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Statement at Open Meeting on Reg A+

Commissioner Kara M. Stein

March 25, 2015

 Today’s amendments to Regulation A are the next step in the Commission’s effort to respond to changes in our securities offering regulations required by the JOBS Act.  While I would have preferred today’s amendments take a different approach to preemption, I support the rule today and I truly hope it will successfully provide new options for small and mid-sized offerings. 

The Federal securities laws have long recognized that one-size does not fit all.  The Commission adopted Regulation A in 1936 as one of the earliest alternatives to full registration of an issuer’s securities with the Commission.[1]  It was designed to provide smaller companies with a more streamlined approach to obtaining Commission approval to offer securities to the general public.  The required disclosures and review by the Commission and the state securities regulators provided the basic investor protections for the offering. 

However, over the years Regulation A has been lightly used.  Whether it was the ease of making a private offering under Regulation D or other reasons,[2]  last year barely any money was raised through the Regulation A offering process.   Regulation D private placements, on the other hand, raised over $1 trillion.[3]

So why wasn’t Regulation A being used for private offerings?  If improvements were made, would it be used more often to raise smaller amounts of capital for smaller companies?  Congress believed that it could be improved so that its usage would increase, and directed the Commission to expand Regulation A. 

Until today, Regulation A offerings were limited to an aggregate amount of $5 million in a twelve-month period.  The amendments we are adopting today create two tiers of offerings and expand the aggregate amount.  Tier 1 can be used to raise up to $20 million in capital in a twelve-month period, while Tier 2, also known as Regulation A+, can be used for offerings of up to $50 million in a twelve-month period. 

Tier 1 offerings are subject to both SEC and state review initially.  Upon qualification, however, Tier 1 offerings have significantly fewer ongoing reporting requirements.  I am concerned that this structure too closely mirrors the original Regulation A, and still might not be utilized.  However, I hope that the increased offering size will encourage use of this new option.  I look forward to seeing how the states work with the issuers to support these offerings, while still thoughtfully protecting investors. 

Tier 2 has the potential, I believe, to work effectively for capital raises between $20 million and $50 million.  It appropriately includes additional regulatory requirements, such as filing an offering circular which Commission staff will review before qualifying the offering, audited financial statements, and annual reports.  Additionally, the amount of securities a non-accredited investor can purchase is capped when buying securities not listed on a national exchange.  I am also pleased that any exemption from registration under section 12(g) of the Exchange Act is conditioned upon, among other things, a $75 million or less public float or, in the absence of a public float, revenues of less than $50 million.  Today’s approach, I hope, allows companies to grow and develop, but ultimately graduate on to full registration status. 

 Overall, I have ongoing concerns about how well today’s changes will work in practice.  I do not know if the structure in place will prove as useful as I would like, or as Congress envisioned.  I am pleased, though, that the language of the release requires the staff to undertake to study and submit a report to the Commission no later than 5 years following the adoption of today’s amendments.  Among other things, this report requires the staff to assess the amount of capital raised by the amendments, the number of issuances, and the incidences of fraud and other violations.   At that time, the Commission can reevaluate this structure and make appropriate adjustments. 

To that end, I look forward to working with investors, small businesses, the states, and others to help us improve the capital formation process so that we can have a palette of options available to companies at different stages in their development. 

In closing, I would like to thank Sebastian Gomez, Zachary Fallon, Shehzad Niazi, Raquel Fox, Lindsey McCord and everyone else from the Division of Corporation Finance who worked so hard on the rule.  I would also like to thank Blair Petrillo from our Office of the Chief Accountant, Simona Mola Yost and Anzhela Knyazeva from our Division of Economic and Risk Analysis, as well as Dorothy McCuaig and Daniel Morris from our General Counsel’s office.   

Thank you for your hard work. 

[1] Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, Release No. 33-9497 (Dec. 18, 2013) at 7.

[2] U.S. Government Accountability Office, Securities Regulation:  Factors That May Affect Trends in Regulation A Offerings (GAO-12-839), July 3, 2012, available at

[3] Analysis performed by staff in the Division of Economic and Risk Analysis, cited in Amendments to Regulation A, Release No. 33-XXXX, March 25, 2015, at 255.

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