The SEC is seeking public comment (due by September 24, 2019) on possible ways to improve the framework for exempt offerings under the Securities Act of 1933 and related SEC rules and regulations, via a June 18 concept release. The SEC seeks input from issuers, investors, and other market participants on potential updates to the exempt offering framework aimed at promoting capital formation and expanding investment opportunities within the exempt market while maintaining appropriate investor protections. The release and the comment process will be of particular interest to hedge funds, private equity funds, securitization vehicles, issuers who raise funds in the private market, and virtually any other person or entity who invests in or issues into the private market under the current regulatory scheme.
The SEC explains that market participants have conveyed concerns over the complexity of the exempt offering framework, which in part stems from the fact that the current capital-raising exemptions were not adopted as part of one cohesive regulatory scheme, but rather evolved over time through various SEC rules and legislative developments. In light of the significant changes implemented over the years with respect to the exempt offering framework, as well as the increased activity within the exempt market today, the SEC is undertaking a comprehensive review of the available exemptions from registration requirements under current federal securities laws, and requests comment on broad themes and specific comment on issues relating to the following:
- Overall framework of exempt offerings, including whether overlapping exemptions create confusion for issuers in determining the most efficient path towards raising capital, and identifying potential gaps in the framework that make it difficult for smaller issuers to rely on one of the exemptions at a key stage of capital formation;
- Specific conditions of the capital-raising exemptions under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D, Regulation A, Rule 504 of Regulation D, Rules 147 and 147A under Section 3(a)(11) of the Securities Act, and Section 4(a)(6) of the Securities Act and Regulation Crowdfunding;
- “Accredited investor” definition, including whether investor eligibility limitations should be revised to focus on the sophistication of the investor, the investment amount, or other criteria instead of just the income or wealth of the individual investor;
- Integration analyses applied in the context of exempt offerings, including whether further guidance should be provided to issuers on their ability to transition from one offering to another;
- Exempt offerings by pooled investment funds, including whether retail investors should be permitted greater exposure to growth-stage issuers through pooled investment funds; and
- Secondary trading of securities initially issued in exempt offerings, including whether revisions are needed for the current resale exemptions in light of limited secondary market liquidity concerns.
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