Nobody wants a “Bad Actor” as part of its working group but, from the perspective of the founder of a startup, the Securities and Exchange Commission’s proposed “bad actor” rules may wind up causing more injury than antidote. The good news is that the SEC is proposing amendments to its rules to implement Section 926 of the Dodd-Frank Wall Street Reform and Consumer Protection Act to disqualify securities offerings involving certain “felons and other ‘bad actors’” from reliance on the safe harbor from Securities Act registration provided by Rule 506 of Regulation D. See 17 CFR Parts 230 and 239 (Release No.33-9211; File No. S7-21-11. I agree with that effort but, since Rule 506 is one of the three exemptive rules for limited and private offerings under Regulation D, and by far the most popular, it is important that the definitions are carefully tailored. Not all “disqualifying acts” are equal, and “covered persons” and the “bad actor” disqualification should apply only to issuer’s management and controlling equity holders rather than any holder of 10% or more of the entity’s equity. And, even if those changes are not made, the reasonable investigation standard for determining whether “covered persons” are “bad actors” should be no more onerous than the current standard for accepting money from “accredited investors”. Without these changes to the proposed rules, the process of compliance will be beyond the budget and timeline of most startups.