enforcement actions related to exempt offerings relying on Rule 144A under the

Securities Act of 1933, as amended (the "Securities Act"). It highlights the risk

that a non-U.S. issuer (and non-SEC registrant) may still be investigated for

inaccurate disclosures, including those relating to non-financial key performance

indicators, made in connection with a private offering of securities to institutional

investors in the United States.

According to the SEC, between 2016 and 2019, BMW AG raised an aggregate of

$18 billion through seven Rule 144A bond offerings by its U.S. subsidiary, BMW

US Capital, LLC ("BMW USC"). The SEC alleged that these offerings were

• Use of demonstrator and loaner designations to inflate retail sales

BMW NA sought to have dealers improperly designate vehicles as

Rule 144A is a resale exemption

under the Securities Act. Rule 144A

offerings typically involve offering

securities to one or more financial

institutions (often referred to as

demonstrators or loaners to boost BMW NA's reported retail sales.

According to the SEC, as part of this conduct, BMW NA would offer

For instance, a July 2015 internal study found that, even though BMW NA

had publicly reported 7% year-over-year growth in retail sales volume

between the first half of 2014 and the first half of 2015, it had in fact

experienced a 0% growth rate between these periods.

• Banked retail sales. The SEC alleged that from 2015 through 2019

BMW NA underreported retail sales in some months in order to create a

reserve of unreported sales that it could use later in subsequent monthly

reports. According to the SEC, as part of this conduct, in months that

targets, BMW NA selected which retail sales number to report publicly

management, and BMW AG was aware of this practice.

• Improper changes to its sales reporting calendar. The SEC alleged

that in 2015 and 2017 BMW NA improperly modified its sales reporting

calendar. According to the SEC, in both 2015 and 2017, BMW NA failed

to follow the industry standard sales reporting calendar, which reports

sales through January 2 as having occurred in the prior year. The SEC

alleged that in 2015 BMW NA improperly extended the 2014 calendar

year until January 5 in order to inflate December 2014 sales. The SEC

alleged that BMW NA took the opposite approach in 2017 and improperly

shortened the 2014 calendar year as an alternative method of creating a

numbers. Despite the identification of these issues, BMW NA failed to take

measures to rectify these practices.

This enforcement action was brought by the SEC under Section 17(a) of the

Securities Act, which includes antifraud provisions that prohibit fraud and

misrepresentations in the offer or sale of securities. Section 17(a), unlike the

more commonly used Rule 10b-5 under the Securities Exchange Act of 1934, as

amended (the "Exchange Act"), does not require a showing of "scienter,"

BMW's revenue recognition; and

• vehicles delivered for dealer use or demonstration and service

loaner vehicles were included in the retail sales data.

According to the SEC, these caveats were not sufficient because BMW

failed to disclose:

• reliance on these problematic sales practices to increase retail

• the magnitude of the improper use of demonstrators and loaners;

• the use of the bank or the retail sales reporting calendar

17(a)(3) of the Securities Act.

The BMW enforcement action raises several key concerns that non-U.S.

issuers of Rule 144A bonds will want to consider.

• Extraterritorial reach of SEC enforcement. Case law under Rule

Rule 10b-5 for private rights of action by investors. The SEC is,

however, not constrained by this case law when it initiates

enforcement proceedings against non-U.S. issuers under Section

17(a) of the Securities Act or Rule 10b-5. As demonstrated by this

• Importance of preparing accurate and materially complete

T +1 212 878 4922

Leah Willmore

T + 1 202 912 5198

E leah.willmore

T +1 212 878 8167

E rebecca.cho