not applicable.
12/13. ESTIMATES OF HOUR AND COST BURDENS
The estimated burden hours and cost burden are made solely for the purposes of the
Paperwork Reduction Act and represent the average burden for all issuers. The cost burden is
not derived from a comprehensive or even a representative survey of the costs of Commission
rules and forms.
Proposed Amendments Relating to Form D
Form D takes approximately 4 hours per response to prepare. In 2012, 16,067 companies
made 18,187 new Form D filings. For purposes of the Paperwork Reduction Act, we estimate
that the adoption of Rule 506(c), which became effective on September 23, 2013, will result in a
20% increase in Form D filings relying on Rule 506, resulting in a total of 21,824 Form D filings
for the first year in which issuers will make Form D filings after the adoption of Rule 506(c).
We estimate that 25% of the 4 hours per response (1 hour) is prepared by the issuer for an annual
reporting burden of 21,824 hours (1 hour per response x 21,824 responses). We estimate that
75% of the 4 hours per response (3 hours) is prepared by outside professionals retained by the
issuer. We estimate the cost of these outside professionals to be $400 per hour ($400 per hour x
3 hours per response x 21,824 responses) for a total cost burden of $26,188,800. Table 1
illustrates the current total annual compliance burden, in hours and in costs, of the collection of
information pursuant to Form D.
Table 1.

Form D

Estimated paperwork burden under Form D, pre-amendments relating to
Form D
Number of
responses
(A)3

Burden
hours/form
(B)

Total burden
hours
(C)=(A)*(B)

Internal issuer
time
(D)

21,824

4

87,296

21,824

External
professional
time
(E)
65,472

Professional
costs
(F)=(E)*$400
$26,188,800

We believe that the proposed amendments relating to Form D, if adopted, would increase
the existing paperwork burden of the form by requiring additional information in Form D,
particularly with respect to Rule 506 offerings. In addition, while we do not anticipate that these
proposed rule and form amendments will result in an increase in the number of Regulation D
3

The information in this column is based on the 18,187 new Form D filings that were actually made in 2012, plus
the additional 3,637 filings we estimate would be filed in the first year after the effective date of Rule 506(c).

5

offerings, we believe that the paperwork burden of the form would increase as a result of the
advance filing requirement for Rule 506(c) offerings and the requirement to file an additional
amendment after the termination of Rule 506 offerings. We estimate that the paperwork burden
associated with filing the required information on Form D over the span of a particular offering
would increase to approximately 6 hours per offering.4 We continue to 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. We estimate that, under the proposed amendments, the annual compliance
burden of the Form D collection of information requirements would be an aggregate of 32,736
hours of issuer personnel time and $39,283,200 for the services of outside professionals per year.
Table 2 illustrates the estimated total annual compliance burden, in hours and in costs, of the
collection of information pursuant to Form D following these amendments.
Table 2.

Form D

Estimated paperwork burden under Form D, post-amendments relating to
Form D
Number of
responses
(A)

Burden
hours/form
(B)

Total burden
hours
(C)=(A)*(B)

Internal issuer
time
(D)

21,824

6

130,944

32,736

External
professional
time
(E)
98,208

Professional
costs
(F)=(E)*$400
$39,283,200

Rule 506(c) General Solicitation Materials
In regard to the proposed new collection of information, “Rule 506(c) General
Solicitation Materials,” we assume, for purposes of this analysis under the Paperwork Reduction
Act, that all Rule 506(c) offerings will involve the use of written general solicitation materials.
Although it is not possible to predict the number of future offerings made in reliance on Rule
506(c) with any degree of accuracy, particularly because Rule 506(c) only recently became
effective, for purposes of this analysis we estimate that there would be 3,637 Rule 506(c)
offerings per year. Based on the estimated number of Rule 506(c) offerings and an estimated
burden of two hours per Rule 506(c) offering (as allocated below between Subpart A and
Subpart B), we estimate that the total annual compliance burden of this proposed new collection
of information requirement for the first year in which issuers would be subject to these
requirements would be an aggregate of 7,274 hours of issuer personnel time.
Subpart A – General Solicitation Materials under Rule 510T
In regard to Subpart A of this proposed new collection of information, we estimate that
compliance with proposed Rule 510T would result in an estimated burden of one hour per
offering under Rule 506(c). As stated above, under proposed new Rule 510T, issuers would be
required to submit to the Commission, through an intake page on the Commission’s website, any
written general solicitation materials prepared by or on behalf of the issuers and used in
4

The estimate of approximately 6 hours per offering is a blended average of the paperwork burden for all offerings
for which a Form D is required to be filed, not only offerings under Rule 506.

6

connection with a Rule 506(c) offering. This estimated one hour burden includes the time it
would take to submit written general solicitation materials electronically to the Commission
through the Commission’s website. Our burden estimate represents the average burden for all
issuers per Rule 506(c) offering. In deriving this estimate, we assume that 100% of the burden
of preparation will be carried by the issuer internally, which is reflected as an hourly burden.
Table 3 illustrates the estimated total annual compliance burden of this subpart of the proposed
new collection of information.
Table 3.

Form D

Estimated paperwork burden of Subpart A – “General Solicitation Materials
under Rule 510T”
Number of
responses
(A)

Burden
hours/form
(B)

Total burden
hours
(C)=(A)*(B)

Internal issuer
time
(D)

3,637

1

3,637

3,637

External
professional
time
(E)
None

Subpart B – Legends and Other Disclosure under Rule 509
In regard to Subpart B of this proposed new collection of information, we estimate that
compliance with proposed Rule 509 would result in an estimated burden of one hour per offering
under Rule 506(c). This estimated one hour burden includes the time it would take to prepare the
applicable statements and disclosures and to include them in the written general solicitation
materials for a Rule 506(c) offering. Our burden estimate represents the average burden for all
issuers per Rule 506(c) offering. In deriving this estimate, we assume that 100% of the burden
of preparation will be carried by the issuer internally, which is reflected as an hourly burden.
Table 4 illustrates the estimated total annual compliance burden of this subpart of the proposed
new collection of information. Following the inclusion of the applicable statements and
disclosures in these written general solicitation materials, issuers would be required to submit the
materials to the Commission through an intake page on the Commission’s website pursuant to
proposed Rule 510T (see Subpart A above).
Table 4.

Form D

Estimated paperwork burden of Subpart B – “Legends and Other Disclosure
under Rule 509”
Number of
responses
(A)

Burden
hours/form
(B)

Total burden
hours
(C)=(A)*(B)

Internal issuer
time
(D)

3,637

1

3,637

3,637

External
professional
time
(E)
None

14. COSTS TO FEDERAL GOVERNMENT
We estimate that the cost of preparing the amendments would be approximately
$100,000.

7

15. REASON FOR CHANGE IN BURDEN
As explained in further detail in Items 12 and 13 above, the change in burden for Form D
corresponds to an estimated increase, under the proposed amendments relating to Form D, in the
burden associated with filing the required information on Form D over the span of a particular
offering. The table below illustrates the changes in hour and cost burdens from the current
burden estimates.5

Form D

Current Burden
Burden
Cost
Hours
(B)
(A)
21,824
$26,188,800

New Burden
Burden
Cost
Hours
(D)
(C)
32,736
$39,283,200

Program Change
Burden
Cost
Hours
(F)
(E)
10,912
$13,094,400

The burden relating to “Rule 506(c) General Solicitation Materials” is a new collection of
information, so there is no change in burden.
16. INFORMATION COLLECTION PLANNED FOR STATISTICAL PURPOSES
Not applicable.
17. APPROVAL TO OMIT EXPIRATION DATE
We request authorization to omit the expiration date on the electronic version of Form D
for design and scheduling reasons. The OMB control number will be displayed.
18. EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION ACT
SUBMISSIONS
Not applicable.
B. STATISTICAL METHODS
Not applicable.

5

Columns (A) and (B) represent the current burden estimates. Columns (C) and (D) represent the new burden
estimates under the proposed amendments relating to Form D. Columns (E) and (F) represent the program change,
which encompasses the change in the burden estimates attributable to the proposed amendments relating to Form D.

8