On March 4, 2020, the Securities and Exchange Commission (the “SEC”) issued a proposal to revise the exempt offering rules under Regulation D (exempt offerings) and Regulation S (offshore offerings) of the Securities Act of 1933 largely to make it easier to conduct such offerings. The proposals include, among other things:
- While Rule 506(c) under the Securities Act currently allows general solicitation, sales can only be made to verified accredited investors. The proposed revised rule would allow an issuer to rely on a previous verification if it can sign a certification that it is not aware of contrary information.
- There would be a new Rule 148 that would make clear that certain “demo days” fulfilling certain requirements would not be considered “general solicitations” incompatible with private offer rules that prohibit general solicitation.
- Proposed Rule 241 would make clear that “gauging of market interest” activities fulfilling certain requirements would not be “general solicitations” incompatible with private offer rules that prohibit general solicitation.
- Proposed Rule 206 would allow issuers under the SEC’s Regulation Crowdfunding to “test the waters” prior to filing Form C if they follow certain rules.
- A new integration rule (public and private offerings) would be adopted to replace the existing one (Rule 152). No integration of Rule 506(b) (no general solicitation allowed) and 506(c) (general solicitation allowed) private offerings would be required if the issuer has a reasonable belief either (i) that there is no disallowed general solicitation for the private offers or (ii) that the issuer already had a substantive relationship with the purchaser before the Rule 506(c) offer began. There would be four new safe harbors from integration: (i) offers or sales for which no general solicitation is allowed commenced 30 days after or terminated 30 days before another so long as there is no disallowed general solicitation for the private offers or the issuer already had a substantive relationship with the purchaser before the private offer; (ii) offers and sales under Regulation S, an employee benefit plan or Rule 701 (performance stock options, etc.); (iii) registered offers after the termination of private offers for which general solicitation is not permitted; and (iv) offers and sales based on an exemption for which general solicitation is permitted made subsequent to any prior terminated or completed offer.
- Eligibility for Regulation Crowdfunding would under the proposed rules include certain crowdfunding vehicles that might otherwise be caught under the Investment Company Act of 1940, but there would be a new limit on the kinds of securities allowed to equity, debt and certain convertible or exchangeable securities. The Regulation Crowdfunding limit would be increased from $1.07 million over 12 months to $5 million. The Regulation Crowdfunding investment limit for accredited investors would be lifted and for non-accredited investors would be based on the greater of annual income or net worth.
- The proposed rules would raise the Regulation A, tier two offering limit from $50 million to $75 million and for secondary sales from $15 million to $22.5 million.
- In addition, the proposed rules would harmonize the disclosure requirements among the various private placement exemptions.
This note is subject to the more fulsome treatment in the notice of proposed rulemaking. Comments are due within 60 days of publication in the Federal Register.