The Jumpstart Our Business Startups Act (the “JOBS Act”) directed the SEC to come up with regulations to help revitalize the Regulation A registration exemption under the Securities Act of 1933 to allow offerings of up to $50 million (up from the current exemption limit of $5 million) without going through the SEC’s securities registration process.
The proposed regulations for Regulation A “Plus” offerings released last December by the SEC proposed, much to the disappointment of the North American Securities Administrators Association (“NASAA”), a framework in which state regulators would retain registration authority only over offerings under Reg. A to $5 million or less. NASAA, an organization consisting of the regulators of the 50 state securities laws, has been lobbying both Congress and the SEC since the SEC’s proposed regulations were released for public comment, to reconsider the proposed regulations and instead, have all Reg. A offerings under the state registration authority.
The state regulators have supposedly reworked a coordinated registration system among its members to collectively register such offerings so that they may be reviewed and approved by state regulators in a timely fashion. A good reason for not using the Regulation A exemption in the past by issuers was the fact that registration of the offering was required in each state that the offering would take place. Generally, state securities registration has been a confusing, costly and time-consuming process and to be avoided if at all possible. One of the chief reasons for the popular use by issuers of private placement offering exemptions under Regulation D is to avoid both state and federal registration requirements.
There are signs that the lobbying efforts by NASAA has gained some inroads with the SEC commissioners, and it is possible at this time that the final regulations will not include the preemption of state securities registration requirements for Reg. A Plus offerings (i.e., those Reg. A offerings from $5 million to $50 million).
Some securities lawyers continue to publicly support the SEC’s proposed state preemption in spite of the state securities regulators’ efforts to streamline the Regulation A Plus offering registration process. Securities lawyers who have experience in filing securities registration applications with multiple state securities regulators doubt that the states are collectively able to effectively streamline a process that in the past has been a material detriment to raising capital.
Only time will tell if the SEC changes its mind on Reg. A Plus offerings with respect to state preemption. The only thing for sure at this point is that NASAA members will continue to lobby the SEC commissioners in an attempt to keep from losing part of their regulatory turf.