File Your Fund’s PPM With FINRA?


FINRA Rule 5123 requires each FINRA member firm that sells securities in a private placement, subject to certain exemptions, to file with FINRA a copy of any private placement memorandum, term sheet or other offering document the firm used within 15 calendar days of the date of the sale, or indicate that it did not use any such offering documents. If you are using a placement agent to help with fundraising, the placement agent will be subject to the FINRA rules. Then the fundraising is potential subject to the FINRA disclosure, unless if falls into an exemption. The exemptions for a private fund split the world into two.

For funds exempt under Section 3(c)(7) of the Investment Company Act, all of the buyers will be “qualified purchasers.” Rule 5123 has an exemption for the filing requirement for offerings sold to qualified purchasers.[5123(b)(1)(B)]

For funds using the Section 3(c)(1) exemption, the analysis in not as clean. Rule 5123 has an exemption for the filing requirement for offerings sold to some types of accredited investors. [5123(b)(1)(J)] It leaves out items 6 and 7 in the definition of accredited investor.

A fundraising triggers the filing requirement if you sell to natural persons who are accredited investors, but don’t meet the standard of qualified purchaser.

In talking with a placement agent, they are including representations that the offering will be a 3(c)(7) offering so that they are protected from having to make the FINRA filing.

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