On March 22, the Business Law Section of the American Bar Association released a letter to the Director of the Division of Corporation Finance of the Securities and Exchange Commission setting forth a detailed set of recommendations for reform of private securities offerings. The letter includes a comprehensive historical narrative of statutory, regulatory and interpretive developments regarding private offering reform. The recommendations to the SEC included, among other things:
- Eliminate restrictions on activities, such as general solicitation and offers not followed by sales, that do not meaningfully contribute to investor protection and where modern technology precludes effective regulation, and replace them with restrictions on purchases;
- Clarify the integration doctrine and relax restrictions on private offering activity where a private offering and a public offering consummated in the same time period would each be permissible if considered separately;
- Amend Regulation D to, among other things, lift restrictions on general solicitation, allow control persons as well as issuers to rely on the safe harbor, and eliminate the notice of sale requirement;
- Amend Rule 144 to, among other things, reduce the holding period to six months (one year for 144(k)), eliminate manner of sale requirements, eliminate volume restrictions for non-affiliates and increase volume limitations for affiliates (at least for fixed income securities, as the volume limitations currently render Rule 144 of limited use for resales of such securities); and
- Amend Rule 144A to, among other things, eliminate the restriction on “offers”, and substitute the concept of “qualified purchaser” under the Investment Company Act in place of the concept of “qualified institutional buyer”.
The letter states that it views its recommendations as timely in light of the SEC’s 2005 public offering reform package and the 2006 Final Report of the Advisory Committee on Smaller Public Companies.