Subject: File No. S7-21-11
From: David E. Y. Sarna
September 11, 2011
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
Comment on Disqualification of Felons and Other "Bad Actors" from Rule
506 Offerings
The overall goal of the rule is worthy. Bad actors destroy public faith in the markets.
Most funds are raised under a 506 exemption.
The proposed rule, despite its worthy objectives, overreaches. It would seek to bar, as a disqualifying event under Section 926, anyone with "Felony and misdemeanor convictions in connection with the purchase or sale of a security or involving the making of a false filing with the Commission."
This provision would appear to apply even to those with no bar from acting as an officer or director, and no "penny stock" bars, and without regard to the nature or extent of the conviction, and without regard to the date of conviction.
It is proposed to apply, inter alia to:
- the issuer and any predecessor of the issuer or affiliated issuer;
- any director, officer, general partner or managing member of the issuer;
- any beneficial owner of 10% or more of any class of the issuer's equity securities;
It amounts to a life sentence and would prevent persons, even those who rebuilt their lives, and have not violated the law following their conviction from any entrepreneurial activities.
I propose that the rule me modified so it does not apply to those, having no SEC bars (other than a Final Judgments enjoining a defendant from future violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5 thereunder and also no pending actions or convictions for a period of five years from the instant offense.
Respectfully submitted.
David E. Y. Sarna
The writer is author of History of Greed (Wiley 2010).