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Public Statement


 
 

Helping Small Businesses and Protecting Investors

Commissioner Luis A. Aguilar

March 25, 2015

The Commission has long recognized that small businesses are essential to the growth and success of our national economy.[1] Our nation’s 28 million small business owners create almost two out of every three new jobs and employ more than half of the U.S. workforce.[2] The long-term success of our country’s small businesses, however, depends on their access to capital.[3] For this reason, Congress has provided the Commission with authority to pass rules to make it easier for small businesses to raise capital.[4] One rule which has historically been used by small businesses is Regulation A—an exemptive rule that has been around nearly as long as the SEC.[5] Regulation A provides companies with a streamlined and less costly way to raise capital, so long as they provide the investing public with certain critical disclosures about the company and the securities being offered.[6]

To be eligible for the Regulation A exemption, an issuer is limited in the amount of securities that it can offer and sell during any 12-month period. When initially adopted in 1936, this offering limit was $100,000.[7] Subsequently, the offering limit was raised three additional times—to $300,000 in 1945, to $500,000 in 1972, and to $1.5 million in 1978.[8] In 1992, as part of a package that facilitated access to the capital markets for start-up and developing companies, the Commission raised the Regulation A offering ceiling once again to its current cap of $5 million.[9]

Although Regulation A has been frequently relied upon since it was introduced, the use of this exemption has declined over the years. In 1960, for example, more than one thousand companies filed Regulation A notifications with the Commission.[10] By 1997, only 116 offerings were filed under Regulation A, which declined even further to only 19 in 2011.[11] In addition, the number of these offerings that were ultimately deemed “qualified”—meaning securities could actually be sold to investors—went from 57 offerings in 1997 to only one offering in 2011.[12] Although these numbers rose slightly between 2012 and 2014, when 26 offerings were qualified, the numbers still remain low.[13] If the success of a regulatory exemption is measured by how often it is used, then Regulation A has been failing.

The reduction in Regulation A offerings has been largely attributed to a few factors. First, the 1982 enactment of new registration exemptions under Regulation D became more attractive options to many issuers who could have used Regulation A.[14] Second, a report by the U.S. Government Accountability Office (“GAO”) and many commenters point to the relatively low dollar amounts that could be raised, and the costs and burdens of state blue sky laws, as reasons why issuers chose not to use Regulation A.[15] Today’s amendments address both of these concerns, among others.

Protecting Investors While Making Regulation A Work for Small Businesses

First, as mandated by Section 401 of the JOBS Act, the Commission is increasing the dollar amount that can be raised from $5 million to $50 million.[16] Most notably, the amendments create two tiers of issuances that provide a higher ceiling for use of the registration exemption: “Tier 1” for securities offerings of up to $20 million in any 12-month period; and “Tier 2” for offerings up to $50 million in the same period.[17]

In addition to raising the ceiling as to the amount that can be raised, the adopting amendments, commonly referred to as “Regulation A-plus,” make other changes to facilitate the use of Regulation A and enhance investor protection.

Currently, Regulation A requires issuers to, among other things, file certain information with the Commission and provide investors with an offering circular that discloses certain narrative and financial information about the issuer and the securities being offered.[18] While these disclosures are important, it is also recognized that these disclosures are far less comprehensive than would be required in a registered offering.[19] This is a particular concern as to investments in small businesses. The statistics demonstrate that investments in small enterprises are inherently riskier than investments in larger companies with proven track records.[20] For example, the U.S. Small Business Administration found that over 50% of small businesses fail within the first five years.[21] According to a separate study, eight out of ten entrepreneurs who start businesses fail within the first 18 months.[22]

In recognition of these concerns, today’s Regulation A-plus amendments include new provisions designed to enhance investor protections. Specifically, today’s rules strengthen the standards for issuer eligibility.[23] In addition, for higher Tier 2 offerings, the rules require certain new critical disclosures, such as audited financial statements and ongoing disclosures after the offering is completed.[24] Moreover, Tier 2 offerings provide for certain investment limits on what investors can put at risk.[25] Ultimately, although still not as robust as required in a full registration, these new provisions increase the disclosures, transparency, and protections of Regulation A.[26]

The Important Role of State Regulators

Today’s rule also addresses the role of state securities regulators. As is well known, this has been a very contentious issue. A 2012 study by the GAO found that, among other factors, the cost of addressing both federal review and state blue sky laws has been an impediment to the greater use of Regulation A by small businesses.[27] Subsequently, at the time the Commission proposed the Regulation A amendments, the rules preempted the application of certain state blue sky requirements with respect to all offerees in Regulation A offerings, and all purchasers in Tier 2 offerings.

At the proposing stage, the Commission recognized that preemption of the state review of Regulation A offerings was a step that required deliberate and serious consideration. State regulators have a long and proud history of protecting investors, and their localized knowledge and resources have been instrumental in detecting and preventing fraud. Moreover, the Commission was also aware that NASAA[28] was developing a coordinated review program intended to lessen the burden of multi-state review of Regulation A offerings.

In that regard, the proposing release urged interested parties to comment on the pros and cons of incorporating state review into the Regulation A process. During the comment period, the Commission received a number of letters on the issue of preemption,[29] and it is fair to say that the commenters’ letters reflect a wide spectrum of divergent views.[30] These letters have been very informative and have contributed to the Commission’s deliberation on this issue. Letters from NASAA, specific state regulators, and an issuer also informed the Commission that NASAA has made great strides in developing a program to lessen the burdens of multi-state reviews.[31] Specifically, nearly all of the state securities regulators have joined a multi-state coordinated review program[32] that is expected to substantially reduce the compliance costs for small businesses seeking to receive state approval for Regulation A offerings.[33]

After considering all the important factors associated with state involvement in Regulation A offerings, and the creation of the new coordinated review program, the Commission has now determined not to preempt blue sky review for offerees in Tier 1 offerings, and, additionally, the Commission is also increasing the ceiling on Tier 1 offerings from $5 million to $20 million.[34]

Furthermore, as to Tier 2 offerings, the Regulation A-plus rules address the concern that preempting state blue sky review will deprive state regulators of the benefit of a preview of certain riskier offerings before these offerings are sold to the public in their states. Accordingly, first-time Regulation A-plus issuers must publicly file their offering statements with the Commission at least 21 days before qualification. This filing requirement will allow state securities regulators to require issuers to file such material with them for a minimum of 21 calendar days before any potential sales occur to investors in their respective states.[35]

It is also important to note that nothing the Commission does today limits the ability of state securities regulators to investigate and bring anti-fraud enforcement actions involving Regulation A-plus, or limits the state regulators in investigating and bringing actions against broker-dealers for unlawful conduct in Regulation A-plus transactions.[36]

Information Sharing with State Regulators

In addition, the Commission is currently in discussions with NASAA to allow a representative of a state securities regulator to be embedded with the SEC staff and be involved in staff assessment of Regulation A-plus offerings.[37] One of the goals of this new arrangement is for states to have an unfiltered preview into the Regulation A-plus market for preempted offerings. Among other things, one of the benefits of this arrangement would be that the NASAA representative can be involved as the SEC staff reviews Regulation A-plus filings.[38]

Today, I will vote to approve the rules being considered. There are aspects of the rule that I would have liked to have seen stronger, however—such as additional disclosures as to the equity compensation received by insiders in the year prior to an offering.[39] Nevertheless, despite challenges, today’s rules go a long way in balancing the promotion of capital formation and investor protection.

In closing, I would like to thank the staff from the Division of Corporation Finance, the Division of Economic Research and Analysis, the Office of the Chief Accountant, and the Office of the General Counsel for their work on this rulemaking. I appreciate your dedication, and the important work you do to protect investors.

Thank you.



[1] In fact, small firms were responsible for 63% of net new jobs created between 1993 and mid-2013, or more than 14 million of the nearly 23 million net new jobs created during this period. See U.S. Small Business Administration Office of Advocacy, Frequently Asked Questions, available at http://www.sba.gov/sites/default/files/advocacy/FAQ_March_2014_0.pdf. For these purposes, small businesses are defined as those independent businesses with fewer than 500 employees. The Commission has promulgated a number of regulations aimed at allowing these small businesses to sell securities without having to comply with the full registration requirements of the Securities Act. See, for example, Rules 504 and 505 of the Securities Act of 1933 (the “Securities Act”).

[2] U.S. Small Business Administration, Strategic Plan: Fiscal Years 2014-2018, at 4, available at https://www.sba.gov/sites/default/files/aboutsbaarticle/SBA_FY2014-2018_Strategic_Plan_final_update.pdf (last visited Mar. 19, 2015).

[3] Id. at p. 5.

[4] See, e.g., Louis Loss, Joel Seligman, and Troy Paredes, Fundamentals of Securities Regulation, Vol. 1 (2011), at 529 (noting that Congress “has addressed the problem of financing small business” in various ways, including increasing the scope of the Commission’s exemptive power under Securities Act Section 3(b), which provides the statutory authority for Regulation A.).

[5] Regulation A was originally adopted as an exemption from registration in 1936 under the authority of Section 3(b) of the Securities Act of 1933 (the “Securities Act”). See Amendments to Regulation A, SEC Release No. 33-9741, (Mar. 25, 2015), at fn. 864, available at  http://www.sec.gov/rules/final/2015/33-9741.pdf (hereinafter “Regulation A-plus Adopting Release”). By its terms, Regulation A is not restricted to small business issuers. Rather, the rule requires that issuers be one of the following: (i) an entity organized under the laws of the United States or Canada, or any State, Province, Territory, or possession thereof, or the District of Columbia, with its principal place of business in the United States or Canada; (ii) not be subject to section 13 or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) immediately before the offering; (iii) not be a development stage company that either has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies; (iv) not be an investment company registered or required to be registered under the Investment Company Act of 1940; (v) not issue fractional undivided interests in oil or gas rights, or a similar interests in other mineral rights; and (vi) not otherwise be disqualified under the issue ineligibility provisions of Rule 262 of the Securities Act. See Rule 251(a) of the Securities Act. However, the SEC has amended Regulation A in the past to specifically address capital raising issues faced by small business issuers. See, e.g., Small Business Initiatives, SEC Release No. 33-6949 (Jul. 30, 1992), available at https://www.sec.gov/rules/final/6949.txt. (Noting that “[t]oday, with the adoption of major revisions to Securities Act registration exemptions under Rule 504 and Regulation A and the inauguration of an integrated registration and reporting system for small business issuers, the Commission has completed the first of its Small Business Initiatives announced in March of this year. … The March proposals were enthusiastically received by the small business commenters as a significant step to facilitating access to the public market for start-up and developing companies, and reducing the costs for small businesses to undertake to have their securities traded in the public markets.”)

[6] Regulation A exemption allows eligible companies to publicly offer and sell securities without the costs and obligations of a full registration under the Securities Act of 1933, provided that, among other things, they file certain information with the Commission and provide investors with an offering circular that discloses certain narrative and financial information about the issuer and the securities being offered. See Rules 251 to 263 of the Securities Act, and SEC Form 1-A.

[7] See C. Steven Bradford, Regulation A and the Integration Doctrine: The New Safe Harbor, 55 Ohio St. L.J. 255 (1994), at 262, available at http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1087&context=lawfacpub.

[8] Id. at 262-263.

[9] See Small Business Initiatives, SEC Release No. 33-6949 (Jul. 30, 1992), available at https://www.sec.gov/rules/final/6949.txt (noting that the Commission proposals that ultimately led to the 1992 amendments to Regulation A “were enthusiastically received by the small business commenters as a significant step to facilitating access to the public market for start-up and developing companies, and reducing the costs for small businesses to undertake to have their securities traded in the public markets.”); Louis Loss, Joel Seligman, and Troy Paredes, Fundamentals of Securities Regulation, Vol. 1 (2011), at 531; C. Steven Bradford, Regulation A and the Integration Doctrine: The New Safe Harbor, 55 Ohio St. L.J. 255 (1994), at 262-263.

[10] See Harvey Frank, The Processing of Small Issues of Securities Under Regulation A, 1962 Duke L.J. 507 (1962), available at http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1824&context=dlj.

[11] See U.S. Government Accountability Office Report to Congressional Committees, Securities Regulation: Factors That May Affect Trends in Regulation A Offerings GAO-12-839 (July 2012) (hereinafter “GAO Report”), available at http://www.gao.gov/assets/600/592113.pdf.

[12] Id. In addition, the GAO Report described that “[b]etween 1992 and May 2012, 214 of the 1,006 Regulation A filings made with SEC were abandoned or withdrawn. As discussed earlier, SEC staff stated that they have received anecdotal information that some businesses abandon or withdraw from the Regulation A filing process to raise capital through different means, such as the issuance of registered public offering.” Id.

[13] See Regulation A-plus Adopting Release at Section III.B.1.a.i. Regulation A Offerings.

[14] See GAO Report at 2 (noting that “Securities attorneys GAO interviewed suggested that the decrease in filings after 1997 could be attributed to a number of factors, including the increased attractiveness of Regulation D.”)

[15] See, e.g., Comment Letter from the ABA Business Law Section (Apr. 3, 2014) (noting that “[s]maller companies have limited budgets for capital raising and, in our experience, the cost of state securities law registration and review is often prohibitive.”), available at http://www.sec.gov/comments/s7-11-13/s71113-99.pdf; Comment Letter from Paul Hastings (Mar. 24, 2014) (stating that “the costs of compliance with state securities laws is a factor that in the past may have contributed to limited use of Regulation A.”), available at http://www.sec.gov/comments/s7-11-13/s71113-73.pdf; GAO Report at 24 (stating that the $5 million ceiling on Regulation A offerings may have been a deterrent to certain businesses and underwriters who would not be interested in $5 million offerings).

[16] See Regulation A-plus Adopting Release at Section II.A. (Final Rules and Amendments to Regulation A. Overview).

[17] See id. at Rule 230.251(a) (Scope of Exemption).

[18] See Rules 251 to 263 of the Securities Act, and SEC Form 1-A.

[19] Compare the instructions to Form S-1, available at http://www.sec.gov/about/forms/forms-1.pdf, with the instructions to current Form 1-A, available at https://www.sec.gov/about/forms/form1-a.pdf. For example, contrast current Form 1-A’s Management’s Discussion and Analysis of Certain Relevant Factors required under Regulation A, which consists of four items for discussion, as compared with the lengthy and more extensive Management’s Discussion and Analysis of Financial Condition and Results of Operations required of registrants per Item 303 of Regulation S-K. See also Regulation A-plus Adopting Release at Section III.C.3 (Offering Limitations and Secondary Sales) (stating that “[a]n increased maximum offering size in Regulation A offerings could increase the overall amount of securities subject to initial and ongoing disclosure requirements that are less extensive than the requirements for registered offerings being offered to the general public, which may result in less informed decisions by investors.”). Moreover, small business issuers relying on the current Regulation A exemption do not have to file audited financial statements with the Commission (unless audited financial statements are otherwise available), and do not have to file ongoing periodic financial reports required of registrants under the Exchange Act.

[20] These risks include, among other things, the likelihood of small business failure, the lower liquidity of these securities, and, unfortunately, the higher risk of fraud in the small business security markets. See, e.g., Robert Longley, Why Small Businesses Fail: SBA (2014) (noting that over 50% of small businesses fail within the first five years), available at http://usgovinfo.about.com/od/smallbusiness/a/whybusfail.htm. See also SEC Website, Microcap Stock: A Guide for Investors, available at https://www.sec.gov/investor/pubs/microcapstock.htm (“accurate information about ‘microcap stocks’ — low-priced stocks issued by the smallest of companies — may be difficult to find. ... When publicly-available information is scarce, fraudsters can easily spread false information about microcap companies, making profits while creating losses for unsuspecting investors.”) (Website last visited Mar. 16, 2015).

[21] See Robert Longley, Why Small Businesses Fail: SBA (2014), available at http://usgovinfo.about.com/od/smallbusiness/a/whybusfail.htm.

[22] See Eric T. Wagner, Five Reasons 8 Out Of 10 Businesses Fail, Forbes (Sept. 12, 2013), available at http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/.

[23] Today’s amendments would increase the eligibility requirements for all Regulation A-plus issuers, such as prohibiting issuers who have had their registration revoked by the Commission within the past five years or have failed to file ongoing disclosures, if required, within the past two years. See Regulation A-plus Adopting Release at Rule 230.251(b) Issuer. In addition, today’s amendments would conform the Bad Actor disqualification provisions in Regulation A to those currently applied to Rule 506(d) offerings. The Regulation A-plus final rules, thus, include two new disqualification triggers not previously present in Regulation A: (1) final orders and bars of certain state and other federal regulators; and (2) Commission cease-and-desist orders relating to violations of scienter-based anti-fraud provisions of the federal securities laws or Section 5 of the Securities Act. See Regulation A-plus Adopting Release at Rule 230.262(a)(3) and (5) (Disqualification Provisions).

[24] Today’s amendments would require Tier 2 issuers to include audited financial statements in offering circulars and to file audited financial statements with the Commission annually, and to provide ongoing disclosures to investors about the financial condition of the company on an annual and semiannual basis, with additional requirements to provide interim current event updates. See Regulation A-plus Adopting Release at Section II.A. (Final Rules and Amendments to Regulation A. Overview). In addition, the financial statements required under Regulation A-plus only require compliance with U.S. GAAS per AICPA standards, rather than the more robust standards promulgated by the PCAOB. While today’s rules could have required financial statements to be audited in accordance with the PCAOB standards, audits conducted in accordance with U.S. GAAS, as the adopting release notes, provide protection for investors in Regulation A offerings, especially in light of the requirement that auditors for Tier 2 offerings must be independent under Rule 2-01 of Regulation S-X. Moreover, the staff advises that requiring PCAOB standards would have subjected issuers using Regulation A-plus to audit their financial statements both per the PCAOB standards and the AICPA standards as a result of statutory interpretation under Section 2(a)(7) of the Sarbanes-Oxley Act of 2002; this is a burden not shared by companies registered under the Securities Act. See Regulation A-plus Adopting Release at Section II.C.3.b.(2).(c) (Final Rules for Financial Statements).

[25] Today’s amendments would require that Tier 2 investors either be accredited investors or be restricted to investing only up to 10% of their annual income or net worth, whichever is greater, unless the securities are listed on a national securities exchange. The definition of “accredited investor” applicable to Rule 506 is set forth in Rule 501(a) of Regulation D [17 CFR 230.501(a)] and includes any person who comes within one of the definition’s enumerated categories of persons, or whom the issuer “reasonably believes” comes within any of the enumerated categories, at the time of the sale of the securities to that person. The categories include: (A) any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000, excluding the person’s primary residence and any indebtedness secured thereby (up to the value of such residence); and (B) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year. I have spoken several times recently about the need to revise the “accredited investor” definition, and urge the Commission to accomplish this task in the near term. See Commissioner Luis A. Aguilar, Revisiting the "Accredited Investor" Definition to Better Protect Investors (Dec. 17, 2014), available at http://www.sec.gov/news/statement/spch121714laa.html, and Commissioner Luis A. Aguilar, The Importance of Small Business Capital Formation (Nov 20, 2014), available at http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370543532516. The 10% investment limitation applies only to natural persons. In the case of non-natural persons, the 10% investment limitation is applied to 10% of the greater of annual revenue and net assets at fiscal year-end. See Regulation A-plus Adopting Release at Section II.A. (Final Rules and Amendments to Regulation A. Overview).

At the proposing stage of today’s rules, the Commission asked for comment on whether there should be investment limits imposed on Tier 1 offerings in order to provide for state preemption of those offerings. In response, several commenters wrote the Commission stating that in the absence of state blue sky preemption, the Commission should not impose investment limits on purchasers in Regulation A offerings (whether Tier 1 or Tier 2 offerings). In particular, NASAA submitted a comment letter indicating that investment limitations are unnecessary if there is appropriate state oversight. See Comment Letter from NASAA (Mar. 24, 2014), available at http://www.sec.gov/comments/s7-11-13/s71113-75.pdf. In addition, a second commenter noted that imposing investment limitations in offerings in which the states are not preempted has the potential to impose conflicting investor protection standards at the state and federal level, specifically in those instances where the states impose their own investor limitation standards. See Comment Letter from Groundfloor Finance Inc. (Nov. 18, 2014), available at http://www.sec.gov/comments/s7-11-13/s71113-139.pdf.

[26] We should also be mindful that today’s rules will be ineffectual if there is no liquid, transparent, and fair secondary market for trading in Regulation A-plus shares. As I have spoken about on several other occasions, we will need to work to promote a workable secondary trading environment for the many securities that will be available to the public without the typical disclosures accustomed to registered securities. See, e.g., Commissioner Luis A. Aguilar, The Need for Greater Secondary Market Liquidity for Small Businesses (Mar. 4, 2015), available at http://www.sec.gov/news/statement/need-for-greater-secondary-market-liquidity-for-small-businesses.html; Commissioner Luis A. Aguilar, The Importance of Small Business Capital Formation (Nov. 20, 2014), available at http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370543532516; Commissioner Luis A. Aguilar, Promoting Investor Protection in Small Business Capital Formation (Dec. 18, 2013), available at http://www.sec.gov/News/PublicStmt/Detail/PublicStmt/1370542557949. Indeed, today’s Regulation A-plus rules would substantially expand the dollar amount of securities that could be issued to the public without restrictions, and could therefore be immediately traded by security holders who are not affiliates of the issuer. See Securities Act §3(b)((2)(C), as added by JOBS Act §401(a); Rule 144 under the Securities Act. If we do not ensure a viable secondary trading environment for these securities, investors could be left holding illiquid and hard-to-value securities, and the anticipated capital formation benefits of today’s rules will be lost.

[27] See GAO Report at 15. As part of the JOBS Act, Congress mandated that the GAO conduct a study on the impact of state blue sky laws on Regulation A offerings. See JOBS Act, Section 402.

[28] NASAA refers to the North American Securities Administrators Association, whose members include the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico. See the NASAA Website at http://www.nasaa.org/about-us/.

[29] To see the comment letters sent to the Commission on the proposed Regulation A-plus rules, see Comments on Proposed Rule: Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act (File No. S7-11-13), available at http://www.sec.gov/comments/s7-11-13/s71113.shtml.

[30] For example, many commenters objected to the proposed preemption of state securities law registration and qualification requirements. These commenters pointed out that, among other things, state regulators provide important investor protection benefits as a result of their localized knowledge and resources that may assist in detecting and preventing fraud. See, e.g., Comment Letters from: Cornell Securities Law Clinic (Mar. 24. 2014) (suggesting that the “proposed rules increase the potential for fraud by depriving states of the ability to review Regulation A-Plus offerings before they are sold to the public.”),available at http://www.sec.gov/comments/s7-11-13/s71113-69.pdf; CFA Institute (Mar. 24, 2014) (stating that it questioned whether “removing this important level of review by the states and the investor protection it provides is outweighed by the costs of compliance with state securities registrations.”), available at http://www.sec.gov/comments/s7-11-13/s71113-61.pdf; and Groundfloor Finance Inc. (Nov. 18, 2014) (stating that Groundfloor “strongly disagree[s] with the proposal to preempt state registration.”), available at http://www.sec.gov/comments/s7-11-13/s71113-139.pdf. Conversely, many other commenters expressed their support for preemption as proposed. These commenters asserted, among other things, that the added costs and uncertainty of state blue sky compliance was a primary reason that Regulation A was not being utilized as much as other potential offering exemptions. See, e.g., Comment Letters from: OTC Markets (Mar. 24, 2014) (expressing strong support for the preemption proposal, among other things), available at http://www.sec.gov/comments/s7-11-13/s71113-77.pdf;

ABA Business Law Section (Apr. 3, 2014) (stating that “[s]maller companies have limited budgets for capital raising and, in our experience, the cost of state securities law registration and review is often prohibitive.”), available at http://www.sec.gov/comments/s7-11-13/s71113-99.pdf; and Leading BioSciences (Mar. 24, 2014) (stating that “[b]ecause the Reg A+ Proposal includes robust investor protections, federal preemption should be retained in the final release as a critical piece to making the Tier 2 proposal successful for growing companies like Leading Biosciences.”), available at http://www.sec.gov/comments/s7-11-13/s71113-58.pdf.

[31] See, e.g., Comment Letters from: NASAA (Feb. 11, 2015) (stating that the coordinated review program “effectively streamlines the state review process and promotes efficiency by providing centralized filing, unified comments, and a definitive timeline for review” ), available at http://www.sec.gov/comments/s7-11-13/s71113-144.pdf; The Commonwealth of Massachusetts, Secretary of the Commonwealth (Mar. 24, 2014) (stating that “the states, through NASAA, have developed a simple and streamlined coordinated review system for Regulation A and Sec. 3(b)(2) offerings”), available at http://www.sec.gov/comments/s7-11-13/s71113-65.pdf; Texas State Securities Board (Mar. 21, 2014) (stating that “[a]s you may know, a new Coordinated Review Program for offerings exempt from registration under Section 3(b)(2), or Regulation A+ offerings, has indeed been developed by the states that will entail a more uniform and streamlined registration process”), available at http://www.sec.gov/comments/s7-11-13/s71113-67.pdf; Letter from Groundfloor Finance Inc. (Nov. 18, 2014) (stating that “[w]ith the Coordinated Review program in place, there is no basis for preempting state registration given the practical effects of registering through the program”), available at http://www.sec.gov/comments/s7-11-13/s71113-139.pdf.

[32] See NASAA Website, NASAA Members Approve Streamlined Multi-State Coordinated Review Program (Mar. 11, 2014), available at http://www.nasaa.org/29699/nasaa-members-approve-streamlined-multi-state-coordinated-review-program/. See also Regulation A-plus Adopting Release at Section H.3.c. (State Coordinated Review Program for Section 3(b)(2) Securities) (noting in a footnote that “[a]t this time, it is our understanding that 49 of NASAA’s 53 constituent members have agreed to participate in the coordinated review program.”)

[33] Regulation A-plus Adopting Release at Section III.I. (Economic Analysis. Relationship with State Securities Law). See also, Comment Letter from CFA Institute (Mar. 24, 2014) (stating that it encouraged reconsideration of state blue sky preemption “in light of the coordinated review process being developed by state securities regulators.”), available at http://www.sec.gov/comments/s7-11-13/s71113-61.pdf. As of the date of this adopting release, the Commission is also aware of three issuers that have elected to seek qualification at the state level pursuant to this coordinated review program. See Regulation A-plus Adopting Release at 234. In fact, one comment letter strongly supporting state involvement came from a company that recently went through the new coordinated review program. See Letter from Groundfloor Finance Inc. (Nov. 18, 2014) (stating that “[w]ith the Coordinated Review program in place, there is no basis for preempting state registration given the practical effects of registering through the program”), available at http://www.sec.gov/comments/s7-11-13/s71113-139.pdf.

[34] The Commission is required by Section 3(b)(5) of the Securities Act to review the Tier 2 offering limitation every two years. As stated in the adopting release, in addition to revisiting the Tier 2 offering limitation, the Commission staff is also undertaking to review the Tier 1 offering limitation at the same time. The staff also will undertake to study and submit a report to the Commission no later than five years following the adoption of today’s amendments to Regulation A, on the impact of both the Tier 1 and Tier 2 offerings on capital formation and investor protection. The report will include, but not be limited to, a review of: (1) the amount of capital raised under the amendments; (2) the number of issuances and amount raised by both Tier 1 and Tier 2 offerings; (3) the number of placement agents and brokers facilitating the Regulation A offerings; (4) the number of Federal, State, or any other actions taken against issuers, placement agents, or brokers with respect to both Tier 1 and Tier 2 offerings; and (5) whether any additional investor protections are necessary for either Tier 1 or Tier 2. Based on the information contained in the report, the Commission may propose to either decrease or increase the offering limit for Tier 1, as appropriate. See Regulation A-plus Adopting Release at Section II.A. (Final Rules and Amendments to Regulation A. Overview).

[35] It is possible, however, that a state’s notice filing requirements may reduce the time period in which an offering statement and related materials are on file with the state before Commission qualification. See Regulation A Adopting Release at Section II.C.2.c. (Non-public submission of Draft Offering Statements).

[36] See Securities Act Section 18(c)(1), as amended by the JOBS Act (stating that “[c]onsistent with this section, the securities commission (or any agency or office performing like functions) of any State shall retain jurisdiction under the laws of such State to investigate and bring enforcement actions, in connection with securities or securities transactions (A) with respect to— (i) fraud or deceit; or (ii) unlawful conduct by a broker or dealer; and (B) in connection to a transaction described under section 4(6), with respect to— (i) fraud or deceit; or (ii) unlawful conduct by a broker, dealer, funding portal, or issuer.”)

[37] See Regulation A-plus Adopting Release at Section II.H.3.d. (Application of State Securities Law in Tier 1 and Tier 2 Offerings), fn. 832.

[38] See Comment Letter from NASAA (Feb. 19, 2014) (stating that “[s]tate regulators have particular strengths that uniquely qualify them to effectively oversee Regulation A+ offerings. Because we are geographically close and accessible to both investors and local businesses, we are often in a better position than the Commission to communicate with them about the offering to prevent abuse and improve the overall quality of the deal for investor and business alike. Our proximity to investors also puts us in the best position to deal aggressively with securities law violations when they do occur.”), available at http://www.sec.gov/comments/s7-11-13/s71113-12.pdf.

[39] I would have also liked to see the increased use of tagged data, particularly using XBRL, to allow the SEC and the public to better analyze an issuer’s information. Today’s amendments require tagged data in XML fillable format in only certain documents, including Part I of Form 1-A and Part I of Form 1-K. However, unlike registered companies, companies using Regulation A-plus will not be required to submit financial statements using XBRL format. See Regulation A Adopting Release at Section II.C.1. (Electronic Filing; Delivery Requirements) and Section II.E.1. (Continuing Disclosure Obligations).

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Modified: March 25, 2015