The bad actor rule in the new Rule 506(d) makes private placements a bit harder and will require private funds and companies to do more homework in connection with the fundraising. That’s because an issuer cannot rely on the Rule 506 exemption if the issuer or any other person covered by the rule had a “bad actor disqualification.”
An issue arises when you ask about criminal history. It’s been decades since I had to fill out a job application, but I remember the question asking if you are a convicted felon. That allows employer to quickly discard job applications filed by convicted criminals. A few states have felt that this is discriminatory and have enacted limitations on asking whether a job applicant has a criminal history.
This conflicts with the Rule 506(d) requirement that you exercise reasonable care in determining whether a covered employee is a bad actor. Some states limit your ability to run a criminal background inquiry and some limit your ability to even ask whether a prospective employee has a criminal background.
A shotgun approach will not work.
Most of these state laws allow you to eventually ask the criminal background question. If you are subject to 506(d) you need to ask the question, it can’t be one of the first questions.