In Case You Missed It - Interesting Items for Corporate Counsel - January 2014


1. The SEC last month proposed Regulation A+ rules, here, which provide for capital raises of up to $50 million without a full-blown registration statement. Summaries of the proposed rules abound (e.g., here), but a few high points of the two "tier" exemptions follow.


Tier 1 offering:

  • "Bad actors" not eligible.

  • Up to $5 million, including up to $1.5 million from selling shareholders.
  • Abbreviated registration statement subject to SEC staff review, with a few additions to existing requirements. Confidential submission process available.
  • Form 1-Z filed upon completion or termination of the offering.

Tier 2 offering:

  • "Bad actors" not eligible.
  • Up to $50 million, including up to $15 million from selling shareholders.
  • Same abbreviated registration statement subject to SEC staff review as Tier 1, but audited financial statements are required. Confidential submission process available.
  • Ongoing public reporting requirements, including annual report on Form 1-K, semi-annual reports on Form 1-SA, current reports on Form 1-U.
  • May file a Form 1-Z to exit reporting obligations after reporting for one full fiscal year, if fewer than 300 shareholders of record.
  • Investment limited to the greater of 10% of investor's annual income or net worth.
  • Exemption preempts state blue sky law.

Probably, not many will make a Tier 1 offering, which, like the existing Regulation A exemption, requires compliance with state securities laws. It also doesn't let you raise much. Proposed Tier 2 offerings, which are really mini-IPOs, have more potential and might prove a useful fundraising alternative to Rule 506 under Regulation D. The two primary advantages of Regulation A+ over Regulation D are that the securities sold are not "restricted securities" subject to resale limitations under Rule 144 and that sales may be made to an unlimited number of non-accredited investors. Comments on the rules are due 60 days after publication in the Federal Register, which one assumes will happen soon.

2. And speaking of Regulation D, it is noteworthy that no movement is evident on proposed "process" rules for 506(c) offerings, although comments continue to be posted even though no official action extended the November 4, 2013 deadline for comments. It's probably just me, but has anyone else picked up a shift in tone in comment letters by legitimate commentators? It seems to have moved from "here's some suggestions to make this slightly less awful" to "why not make this not awful at all," including the ABA Business Law Section's plea for the SEC to take a wait-and-see approach instead of moving to curb speculative abuses with onerous rules (see here). Counterbalancing the ABA are letters from U.S. Senators Levin and Heinrich (here and here) urging the SEC to make the rules at least as awful as proposed, if not more. (Incidentally, the Levin staffer who wrote "the soon-to-be 'Wild West' that now exists" should be smacked. For syntax reasons, if nothing else.)

3. That's not, however, to say the SEC has been idle on Regulation D. It published nine Compliance and Disclosure Interpretations (CDIs) on Rule 506(c) offerings (Questions 260.05-13) and 19 CDIs on "Bad Actor" disqualifications under Rule 506(d) (Questions 260.14-32) here. It also issued its first waiver of the bad actor rules, to RBS Securities, here.

4. As the May 31 filing date for conflict mineral disclosures on Form SD approaches, a last gasp for voiding the disclosure rules seems to have legs, at least according to two accounts of the appellate hearing on the U.S. District Court's ruling that the disclosure requirements were valid. See here and here. Business groups' free speech arguments resonated with the panel, according to press coverage, and at least some time was spent suggesting that the rules are not within the SEC's core mandate of protecting investors (which is undisputed but probably irrelevant). Appellate judges are paid to be skeptical and ask probing questions of counsel, so don't count on a successful appeal based on coverage of the hearing. No timeline was set for a decision by the court.

5. In what skeptics might see as continued struggles to stay relevant and cynics as an effort to have issuers continue to pay to receive its analysis, ISS revised the method it uses to calculate an issuer's governance QuickScore. See here. Also, it released its 2014 proxy voting updates. See here and here.

6. A few other items of note:

  • Commentary on the Twitter IPO, including Twitter's responses to SEC questions, is here. The final prospectus, including a description of Twitter's "virtuous cycle of value creation" (. . .um. . . what?), is here.
  • The JOBS Act-required report on Regulation S-K, including a glimpse, at the end of the report, into where changes on this integrated disclosure rule might go, is here.
  • The SEC's Office of the Whistleblower's Second Annual Report, showing no significant change in tips between 2012 and 2013, is here.
  • The SEC's rulemaking agenda for the next 12 months is here, notable to 79 U.S. House and Senate Democrats, at least, for its omission of rules to require disclosure of political spending (see here and here). ("Because it protects investors" . . . right.)
  • Nasdaq's amended compensation committee independence rules, which align with the NYSE rules, were adopted last month (see here); the revised Compensation Committee Certification, here, can be completed online here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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