Understanding Bad Actor Reports: Compliance for Securities Offerings
At ICON Capital Group, we prioritize regulatory compliance and investor protection. As part of our commitment to education, we’re highlighting the importance of Bad Actor Reports under JOBS Act regulations, including Regulation D (Rule 506), Regulation A (Reg A+), and Regulation Crowdfunding (Reg CF).
What is a Bad Actor Report?
A Bad Actor Report is a due diligence check required for issuers, key executives, and affiliated parties to ensure they are not disqualified from participating in securities offerings due to past violations of securities laws.
Who Must Be Screened?
Entities and individuals subject to screening include:
- Issuers & Predecessors – The company raising funds and any prior entities.
- Directors & Officers – CEOs, CFOs, and key decision-makers.
- Significant Shareholders – Those owning 20% or more of voting equity.
- Promoters – Marketing and investor acquisition firms.
- Placement Agents & Solicitors – Brokers and intermediaries involved in the offering.
What Disqualifies a Bad Actor?
Disqualification can occur due to:
- Criminal convictions (e.g., securities fraud or financial misconduct within the past 10 years).
- SEC disciplinary orders barring securities-related activities.
- Final court injunctions involving fraud or deceptive practices.
- Regulatory violations from agencies such as the SEC, CFTC, or FINRA.
Why is a Bad Actor Report Required?
- Regulatory Compliance – Ensures adherence to SEC Rule 506(d), Reg A+, and Reg CF requirements.
- Investor Protection – Helps prevent fraudulent actors from raising capital.
- Offering Eligibility – Issuers may be disqualified from exemptions if a bad actor is involved.
Who Requires a Bad Actor Report?
- FINRA-Registered Intermediaries – Before any offering goes live.
- Banks (Escrow Accounts) – At the time of account opening.
- Payment Providers – Aggregators and processors require reports before onboarding.
How to Obtain a Bad Actor Report
Reports can be obtained from trusted third-party due diligence providers, such as:
- CrowdCheck
- InvestReady
- North Capital
Consequences of Non-Compliance
Failure to comply may lead to:
- Disqualification from relying on JOBS Act exemptions.
- Regulatory penalties for intermediaries and issuers.
- Required removal of disqualified individuals from the offering.
This blog post is based on insights from KORE, a trusted source for private market intelligence and investment insights.
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