A Change to Reg D?

“What are these regulatory filings you often cite? I’ve searched in Edgar, but can’t find them.”

I get that question at least a few times per week, particularly when said filings have led to news of an unannounced venture capital deal or private equity fundraising effort. The answer is that the filings are Form Ds – which are filled out by companies that use a Regulation D exemption from registering their securities with the SEC. These filings are only required after an initial sale, and are used by the SEC for two primary purposes: (a) Collection of data for use in rulemaking efforts; and (b) Enforcement of federal securities laws, including Regulation D.

For a variety of reasons, Form Ds are prepared and submitted in paper form. The SEC then dumps them into cardboard boxes in its Washington DC reference room, for anyone masochistic enough to sort through them. Lucky for Wire readers, masochism is a job requirement at Thomson Financial – so the company has someone who scans every last Form D into its Thomson Research database. Actually, they first go into a server and then put into queue for the database, but I have access to the server. Good for me and good for you, dear reader.

So why am I bringing all of this up today. Because the SEC is proposing a rules change that would, among other things, require that Form Ds be filed electronically. Such a change would mean that everyone could access Form Ds via a searchable, Internet-based SEC system (like Edgar, but probably not Edgar). The SEC suggests that the change would reduce filing fees, promote transparency, promote federal/state regulatory coordination and improve data collection.

I would really like to make an argument against this proposal, but everything I come up with reeks of self-interest. It’s certainly true that certain stealth companies would prefer that their funding rounds remain difficult to uncover — and some VCs and VC attorneys have devised clever ways to disguise what a filer actually does (via bogus names or business descriptions) – but that shouldn’t be the SEC’s problem. If such public disclosure is required, then why should only a limited number of people have access? (That question is only partially rhetorical – as a compelling argument could really help me out.)

I’ve posted the proposed rules change here: RegD.pdf
You can send comments to the SEC at rule-comments@sec.gov.