Private Placement of Fund Interests and Rule 5123 Filings

Under the new FINRA rule 5123, FINRA member firms that sell securities in certain private placements to submit a notice filing with FINRA.  That means your placement will likely have to file a fund’s private placement memorandum with FINRA. FINRA recently released FAQs and a user guide related to Rule 5123 filings. The notice filing must include a copy of any private placement memorandum, term sheet or other offering document, including any materially amended versions thereof, used in connection with such sale.

Submissions must be made within 15 calendar days of the first sale.

The FAQs answer practical questions regarding filing requirements, such as:

  • how members file a notice with FINRA
  • when does the 15-day period commence for filing with FINRA
  • What exemptions are there to form Rule 5123

Exemptions

1. Are private placements sold to institutional accounts exempt from the filing requirements of Rule 5123?

Private placements sold solely to institutional accounts (as defined in Rule 4512(c)) are exempt from the filing requirements of the rule (see Rule 5123(b)(1)(A)).

2. Are private placements sold to accredited investors exempt from the filing requirements of Rule 5123?

No, unless the sales are solely to entities that satisfy the definition of accredited investor under Rule 501(b)(1), (2), (3), or (7). Sales to accredited investors that are natural persons are not exempt from the filing requirements of the rule (see Rule 5123(b)(1)(J)).

If your fund uses a placement agent and is marketing to high-net worth individuals, it looks like the marketing materials will end up being filed with FINRA.

One Response to Private Placement of Fund Interests and Rule 5123 Filings

  1. Private placement memorandum March 4, 2013 at 1:17 am #

    This is really a nice reading about the use of private placement memorandum and the filing of docs with FINRA.

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