Attorney Laura Anthony Talks Test-The-Waters Solicitation Materials on LawCast- The disclaimer legend for testing-the-waters materials utilized following the filing of a Form 1-A with the SEC will be substantially the same as the sample legends I described in the last Lawcast, but will also contain a link to the filed preliminary Form 1-A on the SEC EDGAR database.
“Test-the-waters” solicitations may be made both orally and in writing. However, all solicitation material must be submitted to the SEC as an Exhibit under Part III of Form 1-A. This is a significant difference from S-1 filers, who are not required to file “test-the-waters” communications with the SEC. When a test the waters communication is broadcast orally such as on radio, tv, webcasts and the like, the transcript must be filed with the SEC. Generally, solicitations made orally in person, in real time, are not required to be filed with the SEC.
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.
Like registered offerings, ongoing regularly released factual business communications, not including information related to the offering of securities, will be allowed and will not be considered solicitation materials.
On June 23, 2015, the SEC updated its Division of Corporation Finance C&DI to provide guidance related to Regulation A/A+ including guidance on testing the waters. In particular, the SEC provided the following guidance related to testing the waters using social media:
A company can use Twitter and other social media that limit the number of characters in a communication, to test the waters as long as the company provides a hyperlink to the required disclaimers. In particular, a company can use a hyperlink to satisfy the disclosure and disclaimer requirements in Rule 255 as long as (i) the electronic communication is distributed through a platform that has technological limitations on the number of characters or amount of text that may be included in the communication; (ii) including the entire disclaimer and other required disclosures would exceed the character limit on that particular platform; and (iii) the communication has an active hyperlink to the required disclaimers and disclosures and, where possible, prominently conveys, through introductory language or otherwise, that important or required information is provided through the hyperlink.