On November 2nd, the SEC voted in favor of final rule amendments to improve and simplify the securities exempt offering framework. These latest amendments are part of the SEC’s efforts to promote capital formation and expand investment opportunities while preserving important investor protections.
The amendments will be effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register.
Generally, the amendments seek to:
- establish more clearly the ability of issuers to move from one exemption to another
- increase the offering limits for Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits
- set clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” activities
- harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions
Specifically, the SEC adopted the following detailed amendments:
Integration Framework – When issuers use various private offering exemptions in parallel or in close time proximity, questions can arise as to the need to view the offerings as “integrated”. The amendments establish a general principle that looks to the particular facts and circumstances of two or more offerings, determines 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.
Additionally, the amendments provide four non-exclusive safe harbors from integration providing that:
- Safe Harbor 1 – any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, will not be integrated with such other offering(s); provided that:
- in the case where an exempt offering for which general solicitation is prohibited follows by 30 calendar days or more an offering that allows general solicitation, the issuer has a reasonable belief, based on the facts and circumstances, with respect to each purchaser in the exempt offering prohibiting general solicitation, that the issuer (or any person acting on the issuer’s behalf) either did not solicit such purchaser through the use of general solicitation or established a substantive relationship with such purchaser prior to the commencement of the exempt offering prohibiting general solicitation
- Safe Harbor 2 – offers and sales made in compliance with Rule 701, pursuant to an employee benefit plan, or in compliance with Regulation S will not be integrated with other offerings
- Safe Harbor 3 – an offering for which a Securities Act registration statement has been filed will not be integrated if it is made subsequent to:
- a terminated or completed offering for which general solicitation is not permitted
- a terminated or completed offering for which general solicitation is permitted that was made only to qualified institutional buyers and institutional accredited investors
- an offering for which general solicitation is permitted that terminated or was completed more than 30 calendar days prior to the commencement of the registered offering
- Safe Harbor 4 – offers and sales made in reliance on an exemption for which general solicitation is permitted will not be integrated if made subsequent to any terminated or completed offering.
Offering and Investment Limits – the SEC is amending current offering and investment limits for certain exemptions.
Regulation A, Tier 2:
- increase the maximum offering amount from $50 million to $75 million
- increase the maximum offering amount for secondary sales from $15 million to $22.5 million
Regulation Crowdfunding:
- increase the offering limit from $1.07 million to $5 million
- amend the investment limits for investors by:
- removing investment limits for accredited investors
- using the greater of their annual income or net worth when calculating the investment limits for non-accredited investors
- extend for 18 months the existing temporary relief providing an exemption from certain financial statement review requirements for issuers offering $250,000 or less of securities in reliance on the exemption within a 12-month period
Rule 504 of Regulation D:
- increase the maximum offering amount from $5 million to $10 million
“Test-the-Waters” and “Demo Day” Communications – The SEC is amending offering communications rules, by:
- permitting an issuer to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities
- permitting Regulation Crowdfunding issuers to “test-the-waters” prior to filing an offering document with the Commission in a manner similar to current Regulation A
- providing that certain “demo day” communications will not be deemed general solicitation or general advertising
Regulation Crowdfunding and Regulation A Eligibility – The amendments will allow the use of certain special purpose vehicles to facilitate investments in Regulation Crowdfunding issuers. The adopted rules also impose eligibility restrictions on the use of Regulation A by issuers that are delinquent in their Exchange Act reporting obligations.
Additional improvements:
- change the financial information that must be provided to non-accredited investors in Rule 506(b) private placements to align with the financial information that issuers must provide to investors in Regulation A offerings
- add a new item to the non-exclusive list of verification methods in Rule 506(c)
- simplify certain requirements for Regulation A offerings and establish greater consistency between Regulation A and registered offerings
- harmonize the bad actor disqualification provisions in Regulation D, Regulation A, and Regulation Crowdfunding
Source: https://www.sec.gov/news/press-release/2020-273
