Bad Actor Disqualification And Just How Do You Know Whether A Violation is Scienter-Based?

Posted on December 17, 2013 by Keith Paul Bishop

In a recently issued Compliance & Disclosure Interpretation (Question #260.21), the SEC staff unequivocally stated that "bad actor" disqualification under Rule 506(d)(1)(v) is “triggered only by orders to cease and desist from violations of scienter-based provisions of the federal securities laws, including scienter-based rules.”  In Kid, Did You Ever Go To Court?, I questioned whether the list of scienter based-based securities laws and regulations was readily or generally known.  Recently, I came across the following non-exclusive list of scienter-based provisions:

  • Section 10(b) of the Exchange Act and Rule 10b-5 thereunder;
  • Section 17(a)(1) of the Securities Act;
  • Section 15(c)(1) of the Exchange Act; and
  • Section 206(1) of the Advisers Act.

Division of Corporation Finance, Statement on Well-Known Seasoned Issuer Waivers (July 8, 2011) at n. 6.  The staff identified the following sections as non-scienter based:

  • Sections 17(a)(2) and (3) of the Securities Act;
  • Section 14(a) of the Exchange Act and Rule 14a-9 thereunder;
  • Sections 206(2) and 206(4) of the Advisers Act; and
  • Section 34(b) of Investment Company Act.