Member Article

On March 4, 2020, the Securities and Exchange Commission (SEC) issued a massive, 341-page release proposing “a set of amendments that would harmonize, simplify, and improve the exempt offering framework to promote capital formation and expand investment opportunities while preserving and enhancing important investor protections.”

The release is informed by public commentary received by the SEC in response to its 2019 concept release on the topic, as well as the SEC’s staff report on the impact of Regulation A on capital formation and investor protection. This was required to be provided to the Commission no later than five years following the 2015 adoption of amendments to Regulation A.

Among the changes (which are summarized in theSEC’s press releaseannouncing the proposals) proposed by the SEC are:

• Increase of current offering and investment limits for certain exemptions:
• For Tier 2 of Regulation A, the maximum offering amount would be raised from $50 million to $75 million in a 12 month period, with the maximum offering amount for secondary sales correspondingly increasing from $15 million to $22.5 million;
• For Regulation Crowdfunding, the maximum offering amount would be raised from $1 million to $5 million, as well as a loosening of investment limits for investors in such offerings; and
• For Rule 504 of Regulation D, the maximum offering amount would be raised from $5 million to $10 million.
• Amendments relating to offering communications, including:
• Permitting issuers to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use;
• Permitting Regulation Crowdfunding issuers to “test-the-waters” before filing an offering document with the Commission in a manner similar to Regulation A; and
• Allowing that certain “demo day” communications would not be deemed a general solicitation or general advertising.
• Amendments to eligibility restrictions in Regulation Crowdfunding and Regulation A, which would permit use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding.
• Changes to the Securities Act of 1933, as amended (Securities Act), integration framework by providing a general principle of integration that looks to the particular facts and circumstances of the offering, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.
• Four non-exclusive safe harbors from integration.

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