The SEC Releases Final Rules Amending Regulation A

On March 25, 2015, the SEC releases final rules amending Regulation A. The new rules are commonly referred to as Regulation A+. Tier I of Regulation A+, which does not preempt state law, allows for a raise of up to $20 million in any 12-month period and Tier II, which does preempt state law, allows a raise of up to $50 million in any 12-month period. Issuers may elect to proceed under either Tier I or Tier II for offerings up to $20 million. Tier II offerings require additional disclosures and ongoing reporting requirements.

In the last segment I discussed eligibility requirements for both Tier 1 and Tier II offerings. Today I am touching on marketing and advertising of the offering.

All Regulation A+ offerings will be allowed to engage in general solicitation and advertising, at least according to the SEC. However, Tier I offerings are still required to comply with applicable state law related to such solicitation and advertising, including any prohibitions related to same.

Regulation A+ allows for pre-qualification solicitations of interest in an offering commonly referred to as “testing the waters.” All solicitation material must be submitted to the SEC as an Exhibit of Form 1-A. Issuers can use “test the waters” solicitation materials both before and after the initial filing of the offering statement. In the event that materials are issued after the filing of an offering circular, the materials must include a current preliminary Form 1-A or information on where a copy can be obtained.

“Test the waters” solicitations may be made both orally and in writing.

Unlike the “testing of the waters” by emerging growth companies that are limited to QIBs and accredited investors, a Regulation A+ company could reach out to retail and non-accredited investors. After the public filing but before SEC qualification, a company may use its preliminary offering circular to make written offers.

Of course, all “test the waters” materials are subject to the antifraud provisions of federal securities laws.

The new rules are expected to be effective on or near June 19, 2015.