Section 3(a)(9)

SEC Final Rule Changes For Exempt Offerings – Part 3

On November 2, 2020, the SEC adopted final rule changes to harmonize, simplify and improve the exempt offering framework. The new rules go into effect on March 14, 2021. The 388-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion. As such, like the proposed rules, I am breaking it down over a series of blogs with this second blog discussing offering communications including new rules related to demo days and generic testing the waters. The first blog in the series discussed the new integration rules (see HERE). The second blog in the series covered offering communications (see HERE). This third blog focuses on amendments to Rule 504, Rule 506(b) and 506(c) of Regulation D.

Background

February 16, 2021

SEC Final Rule Changes For Exempt Offerings – Part 2

Background

The Securities Act of 1933 (“Securities Act”) requires that every offer and sale of securities either be registered with the SEC or exempt from registration. The purpose of registration is to provide investors with full and fair disclosure of material information so that they are able to make their own informed investment and voting decisions.

Offering exemptions are found in Sections 3

February 9, 2021

SEC Proposed Rule Changes For Exempt Offerings – Part 5

On March 4, 2020, the SEC published proposed rule changes to harmonize, simplify and improve the exempt offering framework. The SEC had originally issued a concept release and request for public comment on the subject in June 2019 (see HERE). The proposed rule changes indicate that the SEC has been listening to capital markets participants and is supporting increased access to private offerings for both businesses and a larger class of investors. Together with the proposed amendments to the accredited investor definition (see HERE), the new rules could have as much of an impact on the capital markets as the JOBS Act has had since its enactment in 2012.

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion. I have been breaking the information down into a series of blogs, with this fifth and final blog focusing on amendments to Regulation Crowdfunding.

To review the first blog

June 23, 2020

SEC Proposed Rule Changes For Exempt Offerings – Part 4

The 341-page rule release provides a comprehensive overhaul to the exempt offering and integration rules worthy of in-depth discussion. I have been breaking the information down into a series of blogs, with this fourth blog focusing on amendments to Regulation A other than integration and offering communications which

June 16, 2020

SEC Cracks Down On Failure To File 8-K For Financing Activities; An Overview Of Form 8-K

Introduction and Background

On September 26, 2016, and again on the 27th, the SEC brought enforcement actions against issuers for the failure to file 8-K’s associated with corporate finance transactions and in particular PIPE transactions involving the issuance of convertible debt, preferred equity, warrants and similar instruments. Prior to the release of these two actions, I have been hearing rumors in the industry that the SEC has issued “hundreds” of subpoenas (likely an exaggeration) to issuers related to PIPE transactions and in particular to determine 8-K filing deficiencies. Using this as a backdrop, this blog will also address Form 8-K filing requirements in general.

Back in August 2014, the SEC did a similar sweep related to 8-K filing failures associated with 3(a)(10) transactions. See my blog HERE for a discussion of those actions and 3(a)(10) proceedings in general. The 8-K filing deficiency actions were a precursor to a larger SEC investigation on 3(a)(10) transactions themselves which culminated in two well-known

December 13, 2016

What Is A Security? The Howey Test And Reves Test

ABA Journal’s 10th Annual Blawg 100

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Sometimes it’s good to go back to basics. In my blogs I often refer to the registration and exemption requirements in the Securities Act of 1933, as amended (“Securities Act”). Section 5 of the Securities Act makes it unlawful to offer or sell any security unless a registration statement is in effect as to that security or there is an available exemption from registration. Similarly, I often refer to the broker-dealer registration requirements. To be a “broker” or “dealer,” a person must be engaged in the business of effecting transactions in securities.

In today’s small cap world corporate finance transactions often take the form of a convertible note and/or options and warrants, the conversion of which relies on Section 3(a)(9) of the Securities Act. Section 3(a)(9) is an exemption available for the exchange of one security for another (such as a convertible note for common stock). Likewise, Rule 144(d)(3)(i) allows the tacking of

November 25, 2014

Exemption to Broker-Dealer Registration Requirements for Officers, Directors and Key Employees

The topic of using unlicensed persons to assist in fundraising activities is discussed almost daily in the small and microcap community. For many years the SEC has maintained a staunch view that any and all activities that could fall within the broker-dealer registration requirements set forth in Section 15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), require registration. See also the SEC Guide to Broker-Dealer Registration on the SEC website.

In my blog on February 18th, 2014 I talked about the new no-action-letter-based exemption for M&A brokers, the exemptions for websites restricted to accredited investors and for crowdfunding portals as part of the JOBS Act. In this blog, I am focusing on the statutory exemption from the broker-dealer registration requirements found in Securities Exchange Act Rule 3a4-1, including for officers, directors and key employees of an issuer.

Exchange Act Rule 3a4-1 – Persons Associated with an Issuer that are not Required to be Licensed as

May 20, 2014

Understanding Section 3(a)(9) Exchanges and Conversions as Related to Convertible Promissory Notes

As an attorney specializing in the representation of companies and investment funds in the micro, small and mid cap arena, we work on corporate financing transactions involving convertible debt almost daily. These transactions provide a tremendous amount of benefit to these small cap companies, in that they obtain cash today that will be repaid with common stock tomorrow. Financing using convertible instruments that are repaid with stock is one of the many reasons an entity may choose to go public. However, the financing comes at a price including both dilution to existing stockholders and likely a reduced stock price resulting from the selling pressure when the debt is converted. Of course, all financing has pros and cons and public entities need to consider

March 4, 2014

A Basic Overview of Rule 144

The Securities Act of 1933 (“Securities Act”) Rule 144 sets forth certain requirements for the use of Section 4(1) for the resale of securities. Section 4(1) of the Securities Act provides an exemption for a transaction “by a person other than an issuer, underwriter, or dealer.” The terms “Issuer” and “dealer” have pretty straightforward meanings under the Securities Act, but the term “underwriter” does not. Rule 144 provides a safe harbor from the definition of “underwriter.” If all the requirements for Rule 144 are met, the seller will not be deemed an underwriter and the purchaser will receive unrestricted securities.

Although not set out in the statute, all transfer agents and Issuers, along with most clearing and brokerage firms, require an opinion of

February 11, 2014

Overview of Recognized Exemptions From Section 5

The Securities Act of 1933 recognizes two broad types of exemptions to the registration requirements of Section 5, exempt securities and exempt transactions.

The Exempt securities are set forth in Sections 3(a)(1) – (8), (13) and (14) of the Securities Act. Exempt securities are continuously exempt from the registration requirements regardless of the nature of the transaction in which they may be offered, issued, sold or resold. Examples of exempt securities which may be publicly offered, issued, sold and resold by their issuers or any other person without registration include:

Securities issued or guaranteed by the federal government;
Any security issued or guaranteed by a bank;
Commercial paper with a maturity of nine months or less;
Securities issued by non-profit religious, educational or charitable organizations; and
Insurance contracts

Exempt Transactions

The exempt transactions are set forth in Sections 3(a)(9), 3(b) and Section 4 of the Securities Act. Exempt transactions allow a security to be offered or sold in a particular

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Section 3(a)(9)

SEC Final Rule Changes For Exempt Offerings – Part 3

SEC Final Rule Changes For Exempt Offerings – Part 2

SEC Proposed Rule Changes For Exempt Offerings – Part 5

SEC Proposed Rule Changes For Exempt Offerings – Part 4

What Is A Security? The Howey Test And Reves Test

Exemption to Broker-Dealer Registration Requirements for Officers, Directors and Key Employees

Understanding Section 3(a)(9) Exchanges and Conversions as Related to Convertible Promissory Notes

A Basic Overview of Rule 144

Overview of Recognized Exemptions From Section 5

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