On October 30, the Securities and Exchange Commission proposed amendments to modernize: (1) Rule 147, promulgated under the Securities Act of 1933 (Securities Act) as a safe harbor exempting intrastate offerings from federal registration under the Securities Act, to further facilitate intrastate offerings and capital formation in light of recently-adopted crowdfunding provisions under state securities laws; and (2) Rule 504 of Regulation D under the Securities Act, which permits companies that are not SEC reporting companies to sell securities to an unlimited number of persons without regard to wealth or sophistication (and, if certain conditions are met, to engage in general solicitation and issue freely tradable securities), to increase the amount of securities that may be sold pursuant to the rule.
Continue Reading SEC Proposes Amendments to Rules 147 and 504

On October 30, the Securities and Exchange Commission adopted “Regulation Crowdfunding,” which consists of final rules that will enable eligible companies to raise up to $1 million in capital in any 12-month period by offering securities through SEC registered intermediaries in crowdfunding transactions on the Internet. The long-awaited crowdfunding rules implement the exemption from registration under the Securities Act of 1933 (Securities Act) provided by Section 4(a)(6) of the Securities Act, which was adopted pursuant to the Jumpstart Our Business Startups (JOBS) Act. The exemption will be available to US issuers, other than reporting companies under the Securities Exchange Act of 1934 (Exchange Act), certain investment companies, blank check companies or companies that have indicated that their business plan is to engage in a merger or acquisition with an unidentified company, companies that have failed to comply with annual reporting requirements under Regulation Crowdfunding within two years prior to a proposed offering, and issuers that are disqualified under “bad actor” provisions.
Continue Reading SEC Adopts Final Crowdfunding Rules, Completing JOBS Act Rulemaking

On October 29, the Division of Economic and Risk Analysis (DERA) of the Securities and Exchange Commission published the results of a study that analyzed the market for unregistered securities offerings during the period from 2009–2014. The study found that private placements outpaced the level of capital formation through registered securities offerings during recent years, totaling more than $2 trillion during 2014. Regulation D offerings accounted for approximately $1.3 trillion of the capital raised, of which approximately 99 percent was sold in reliance upon Rule 506. The study also found that Rule 506(c) offerings (i.e., private placements that are offered by means of general solicitation and advertising) represented only approximately 2 percent, or $33 billion, of the capital raised in Regulation D offerings. According to the study, the median size for Regulation D offerings conducted by non-financial issuers (i.e., issuers other than pooled investment funds and issuers that are not, according to their Form Ds, in the commercial banking, insurance, investing, investment banking, or other banking or financial services industry) was less than $2 million, suggesting that Regulation D remains a critical tool for small businesses to raise capital.
Continue Reading DERA Publishes Study of Unregistered Offering

On October 21, the Securities and Exchange Commission announced that it will hold its annual Government-Business Forum on Small Business Capital Formation on November 19 at its Washington, DC headquarters. The forum will feature panel discussions on exempt and registered offerings occurring after the passage of the Jumpstart Our Business Startups Act (JOBS Act), and breakout sessions regarding the regulation of smaller reporting companies and exempt offerings. Interested individuals can attend in person or via webcast/teleconference. Katten partners Mark Wood and Jonathan Weiner will be participating in the SEC forum and, on November 18, will be panelists at the Growth Capital Summit in Washington, DC, which will include discussions of legislative, regulatory and enforcement developments affecting emerging growth capital markets.
Continue Reading SEC To Hold Forum on Small Business Capital Formation in November

On October 6, the US House of Representatives passed the Disclosure Modification and Simplification Act of 2015 (H.R. 1525), which, if enacted, would require the Securities and Exchange Commission to (1) revise Regulation S-K (which governs disclosure requirements for registration statements and periodic reports, among other things) to eliminate duplicative, outdated or unnecessary disclosure requirements and to otherwise reduce the burdens imposed on emerging growth companies, accelerated filers, smaller reporting companies and other smaller issuers; (2) study additional ways of modernizing and simplifying disclosure requirements; and (3) permit registrants to submit a summary page on Form 10-K (with appropriate cross references to applicable material within the 10-K).
Continue Reading House Passes Disclosure Modification and “4(a)(1)(1/2)” Bills

On September 8, the SEC charged a sports supplements and nutrition company, its former audit committee chairman and three of its current and former executive officers with committing accounting, disclosure and other violations of federal securities laws. The charges arose primarily from the company’s failure to properly report as compensation perks provided to its executives.
Continue Reading SEC Charges Four Individuals and Nutrition Company for Failure To Disclose Executive Perks

On June 16, the Securities and Exchange Commission denied a motion, filed by Monica J. Lindeen, Montana State Auditor, ex officio Commissioner of Securities and Insurance, which sought to stay the effectiveness of new “Regulation A+” (which became effective today, June 19). As noted in the June 5 edition of Corporate & Financial Weekly Digest, Ms. Lindeen, in her capacity as the Montana State Auditor and Commissioner of Securities and Insurance, previously filed a lawsuit with the Federal Court of Appeals for the District of Columbia (DC Circuit), which seeks to enjoin the effectiveness of Regulation A+ on the basis that Regulation A+ exceeded the SEC’s congressional mandate by pre-empting state “blue sky” review of Tier 2 offerings under Regulation A+. The lawsuit is currently pending.
Continue Reading SEC Denies Motion to Stay Regulation A+

On May 27, the Federal Court of Appeals for the District of Columbia combined lawsuits filed by the commonwealth of Massachusetts and the state of Montana against the Securities and Exchange Commission. The lawsuits seek to enjoin the implementation of new Regulation A+ prior to its June 19 effective date. Both Montana and Massachusetts contend that Regulation A+ exceeded the SEC’s congressional mandate by pre-empting state “blue sky” review of Tier 2 offerings under Regulation A+.
Continue Reading States Challenge Blue Sky Preemption Under Regulation A+

On March 25, the Securities and Exchange Commission adopted final rules that will expand the exemption from registration under the Securities Act of 1933 provided by Regulation A to include an exemption for up to $50 million of securities sold during a 12-month period in accordance with the new rules. This new exemption, which is often referred to as Regulation A+, implements Section 401 of The Jumpstart Our Business Startups Act (JOBS Act) (adding Section 3(b)(2) of the Securities Act), which required the SEC to adopt rules that would have the effect of updating and expanding Regulation A. The final rules address a number of comments received by the SEC in response to its December 2013 proposal, which was discussed in a prior edition of Corporate and Financial Weekly Digest.
Continue Reading SEC Adopts Final Rules for Regulation A+ Offerings

On December 18, 2014, the Securities and Exchange Commission proposed rule amendments that, if adopted, would modify SEC rules governing registration under Section 12(g) of the Securities Exchange Act of 1934 (Exchange Act), termination of registration under Section 12(g) of the Exchange Act and suspension of reporting obligations under Section 15(d) of the Exchange Act to reflect the thresholds enacted by Titles V and VI of the Jumpstart Our Business Startups Act (JOBS Act). Titles V and VI of the JOBS Act, which became effective upon adoption, raised the threshold for registration from 500 holders of record and total assets exceeding $1 million to either 2,000 holders or (except for banks and bank holding companies) 500 holders who are not accredited investors and total assets exceeding $10 million. The JOBS Act also raised the threshold at which a bank or bank holding company (but not other registrants) may terminate or suspend the registration of a class of its securities under the Exchange Act from 300 to 1,200 persons.
Continue Reading SEC Proposes Rule Amendments to Implement JOBS Act Registration Thresholds