Regulation A+; An In-Depth Overview
On March 25, 2015, the SEC released final rules amending Regulation A. The new rules are commonly referred to as Regulation A+. The existing Tier I Regulation A, which does not preempt state law, has been increased to $20 million and the new Tier 2, which does preempt state law, allows a raise of up to $50 million. Issuers may elect to proceed under either Tier I or Tier 2 for offerings up to $20 million. The new rules are expected to be effective on or near June 19, 2015.
On March 31, 2015, I published a blog with a high-level summary of the new rules. In this blog, I will give a deeper review of the entire new Regulation and then in future installments will drill down on different aspects of the new rules as such become relevant to this new offering regime.
Background on Rules
On December 18, 2013, the SEC published proposed rules to implement Title
SEC Division of Corporation Finance Issues Guidance On Bad Actor Waivers
Last month the SEC’s Division of Corporation Finance issued guidance on the granting waivers for the bad actor disqualifications under Regulation A and Rules 505 and 506 of Regulation D.
The Dodd-Frank Act required the SEC to implement rules which disqualify certain Rule 506 offerings based on the individuals involved in the issuer and related parties. On July 10, 2013, the SEC adopted such rules by amending portions of Rules 501 and 506 of Regulation D, promulgated under the Securities Act of 1933. The new rules went into effect on September 23, 2013. The rule disqualifies the use of Rule 506 as a result of certain convictions, cease and desist orders, suspensions and bars (“disqualifying events”) that occur on or after September 23, 2013, and adds disclosure obligation in Rule 506(e) for disqualifying events that occurred prior to September 23, 2013.
On July 31, 2013, I summarized the final rules, which summary can be read HERE. On December 4,
SEC Has Published Final Rules Adopting Regulation A+
On March 25, 2015, the SEC pleasantly surprised the business community by releasing final rules amending Regulation A. The new rules are commonly referred to as Regulation A+. The existing Tier I Regulation A, which does not preempt state law, has been increased to $20 million and the new Tier II, which does preempt state law, allows a raise of up to $50 million. Issuers may elect to proceed under either Tier I or Tier II for offerings up to $20 million. As is becoming common in the industry, I will refer to the new rules, including both Tier I and Tier II offerings, as Regulation A+.
In its press release announcing the passage, SEC Chair Mary Jo White was quoted as saying, “These new rules provide an effective, workable path to raising capital that also provides strong investor protections. It is important for the Commission to continue to look for ways that our rules can facilitate capital raising
First Issuer Completes NASAA Coordinated Review For Regulation A Offering
ABA Journal’s 10th Annual Blawg 100
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The first issuer has completed the NASAA coordinated review process to qualify to sell securities in multiple states under Regulation A. As the first and only issuer to complete this process, the issuer (Groundfloor Finance, Inc.) took the time to write a comment letter to the SEC with respect to its Regulation A+ rulemaking and in particular to discuss its experience with the NASAA coordinated review process. The issuer’s comment letter was followed by a letter to SEC Chair Mary Jo White from the House Financial Services Committee requesting that the SEC study the NASAA Coordinated Review Program.
The Coordinated Review Process
The NASAA coordinated review process is well put together and seems to have a focus on both investor protection and supportive assistance for the issuer. An issuer elects to complete the coordinated review process by completing a Form CR-3b and submitting the application together with a copy of the completed Form
Private Offering Rule Changes Since JOBS Act
ABA Journal’s 10th Annual Blawg 100
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As the end of 2014 approaches, I find myself reflecting on the significant successes and failures in the private offering arena since the enactment of the Jumpstart our Business Startups Act (“JOBS Act”) on April 5, 2012. Some provisions under the JOBS Act became law without further rule-making action on the part of the SEC; others took time to pass; and significantly, Title III Crowdfunding, the most anticipated change in capital market access, has completely stalled. This blog is a summary of the in-depth detailed blogs I’ve previously written on each of these topics with some added commentary.
506(c) – The Elimination of the Prohibition Against General Solicitation and Advertising in Private Offerings to Accredited Investors; Broker-Dealer Exemption for 506(c) Funding Websites
The enactment of new 506(c) resulting in the elimination of the prohibition against general solicitation and advertising in private offerings to accredited investors has been a slow but sure success. Trailblazers
NASAA and US Senate Oppose State Law Pre-Emption in Proposed Regulation A+
On December 18, 2013, the SEC published proposed rules to implement Title IV of the JOBS Act, commonly referred to as Regulation A+. Since that time there has been very little activity towards the advancement of a final rule. The comment period closed March 24, 2014, and presumably the SEC is analyzing the information and deciding on the next reiteration.
NASAA
The North American Securities Administrators Association (NASAA), a group whose members are comprised of state securities regulators, while supportive of the Regulation A+ concept as a whole, has been vocal of its opposition of the proposed state law pre-emption provisions.
Notably, on April 8, 2014, Commissioner Luis A. Aguilar, the NASAA liaison, gave a speech at the North American Securities Administrators Association commenting on the NASAA’s position. In the speech Mr. Aguilar praised the concept of the rule itself, including the two-tier structure, offering amount limits and importantly ongoing reporting requirements. He expressed agreement with many of the same
SEC Proposes Rules for Regulation A+
On December 18, 2013, the SEC published proposed rules to implement Title IV of the JOBS Act, commonly referred to as Regulation A+. The proposed rules both add the new Section 3(b)(2) (i.e., Regulation A+) provisions and modify the existing Regulation A. This blog is limited to a discussion of the new Regulation A+.
Background
Title IV of the JOBS Act technically amends Section 3(b) of the Securities Act, which up to now has been a general provision allowing the SEC to fashion exemptions from registration, up to a total offering amount of $5,000,000. Regulation A is and has historically been an exemption created under the powers afforded the SEC by Section 3(b).
Technically speaking, Regulation D, Rule 504 and 505 offerings and Regulation A offerings are promulgated under Section 3(b), and Rule 506 is promulgated under Section 4(a)(2). This is important because federal law does not pre-empt state law for Section 3(b) offerings, but it does so for Section
Crowdfunding Using Regulation A? Yes, You Can- Right Now!
As everyone waits for the SEC to begin rule making on Title III of the JOBS Act, a few innovative entrepreneurs are using Regulation A as a vehicle to crowdfund today.Although the procedure, as described in this blog, is not the crowdfunding procedure that will be implemented under Title III of the JOBS Act, it does allow for the use of social media and the Internet to solicit and obtain equity investment funds from the general population including unaccredited investors, of a particular state or states.
Moreover, the laws that allow for this method of fundraising are not new.The vehicle of choice is Regulation A—the existing Regulation A, not the new Regulation A+, which will be implemented under Title IV of the JOBS Act. Using Regulation A to offer securities involves the time and expense of a registered offering; however, the registered securities are free trading and may be offered to unaccredited investors.Regulation A does not preempt state
More Information on Crowdfunding Requirements for Issuers
On April 5, 2012 President Obama signed the JOBS Act into law. Part of the JOBS Act is the Crowdfunding Act, the full title of which is the “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure Act of 2012”. The Crowdfunding Act, creates a new exemption to the registration requirements under a newly designated Section 4(6) of the Securities Act of 1933, as amended.
On May 23, 2012 I blogged about crowdfunding requirements for Issuers as summarized in the text of the Crowdfunding Act (the “Act”). This blog continues that discussion providing further information from the Act.
The new crowdfunding exemption allows Issuers to raise up to $1 million in a twelve month period, as long as no individual investment exceeds certain threshold amounts. The threshold amount sold to any single investor, cannot exceed (a) the greater of $2,000 or 5% of the annual income or net worth of such investor, if their annual income or next worth
The JOBS Act Is Not Just Crowdfunding
On April 5, 2012 President Obama signed the JOBS Act into law. In my excitement over this ground-breaking new law, I have been zealously blogging about the Crowdfunding portion of the JOBS Act. However, the JOBS Act impacts securities laws in many additional ways. The following is a summary of the many ways the JOBS Act will amend current securities regulations, all in ways to support small businesses.
A. The New “Emerging Growth Company” Category
The JOBS Act will create a new category of companies defined as “Emerging Growth Companies” (EGC). An EGC will be defined as a company with annual gross revenues of less than $1 billion, that has been public and reporting for a minimum of five years and whose non-affiliated public float is valued at less than $700 million. EGC’s will have reduced requirements associated with initial public offerings (IPO’s) and ongoing reporting requirements. For many purposes, EGC’s will be allowed to use the less
