The SEC adopted amendments to "simplify, harmonize, and improve certain aspects of the exempt offering framework." The amendments expand the availability of the exemptions in order to "promote capital formation while preserving or enhancing important investor protections." The final rule, adopted by a 3-2 vote, was published in the Federal Register.
The amendments generally:
- raise permitted offering size thresholds for certain Regulation A offerings and for crowdfunding transactions;
- better codify and impose greater limits on situations in which the SEC would "integrate" offerings, making it easier to effect a private placement without concern that the private placement would be deemed improper by virtue of the SEC deeming it to be part of another offering by the same issuer;
- permit the "testing of the waters" in connection with certain exempt offerings; and
- provide for an additional method of verifying a potential purchaser's status as an accredited investor under Rule 506(c) of the Securities Act.
Regulation A and Regulation Crowdfunding Eligibility
The amendments raise Tier 2 maximum offerings under Regulation A from $50 million to $75 million and, for secondary sales, from $15 million to $22.5 million. As to Regulation Crowdfunding, the offering limit will be raised from $1.07 million to $5 million. The SEC stated that the final rule revises the regulations' eligibility restrictions by (i) allowing certain special-purpose vehicles to be used when investing in Regulation Crowdfunding issuers and (ii) restricting the types of securities that can be offered under Regulation Crowdfunding.
The SEC adopted four nonexclusive safe harbors from a potential integration of securities offerings.
Rule 504 of Regulation D
The final rule raises the maximum offering amount from $5 million to $10 million under Rule 504 of Regulation D. The SEC highlighted several of the final rule's clarifications to offering communications between issuers and investors, such as:
allowing issuers to use the generic solicitation of interest material to "test the waters" for an exempt securities offering before they decide on an exemption to use for the sale of the securities;
permitting Regulation Crowdfunding issuers to "test the waters" before submitting offering documents to the SEC, consistent with Regulation A requirements; and
excluding certain "demo day" communications from general solicitation or general advertising.
The final rule will go into effect on March 15, 2021, with certain exceptions.
Even if there is no attempt at a rollback of these particular rules, one would expect that the SEC will eventually propose raising the income and wealth standards applicable to accredited investors.