Checking off another item on its JOBS Act checklist, the Securities and Exchange Commission on Wednesday adopted new rules that update and expand Regulation A, an existing exemption from registration for smaller issuers of securities. The updated exemption will enable smaller companies to offer and sell up to $50 million of securities in a 12 month period, subject to eligibility, disclosure and reporting requirements.
The final rules, often referred to as Regulation A+, provide for two tiers of offerings: Tier 1, for offerings of securities of up to $20 million in a 12-month period, with not more than $6 million in offers by selling security-holders that are affiliates of the issuer; and Tier 2, for offerings of securities of up to $50 million in a 12-month period, with not more than $15 million in offers by selling security-holders that are affiliates of the issuer. Both tiers are subject to certain basic requirements; Tier 2 offerings are also subject to additional disclosure and ongoing reporting requirements.
A controversial element of the final rule is its preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers” in Tier 2 offerings. Tier 1 offerings will be subject to federal and state registration and qualification requirements, and issuers may take advantage of the coordinated review program developed by the North American Securities Administrators Association.
In March 2014, NASAA, a coalition of state-level securities regulators, voted to approve a new, streamlined review protocol as part of its effort to maintain state oversight despite a push for preemption. The coordinated review program creates one-stop filing for all states in which registration is required, using an Electronic Filing Depository system currently in development.
“We are dismayed and shocked,” Massachusetts Secretary of State William Galvin wrote of the proposed rule in a comment letter. “The states have tackled preemption battles on many fronts, but never before have we found ourselves battling our federal counterpart. Shame on the SEC for this anti-investor proposal.”
William Beatty, NASAA president and a regulator in Washington State, expressed similar concerns about the final rule. “It appears that the SEC has adopted a rule that fails to fully recognize the significant benefits of [the coordinated review program] to issuers and investors alike,” he said in a statement. “We continue to have concerns that the rule does not maintain the important investor protection role of state securities regulators and must look more closely at the final rule as we evaluate our options.”