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Federal Register / Vol. 86, No. 25 / Tuesday, February 9, 2021 / Notices already have.16 FINRA also notes that the Filer Form provides and would continue to provide a free text box at the end of the form for members that wish to clarify their answers or add other relevant information with regard to particular questions or requests for information.

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Contingency Offerings The proposed changes to the Offering Information section would add and clarify several questions regarding contingency offerings; 17 FINRA
continues to observe numerous instances of non-compliance with this type of offering.18 The Filer Form today asks if the contingency has been met at the time of filing. The proposed changes to the Filer Form would add three additional questions/requests if the offering is a contingency offering, each with the option to respond unknown:
1 A request for the member to provide the date by which the contingency must be met; 2 a question asking if there have been any changes to the original terms of the contingency during the course of the offering e.g., extension of the date by which the contingency must be met; 19 and 3 a question regarding whether the subscription process involves your firm receiving or transmitting investor funds in the offering. This last question would provide FINRA with transparency regarding whether the broker-dealer is subject to the requirements for handling funds under SEA Rule 15c24.20 If the 16 The Filer Form provides that the member submitting the filing must answer the questions based on the information contained in the offering document or if otherwise known by your firm.
17 For purposes of the Filer Form, a contingency offering is a private placement in which the closing or sale of securities in the private placement is contingent on an event or condition, typically the receipt of orders for a minimum aggregate dollar amount or number of securities by an expiration date. Members participating in contingency offerings must understand and comply with the requirements of SEA Rules 10b9 and 15c24. See Private Placement FAQ 1 under the heading Filing Form available on the finra.org website.
18 See Regulatory Notice 1608 February 2016.
FINRAs review of securities offering documents has revealed instances in which broker-dealers have not complied with the contingency offering requirements of SEA Rules 10b9 and 15c24. In the Notice, FINRA provided guidance regarding the requirements of SEA Rules 10b9 and 15c24 and reminded broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.
19 As noted, the member submitting the Filer Form must answer the questions based on the information contained in the offering document or if otherwise known by your firm. The member may provide further information in the free text box at the end of the Filer Form.
20 Rule 15c24 requires that upon receiving money or other consideration from an investor in a contingency offering, a broker-dealer must
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member responds yes to this last question, the Filer Form would ask if your firm is acting as the agent or trustee for investor funds until the contingency is met. The terms agent or trustee are used in SEA Rule 15c2
4, which governs the manner in which a member must handle investors funds in a contingency offering. If the member responds yes or unknown there would be no more questions. If the member responds no, the Filer Form would require the member to provide the name of the escrow agent in a free text box or respond unknown.
Disciplinary History The Offering Information section also would be revised to add questions regarding disciplinary history.
Currently, the Filer Form asks whether the issuer, any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor, or any of the issuers affiliates has been the subject of SEC, FINRA or state disciplinary actions or proceedings or criminal complaints within the last 10 years. The proposed revisions to the Filer Form would change the current question to also inquire about other federal agency disciplinary actions in addition to SEC, FINRA and state disciplinary actions or proceedings or criminal complaints within the last 10
years. If the member responds yes to the revised question, the Filer Form would request the identification of the individual or entity that was the subject of such action or allow the member to respond unknown. For each identified entry, the proposed revisions to the Filer Form would first ask whether the individual or entity has registration records in the Central Registration Depository CRD. If the member responds yes to the CRD
question, then the member would enter the name of the individual or entity with no more questions.21 If instead the member responds no or unknown to the CRD question, the Filer Form would request that the member provide the name of the individual or entity with the disciplinary history or respond unknown. If the member provides the name of the entity or individual with the disciplinary history, the Filer Forms next requests would be for three pieces promptly either 1 deposit those funds into a separate bank account for which the broker-dealer is the account holder and is designated as agent or trustee; or 2 transmit those funds to a bank that has agreed in writing to act as the escrow agent for the offering.
21 Using the CRD lookup function, the member selects whether the subject is an individual or entity, then enters either the name or CRD number and selects the appropriate result to generate the name and CRD number in the Filer Form.

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of information, each of which includes the option to select unknown: 1 The type of action or proceeding that may be selected from a drop down box; 2
the approximate year that the event was initiated; and 3 the status of the event that may be selected from a list of options provided in a drop down box.
While the information requested in these three questions would assist FINRAs review of an area of concern, FINRA recognizes that by providing the unknown option, it is possible that some members may not possess definitive information needed to answer the questions. If the member responds unknown when requested to provide the name of the entity or individual with the disciplinary history, there are no more questions.
Use of Proceeds The Offering Information section would be revised to include a reformulation of the existing request for information regarding the use of the offering proceeds. Currently, the Filer Form asks whether the issuer is able to use offering proceeds to make or repay loans to, or purchase assets from any officer, director or executive management of the issuer, sponsor, general partner, manager, advisor or any of the issuers affiliates. The proposed changes to the Filer Form would reformulate the current question by asking whether the issuer intends to use rather than is able to use 22 offering proceeds to make or repay loans to, or purchase assets from, the listed persons.
The proposed changes to the Filer Form also would expand the scope of the current question by asking whether the issuer intends to otherwise direct investor proceeds to the listed persons.
The question would retain the option to respond unknown. If the member responds yes to this question despite the option to respond unknown, the proposed changes to the Filer Form would add a request for the member to identify the types of payments and the approximate dollar amount, and would provide the option to respond unknown.
Private Securities Transactions The Offering Information section would be revised to add a question regarding identification of private securities transactions. FINRA seeks to have more information regarding how frequently private offerings are sold by 22 The replacement of able to use with intends to use is meant to clarify the question, which seeks information about the members understanding of the issuers intended use of proceeds. It would not constitute a substantive change to the information required by the Filer Form.

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