Key SEC rules and regulations

This page is Part II of the federal section. Part I covers the claims and defenses — I. Federal Securities Litigation.

II. Key SEC Rules and Regulations

VCs and Fund Managers

The exemptions and rules most private funds rely on are well known but still complicated. Key provisions and insights are summarized below.

Regulation D — Rules 506(b), 506(c), and Form D.

The private-placement exemptions from Securities Act registration that many funds use. Rule 506(b) allows a limited number of non-accredited but sophisticated investors and prohibits general solicitation; Rule 506(c) permits general solicitation but every purchaser must be a verified accredited investor.

Pick one lane and hold it: under 506(b), do not advertise or publicly solicit and confirm a substantive, pre-existing relationship with each investor; under 506(c), take reasonable steps to verify accredited status rather than accept a check-the-box representation.
Verify accredited status through documentation — W-2s, tax returns, or brokerage statements, or a written confirmation from a CPA, attorney, broker-dealer, or registered advisor — and confirm each investor meets the Rule 501 definition, including the professional-certification and knowledgeable-employee categories added in 2020.
File a Form D notice with the SEC within 15 days of the first sale, and make any required state blue-sky notice filings.
Track how each prospective investor was sourced, and avoid demo days, public websites, or press that could taint a 506(b) offering.

Rule 506(d) — the "bad actor" disqualification.

A fund loses its Rule 506 exemption if a covered person — the fund, its managers, 20-percent owners, and certain placement agents — has a disqualifying criminal conviction, injunction, or regulatory order.

Run bad-actor diligence before every offering: questionnaires and background checks on all covered persons, refreshed periodically.
Diligence placement agents and solicitors, whose disqualifying events can taint the offering just as the fund's own would.
If a disqualifying event exists, analyze the pre-existing-event exception and whether an SEC waiver is available, and document the conclusion.

Investment Company Act — Sections 3(c)(1) and 3(c)(7).

The exclusions that let a private fund avoid registering as an investment company. Section 3(c)(1) caps the fund at 100 beneficial owners (250 for certain qualifying venture capital funds); Section 3(c)(7) has no numerical cap but limits the fund to qualified purchasers.

Choose the right exclusion for the strategy and investor base, and monitor the owner count (3(c)(1)) or each investor's qualified-purchaser status (3(c)(7)) on an ongoing basis, including after transfers.
Apply the integration and look-through rules before adding vehicles or accepting fund-of-funds investors, since related funds and certain investors can be aggregated.
Make no public offering; both exclusions require it, which dovetails with the Regulation D discipline above.

Advisor registration, exempt reporting advisors, and Form PF.

Managing a private fund is advising, so the manager must either register with the SEC or report as an exempt reporting advisor, and larger private-fund advisors also file Form PF.

Determine status: the private-fund-advisor exemption (under $150 million in U.S. private fund assets) and the venture-capital-fund-advisor exemption allow exempt-reporting-advisor status with an abbreviated Form ADV; crossing those lines triggers full SEC registration (generally at $100 million-plus in regulatory assets) and the compliance program described in the advisor section below.
File and update Form ADV on schedule — initial, an annual update within 90 days of fiscal year-end, and prompt amendments for material changes.
If registered and managing at least $150 million in private fund assets, file Form PF; large advisors file more detailed and, for certain events, current reports. Confirm the current thresholds before each filing: the broad 2024 Form PF amendments have had their compliance date extended to July 2027, and an April 2026 SEC-CFTC proposal would raise the filing threshold to $1 billion and scale back reporting.

The Marketing Rule (Rule 206(4)-1) as applied to funds.

A registered advisor's fund marketing — pitch decks, track records, and placement arrangements — is an advertisement subject to the Marketing Rule (its full mechanics are in the advisor section).

Present performance fairly: show net-of-fee returns alongside gross, use the prescribed one-, five-, and ten-year periods for standardized performance, and do not cherry-pick or show hypothetical or extracted performance without the required disclosures.
Keep a reasonable basis and back-up for every factual claim in fund materials.
Paper and oversee solicitor and placement-agent arrangements as endorsements, with the required disclosures and disqualification checks.

Affiliate and related-party transactions.

When the advisor or its affiliates are on the other side of a fund's dealings — cross-trades between affiliated funds, GP-affiliated service providers, GP loans, or allocations across affiliated vehicles — the Section 206 fiduciary duty and Section 206(3) govern, on top of whatever the fund's governing documents require.

For a principal transaction (the advisor or an affiliate trading as principal with the fund) or an agency-cross trade, give written disclosure and obtain consent before the transaction is completed; in a fund, that consent typically runs through the limited partner advisory committee.
Disclose every affiliate arrangement — affiliated service providers, fee-sharing, and cross-vehicle allocations — in the fund documents and Form ADV, and apply a consistent, arm's-length allocation and valuation methodology.
Route conflicts through the advisory committee or independent approval and document the analysis; the vacated 2023 rules would have restricted several of these practices, so investor side letters increasingly demand the same protections.
Note the contrast for registered funds: Investment Company Act Section 17 prohibits most affiliated transactions outright absent an exemption (with Rule 17a-7 permitting narrowly conditioned cross-trades), so any structure that touches a registered fund needs separate analysis.

Startup and Public Issuers

Exempt offerings under Regulation D (Securities Act Section 5; Rules 506(b) and 506(c); Form D).

Every offer or sale of securities must be registered under Section 5 or fit an exemption, and most private capital raises rely on Regulation D. Rule 506(b) allows an unlimited number of accredited investors plus up to 35 sophisticated non-accredited investors but prohibits general solicitation; Rule 506(c) permits general solicitation but every purchaser must be a verified accredited investor.

Confirm before any offer that the raise is either registered or fits a specific exemption, and do not condition the market before a registered deal or generally solicit in a 506(b) offering.
Under 506(b), avoid general solicitation and form a reasonable belief that each investor is accredited, and for any non-accredited investor provide the required information and confirm sophistication; under 506(c), take reasonable steps to verify accredited status through documentation such as W-2s, tax returns, brokerage statements, or a professional's written confirmation.
File a Form D with the SEC within 15 days of the first sale and make state blue-sky notice filings — Rule 506 preempts state registration but not state notice and fee requirements.
Run Rule 506(d) bad-actor diligence on the issuer, its directors, officers, and 20-percent owners, and any placement agents.
Legend the restricted securities and plan for Rule 144 resale limits, and analyze integration before running concurrent or closely spaced offerings.

Periodic and current reporting (Exchange Act Sections 13(a) and 15(d); Forms 10-K, 10-Q, and 8-K).

A public company must file annual, quarterly, and current reports; their content is governed by Regulation S-K for narrative disclosure and Regulation S-X for financial statements. These filings are the raw material of most fraud claims.

File on the applicable filer deadlines and file a Form 8-K within four business days of a triggering event.
Follow Regulation S-K for MD&A, risk factors, and business disclosure, and Regulation S-X for audited and interim financials.
Maintain disclosure controls and procedures so that material information reaches the people preparing the filings, and update prior disclosure that has become misleading.

Related-person transaction disclosure (Regulation S-K Item 404).

Disclose any transaction over $120,000 — or, for a smaller reporting company, the lesser of $120,000 or one percent of average total assets — in which a director, officer, five-percent holder, or an immediate family member has a material interest, and describe the review policy.

Adopt a written related-person-transaction policy with independent review and approval by the audit committee or disinterested directors.
Gather the data through director-and-officer questionnaires and an ongoing intake process, and refresh it for the proxy statement and the 10-K.
Disclose the required terms and the related person's interest, and document the approval.

Regulation FD (Fair Disclosure).

Bars selective disclosure of material nonpublic information to analysts, investors, or others who may trade on it without contemporaneous or prompt public disclosure.

Limit and train who may speak for the company, and funnel investor communications through designated spokespeople.
If material nonpublic information is disclosed selectively, make prompt public disclosure by Form 8-K or press release — within 24 hours, or by the next market open, for a non-intentional disclosure.
Use pre-cleared earnings scripts and open, webcast earnings calls to avoid selective disclosure.

Insider-trading rules (Rules 10b5-1 and 10b5-2).

Rule 10b5-1 provides an affirmative-defense framework for pre-arranged trading plans; Rule 10b5-2 defines the duties of trust and confidence that make trading on misappropriated information unlawful.

Adopt an insider-trading policy with blackout periods, pre-clearance, and a bar on trading while aware of material nonpublic information.
For insiders using 10b5-1 plans, observe the mandatory cooling-off period (generally 90 days for directors and officers, 30 days for the issuer), the good-faith and no-influence conditions, and the certification and disclosure requirements added by the 2022 amendments; avoid overlapping and most single-trade plans.
Control the flow of material nonpublic information and paper confidentiality obligations where duties of trust and confidence arise.

Proxy rules and Sarbanes-Oxley accountability (Section 14(a) and Regulation 14A; SOX Sections 302, 906, and 404).

The proxy rules govern solicitation disclosures; Sarbanes-Oxley imposes officer certifications and internal-control-over-financial-reporting requirements for public companies.

Prepare the proxy statement under Schedule 14A — compensation, governance, related-person, and voting disclosures — and file and deliver it on schedule.
Have the CEO and CFO certify each periodic report (Sections 302 and 906), supported by sub-certifications up the reporting chain.
Maintain and test internal control over financial reporting, obtain the auditor attestation where required (Section 404(b)), and disclose any material weakness.

Investment Advisors

For an SEC-registered advisors, a review of key provisions begins with Section 206, which imposes the fiduciary duty standard.

Section 206 — the antifraud and fiduciary backbone.

The Advisors Act antifraud provision imposes a fiduciary duty of care and loyalty to every client, and the conduct rules that follow operationalize it.

Act in each client's best interest and give advice suited to that client's objectives.
Identify conflicts of interest and either eliminate them or disclose them fully and fairly enough for informed consent; buried or generic disclosure will not do.
Seek best execution and avoid unfair fee, allocation, and trade-sequencing practices.

Affiliate and related-party transactions (Section 206(3) and Form ADV).

Where the advisor or an affiliate is on the other side of a client transaction, or crosses a trade between two clients, Section 206(3) adds a specific consent requirement on top of the general fiduciary duty.

For principal and agency-cross transactions, provide written disclosure and obtain the client's consent before the transaction is completed, on a transaction-by-transaction basis; blanket prospective consent generally will not satisfy the rule for true principal trades.
Disclose all material affiliate conflicts — affiliated broker-dealers or funds, referral and fee-sharing arrangements, and compensation — in Form ADV Part 2A, principally Item 10 (financial-industry affiliations) and Item 11 (interest in client transactions and personal trading), with Items 5 and 14 on compensation and referrals.
Adopt written principal- and cross-trade procedures that capture the pre-transaction disclosure-and-consent step, and keep the records that evidence it.

The Compliance Rule (Rule 206(4)-7).

Requires written compliance policies and procedures reasonably designed to prevent violations of the Advisors Act.

Adopt written policies tailored to the firm's actual business and its conflicts, not an off-the-shelf manual.
Designate a competent, empowered chief compliance officer.
Conduct and document a review at least annually, testing the policies against how the firm really operates and remediating gaps.

The Marketing Rule (Rule 206(4)-1).

In effect since November 2022, it governs advertisements and the compensation of solicitors, replacing the former advertising and cash-solicitation rules.

Observe the general prohibitions: no untrue or unsubstantiated statements, no misleading omissions, and no unfair or unbalanced presentations.
For testimonials and endorsements, give the required disclosures (client status, compensation, and material conflicts), keep a written agreement, and check promoter disqualification.
For performance, follow the net-and-gross and standardized-time-period requirements and the limits on hypothetical, predecessor, and extracted performance, and retain records substantiating every claim.

The Custody Rule (Rule 206(4)-2).

Governs safekeeping when the advisor has custody, which includes fee-deduction authority or, for a private fund, serving as general partner.

Hold client assets with a qualified custodian and ensure clients receive account statements at least quarterly.
Undergo an annual surprise examination by an independent accountant unless an exception applies.
For pooled vehicles, use the audit exception: deliver GAAP audited financials from a PCAOB-registered auditor to investors within 120 days of fiscal year-end.
A modernization of this rule has been proposed but is not yet adopted; the existing rule continues to control.

Books and Records (Rule 204-2) and the Code of Ethics (Rule 204A-1).

The recordkeeping backbone and the personal-trading and ethics regime.

Maintain the required records — advertising, performance support, communications, and trading records — for the prescribed retention periods and in an accessible format.
Adopt a code of ethics covering standards of conduct, personal-trading pre-clearance and reporting for access persons, and safeguarding of material nonpublic information.

Form ADV, Form CRS, and Regulation S-P.

The client-facing disclosure and privacy regime.

Keep Form ADV current — the Part 2A brochure disclosing conflicts, fees, and disciplinary history, delivered and updated annually and on material change — and, for firms with retail clients, the Form CRS relationship summary.
Comply with Regulation S-P: adopt written policies to safeguard client information, deliver privacy notices, and follow the incident-response and disposal requirements.