On March 4, 2020, the Securities and Exchange Commission (“SEC”) proposed amendments to the current framework of registration exemptions and safe harbors. The SEC’s proposal is a first step following the release of its June 2019 concept release in which the SEC solicited public comment on possible ways to simplify, harmonize, and improve the exempt offering framework in order to promote capital formation and expand investment opportunities while maintaining appropriate investor protections. The vast majority of U.S. securities offerings rely on an exemption from the SEC’s registration requirements and the SEC recognized in the proposal the importance of creating a more rational framework that better allows companies to access capital.
The proposed rules are intended to reduce friction points in the offering framework in order to help market participants navigate the exempt offering process. In particular, the proposed rules would permit an issuer to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use for the sale of the securities. Similarly, issuers would be permitted to engage in certain “demo day” communications without violating a given exemption’s prohibition on general solicitation.
Importantly, the proposed rules included four new non-exclusive safe harbors from integration that would increase the ability of issuers to move from one exemption to another (or a registered offering). The current integration framework for securities offerings consists of a mixture of rules and SEC guidance for determining whether multiple securities transactions should be considered part of the same offering. According to the proposed rules, any offering made more than 30 calendar days before the commencement of any other offering (or more than 30 calendar days after the termination or completion of any other offering) would generally not be integrated with another offering.
Additionally, the proposed revisions (i) increase the maximum offering amount under Tier 2 of Regulation A from $50 million to $75 million; (ii) increase the maximum offering amount for secondary sales under Tier 2 of Regulation A from $15 million to $22.5 million; (iii) increase the offering limit in Regulation Crowdfunding from $1.07 million to $5 million; (iv) remove application of Regulation Crowdfunding investment limits on accredited investors; and (v) increase the maximum offering amount for Rule 504 of Regulation D from $5 million to $10 million.
The public comment period for the proposed rule amendments will remain open for 60 days. A PDF of the proposed rule can be found here. A Legal Update will follow in short order.