CFTC and SEC Chairmen Sign Joint Letter Establishing Pilot Program

October 27th | 2020

The CFTC and the SEC have established a one-year pilot program to set out and formalize the practice and agreement between the agencies relating to CFTC orders that implicate the “bad actor disqualification” provisions of Regulations A and D under the Securities Act of 1933 (SEC’s Disqualification Rules).

Under the SEC Disqualification Rules, persons or entities are disqualified from availing

themselves of certain exemptions from registration for securities offerings if certain triggering events occur. Included among the triggering events for disqualification from these exemptions are certain final orders issued by the CFTC. Even where a triggering event has occurred, however, the SEC Disqualification Rules set forth circumstances under which the disqualification will not arise, including, as relevant here, where the CFTC advises in writing that a disqualification should not arise as a consequence of the CFTC order.

In their letter, the Chairmen of the SEC and CFTC agree to use their reasonable efforts to formalize and memorialize the coordination of their staffs with respect to CFTC orders that may implicate the SEC Disqualification Rule. This letter seems consistent with the SEC’s recent 2020 Small Business Forum Report, which centered around improving the framework around exempt offerings and other issues that have an impact on capital raising.

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