Haven’t You Heard? It’s All Being Changed – New Proposals To Private Placement Regime

While recent proposals to add new prospectus exemptions for things like crowdfunding and rights offerings have received much attention, other changes have also been concurrently proposed that would have an impact on the existing exempt distribution regime - so-called "private placements."

The Canadian regulators have been examining the entire concept of exempt distributions and have arrived at somewhat different positions on some of the basics of ordinary private placements. These include changes for placements to portfolio managers and individuals, and more frequent reporting by investment funds. Under these proposals, the current national private placement reporting system would become more detailed and further divided, with Ontario and three other provinces requiring significantly more information on new forms about the issuer and investors, including publicly disclosing such diverse items as the issuer's and underwriter's CEOs' email addresses, an issuer's number of employees and the total aggregate redemptions of an investment fund since inception.

CHANGES PROPOSED TO EXISTING PROSPECTUS EXEMPTIONS

Portfolio manager is accredited investor to purchase investment funds

One welcome proposal is that in Ontario a registered portfolio manager would qualify as an accredited investor when purchasing investment funds for a fully managed account, the same as now in all other jurisdictions of Canada. Currently, Ontario does not allow a portfolio manager to qualify as an accredited investor if purchasing investment funds for their managed accounts.

No minimum amount exemption for individuals

The existing minimum amount exemption, where an investor acquires securities having a cost of at least C$150,000, would continue but no longer be available if the investor is an individual. It could still be used by holding companies, trusts and partnerships.

Individual accredited investors must sign risk acknowledgement form

Speaking of individuals, they could still qualify as accredited investors without change in the financial thresholds, but it is proposed that the person distributing the security must obtain from that individual a signed prescribed risk acknowledgement form when or before that individual signs the investment purchase agreement and must retain that form for eight years after the distribution. This particular risk acknowledgement requirement would, however, not apply if the individual meets the standard for a "permitted client," i.e...