On November 2, the Securities and Exchange Commission voted to adopt a set of amendments (the Amendments) to “harmonize, simplify and improve the multilayer and overly complex exempt offering framework” to “promote capital formation and expand investment opportunities while preserving or improving important investor protections,” according to the SEC’s press release announcing the Amendments. As highlighted in the press release, the Amendments, among other things:
- establish a new integration framework that clarifies, in one rule, the ability of issuers to move from relying on one exemption to another and ultimately to a registered offering, including four non-exclusive safe harbors from integration;
- increase the offering limits for Regulation A (raising the maximum offering limit under Tier 2 from $50 million to $75 million and the maximum limit for secondary sales under Tier 2 from $15 million to $22.5 million), Regulation Crowdfunding (raising the offering limit from $1.07 million to $5 million) and Rule 504 offerings (raising the maximum offering limit from $5 million to $10 million) and revise certain related individual investment limits;
- set clear and consistent rules governing certain offering communications between investors and issuers, providing greater certainty to issuers and protection to investors, including permitting certain “test-the-waters” and “demo day” activities without violating the prohibition on general solicitation and permitting an issuer to “test-the-waters” (1) prior to determining which exemption it will use for the sale of securities and (2) under Regulation Crowdfunding prior to filing an offering document with the SEC; and
- harmonize certain disclosure and eligibility requirements and bad actor disqualification events applicable to different forms of exempt offerings.
The Amendments are based upon amendments the SEC proposed in March, which were previously discussed in the March 6, 2020 edition of Corporate & Financial Weekly Digest, with certain modifications in response to commenters’ feedback. The SEC approved the Amendments on November 2, and we plan to cover the Amendments in greater detail in an upcoming client advisory.
The Amendments become effective 60 days after publication in the Federal Register, except for the extension of temporary Regulation Crowdfunding provisions that will be effective upon publication in the Federal Register.