Harmonizing Private Securities Offering Exemptions

Abstract

The Securities and Exchange Commission requested public comment on ways to simplify, improve, or harmonize exemptions from the requirement to register securities offerings. The SEC acknowledged that the current array of exempt offerings is complex and might be difficult for issuers to navigate. See Concept Release on Harmonization of Securities Offering Exemptions, 84 Fed. Reg. 30,460 (June 26, 2019).

My comment proposed a new exemption from the registration requirements to replace several of the current exemptions and simplify access to capital for startup companies and small to mid-sized companies. It would combine features from Rules 506(b) and (c) of Regulation D and eliminate costly and cumbersome limitations and restrictions that are part of current exemptions for smaller companies, particularly Regulation A, Regulation CF, and Rule 504 of Regulation D. The approach also would broaden the base for sources of capital by eliminating the accredited investor restriction in Rule 506, but it would preserve fundamental investor protection by requiring a set of mandatory disclosures in each sale.

The central element of the proposed exemption is a solid disclosure document. An important qualification is that the disclosures must not be as extensive as those mandated by Regulation S-K, Form S-1, Rule 506(b) for nonaccredited investors, or Regulation A. The disclosure obligations of the new exemption should provide essential company and security information to buyers but avoid the high costs associated with longer disclosures.