Part 12 of a series of posts on the JOBS Act
Regulation A of the Securities Act of 1933 permitted the sale of securities to both accredited and unaccredited investors as long as the issuer filed a mini-registration statement with the SEC and complied with relevant state law requirements in each state where funds are solicited.
Title IV of the JOBS Act is an updated version of Regulation A that would increase the offering limit from $5 million to $50 million in a 12-month period, require certain filings be provided to investors, and require annual audited financial statements.
It also requires SEC rulemaking adoption before going live, which has not yet occurred. New rules were proposed by the SEC on Dec. 18, 2013 and public comments are still being taken, although the formal comment period has closed.
Title IV is sometimes called Reg A+ investing.
While Title IV of the JOBS Act directed the SEC to liberalize Regulation A, some issuers see drawbacks under the proposed rules, including:
- Regulation A+ offerings require a mini-registration statement to be filed with the SEC before any sales are made, including audited financial statements
- Regulation A+ offerings require significant ongoing reporting to the SEC.
Neither Title II Crowdfunding nor Title III Crowdfunding require any kind of registration statement and Title II is free of most reporting requirements.
Investors under Title IV are limited to 10 percent of their income or net worth, whichever is more.
Securities under Title IV can be equity, debt or debt convertible into equity or guarantees thereof.
Unlike securities offered under Title II and Title III, Title IV registered crowdfunding proposed rules are freely transferable.
Regulation A+ might be fairly characterized as the “sleeping giant” of the Act and bears little resemblance to its older and largely neglected brother – Regulation A – because Regulation A is both little known and little used.
It has slowly but steadily received increasing attention and interest from market shareholders over the past year.
It is the immediate liquidity and greater transparency that sets Regulation A+ apart from Regulation D and Rule 506 with no mandatory disclosure, no dollar limit and a holding period of one year.
The most contentious issue holding up final Regulation A+ rules adoption is considered by some to be federal pre-emption of state laws regarding the issuance of securities.
Those laws, which vary from state to state, basically hold that a state regulator can bar an issuer from selling securities in that state if the offering is deemed too risky for ordinary investors.
But the SEC appears to be moving toward state review preemption because state laws would be duplicative and add little to investor protection while adding a great deal of otherwise unnecessary time, expense and uncertainty to a proposed capital raise.
As a result, some believe the SEC is in the homestretch of Regulation A+ rulemaking, with final rules approval expected by mid-summer.