Attorney Laura Anthony Talks Testing The Waters Under Regulation A+
Posted by Attorney Laura Anthony on September 15, 2016
The JOBS Act enacted in 2012 made the most dramatic changes to the landscape for the marketing and selling of both private and public offerings since the enactment of the Securities Act of 1933. These significant changes include: (i) the creation of Rule 506(c), which came into effect on September 23, 2013 and allows for general solicitation and advertising in private offerings where the purchasers are limited to accredited investors; (ii) the overhaul of Regulation A creating two tiers of offerings, which came into effect on June 19, 2015 and allows for both pre-filing and post-filing marketing of an offering, called “testing the waters”; (iii) the addition of Section 5(d) of the Securities Act, which came into effect in April 2012, permitting emerging growth companies to test the waters by engaging in pre- and post-filing communications with qualified institutional buyers or institutions that are accredited investors; and (iv) Title III crowdfunding, which came into effect May 19, 2016 and allows for the use of Internet-based marketing and sales of securities offerings.
On June 19, 2015 the new rules for Regulation A/A+ came into effect. Regulation A was divided into two tiers: Tier I of Regulation A, which does not preempt state law, allows offerings of up to $20 million in any 12-month period and Tier 2, which does preempt state law, allows offerings of up to $50 million in any 12-month period. Issuers may elect to proceed under either Tier I or Tier 2 for offerings up to $20 million. Since enactment of the rules, the SEC has issued guidance via Compliance and Disclosure Interpretations (C&DI) and industry participants have guided each other, communicating about experiences, successes and frustrations. Regulation A+ allows for prequalification solicitations of interest in an offering, commonly referred to as “testing the waters.” As mentioned, Tier 1 offerings do not preempt state law and accordingly, any companies intending to test the waters for a Tier 1 offering must comply with the individual state law(s) in which they intend to qualify the offering. This process can be expensive and tricky and as such, the majority of Regulation A+ offerings have been filed under Tier 2 and almost all test-the-waters campaigns are for Tier 2 offerings.