On September 8, 2016, the U.S. House of Representatives passed the Accelerating Access to Capital Act. The passage of this Act continues a slew of legislative activity by the House to reduce regulation and facilitate capital formation for small businesses. Unlike many of the House bills that have been passed this year, this one gained national attention, including an article in the Wall Street Journal. Although the bill does not have a Senate sponsor and is not likely to gain one, the Executive Office has indicated it would veto the bill if it made it that far.
Earlier this year I wrote about 3 such bills, including: (i) H.R. 1675 – the Capital Markets Improvement Act of 2016, which has 5 smaller acts imbedded therein; (ii) H.R. 3784, establishing the Advocate for Small Business Capital Formation and Small Business Capital Formation Advisory Committee within the SEC; and (iii) H.R. 2187, proposing an amendment to the definition of accredited investor. See my blog HERE.
In early July, the House passed H.R. 2995, an appropriations bill for the federal budget for the fiscal year beginning October 1. No further action has been taken. The 259-page bill, which is described as “making appropriations for financing services and general government for the fiscal year ending September 30, 2017, and for other purposes” (“House Appropriation Bill”), contains numerous provisions reducing or eliminating funding for key aspects of SEC enforcement and regulatory provisions. On September 13, 2016, the House passed the Financial Choice Act, which is an extreme anti-regulation act that would dramatically change the current SEC regime and dismantle a large portion of the Dodd-Frank Act. Read my blog on the Financial Choice Act HERE, which also contains thoughts and commentary that likewise apply here.
The Accelerating Access to Capital Act is actually comprised of three bills: (i) H.R. 4850 – the Micro Offering Safe Harbor Act; (ii) H.R. 4852 – the Private Placement Improvement Act; and (iii) H.R. 2357 – the Accelerating Access to Capital Act.
The Accelerating Access to Capital Act
The Accelerating Access to Capital Act would broaden the availability of a Form S-3 short-form registration statement to include:
(i) All companies listed on a national securities exchange (currently the eligibility is based on the size of the company and generally Form S-3 is not available to smaller reporting companies); and
(ii) Remove an instruction limiting the use of Form S-3 to offerings that (a) represent less than 1/3 of the aggregate market value of the non-affiliated common equity; (b) are not conducted by a shell company nor any company that has been a shell company within the last 12 months; and (c) by companies listed on a national exchange.
This Act would, in essence, open up the use of Form S-3 to penny stock issuers. A Form S-3 can be used for shelf offerings. Moreover, shelf takedowns are not subject to separate SEC review or approval.
The Micro Offering Safe Harbor Act
The Micro Offering Safe Harbor Act would add a new Section 4(f) to the Securities Act of 1933, as amended (“Securities Act”). Section 4 exempts certain transactions from the registration requirements of the Securities Act. The new Section 4(f) would exempt transactions by an issuer, including all entities controlled by or under common control with the issuer, that meet the following:
(i) Pre-existing relationship – each purchaser must have a substantive pre-existing relationship with an officer, director or 10% or greater shareholder of the issuer;
(ii) 35 or fewer purchaser – there are no more than 35 purchasers of securities sold in reliance on the exemption during the 12-month period preceding the transaction;
(iii) Small offering amount – the aggregate offering amount of securities sold by the company, including any amount sold under this exemption, during the 12 months preceding the transaction, does not exceed $500,000;
(iv) Bad Actor Disqualification – the exemption would not be available to any issuer that would be disqualified under the Rule 506 bad actor rules (see HERE) for a refresher); and
(v) State law pre-emption – securities sold under the exemption would be included as federally covered securities.
The Micro Offering Safe Harbor Act is obviously poorly drafted and raises many questions as to how it could be implemented and utilized within the current regulatory framework.
The Private Placement Improvement Act
The Private Placement Improvement Act requires the SEC to revise Regulation D to simplify the Form D filing requirements and to clarify that the filing of a Form D is not a condition to relying on the exemption. Moreover, it would become the SEC’s responsibility to notify states of the Form D filing. The Act also adds a “knowledgeable employee” of a private fund or the fund’s investment advisor to the definition of an accredited investor.
Laura Anthony, Esq.
Legal & Compliance, LLC
Corporate, Securities and Going Public Attorneys
Securities attorney Laura Anthony and her experienced legal team provides ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded issuers as well as private companies going public on the NASDAQ, NYSE MKT or over-the-counter market, such as the OTCQB and OTCQX. For nearly two decades Legal & Compliance, LLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, S-8 and S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; Regulation A/A+ offerings; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers, ; applications to and compliance with the corporate governance requirements of securities exchanges including NASDAQ and NYSE MKT; crowdfunding; corporate; and general contract and business transactions. Moreover, Ms. Anthony and her firm represents both target and acquiring companies in reverse mergers and forward mergers, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. Ms. Anthony’s legal team prepares the necessary documentation and assists in completing the requirements of federal and state securities laws and SROs such as FINRA and DTC for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the OTC Market’s top source for industry news, and the producer and host of LawCast.com, the securities law network. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Las Vegas, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
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