On May 24, President Trump signed into law the Economic Growth, Regulatory Relief and Consumer Protection Act. While the Act primarily serves to relieve smaller financial institutions from the burden of complying with certain requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Act also directs the Securities and Exchange Commission to adopt amendments to Rule 701 under the Securities Act of 1933 (Securities Act) and so-called “Regulation A+,” as summarized below.
Rule 701 generally provides an exemption from the registration requirement imposed by the Securities Act for issuances of securities by a company that is not subject to the reporting requirements of the Securities Exchange Act of 1934 (Exchange Act) to its employees, directors and consultants under compensatory benefit plans. Pursuant to Section (e) of Rule 701, if the aggregate sales price or amount of securities sold by an issuer to investors in reliance on Rule 701 during any 12-month period exceeds $5 million, the issuer is required to deliver to investors an additional disclosure, including specified financial statements and risk factors. Section 507 of the Act directs the SEC to, within 60 days after the enactment of the Act, adopt an amendment to increase the threshold for providing enhanced disclosure from $5 million to $10 million (subject to inflation adjustment every five years).
Regulation A+ provides an exemption from the registration requirement imposed by the Securities Act for offerings of securities in qualifying smaller public offerings by private companies, as summarized in the March 27, 2015 edition of Corporate and Financial Weekly Digest. An issuer in a so-called “Tier 2” offering under Regulation A+ (involving an aggregate offering of up to $50 million in any 12-month period) is required under Rule 257 of Regulation A+ to file with the SEC certain periodic and current reports. Section 508 of the Act directs the SEC to make Regulation A+ available to companies that are already subject to SEC reporting requirements under Sections 13 or 15(d) of the Exchange Act and, for Tier 2 offerings, to deem an issuer that has complied with SEC reporting requirements to also have complied with the reporting requirements under Rule 257 of Regulation A+.
Currently, reporting companies with securities that are not listed on a national exchange (for example, issuers with securities traded in the over-the-counter markets) are required to comply with state blue sky securities registration requirements in connection with offerings registered under the Securities Act (except to the extent state specific exemptions are available), whereas the Securities Act preempts such requirements in the case of offerings of securities listed on a national exchange (as well as senior securities). Regulation A+ provides that securities offered in Tier 2 offerings are entitled to state blue sky preemption; the amendment of Regulation A+ as mandated by Section 508 of the Act would allow those Exchange Act reporting companies without securities listed on a national exchange to publicly offer securities in Tier 2 offerings and avail themselves of this state blue sky preemption.
The complete text of the Act is available here.