Bad Actor Disqualification: What Issuers and Their Officers Need to Know
Regulation D and Regulation A+ both carry a "bad actor" disqualification rule that can bar an issuer from the exemption entirely — regardless of how clean the offering itself is — if certain people connected to the company have a disqualifying history.
Who is covered
The rule reaches beyond the issuer itself to "covered persons": directors, executive officers, general partners, managing members, 20%-or-greater beneficial owners, promoters, and compensated solicitors involved in the offering.
What disqualifies
Disqualifying events include certain securities-related criminal convictions, court injunctions or restraining orders tied to securities violations, specific SEC disciplinary orders, suspension or expulsion from a self-regulatory organization, and some state regulatory orders — generally within a look-back period defined by the rule.
Why this trips up issuers
Bad actor problems are often discovered late, after an advisor, board member, or significant investor with a disqualifying history has already been added to the cap table or the offering materials — at which point unwinding the relationship or seeking a waiver becomes a real complication.
Practical takeaway
Run a bad actor questionnaire on every covered person before finalizing the offering structure, not after documents are signed. It is a five-minute check that prevents a exemption-ending surprise.
This article is provided for general informational and educational purposes only and does not constitute legal, financial, tax, or investment advice. Nothing here is an offer to sell or a solicitation to buy any security. Consult qualified securities counsel before relying on any exemption or filing deadline discussed above.