Comments on SEC Exempt Offerings Proposing Release

This is the third in a series of blog posts on the topic of the SEC’s proposed changes to the exempt offering matrix.

Below are earlier posts:

SEC exempt offerings: process

SEC exempt offerings proposal: no relief from offering circular delivery requirements

Well, CrowdCheck finally got our comment letter on the proposals filed. It took the SEC a while to post it; was it the Monty Python reference or the “Mean Girls” quote that threw them off, I wonder?

There are a lot of things to like in the proposals and some things that we found problematic or too complicated. If our comment letter is too long (it’s only 31 pages), here are the highlights:

  • While our preference would have been to end the regulation of “offers” altogether, the proposals to simplify the concept of “integration” (treating more than one offering as essentially being the same offering) are an improvement. Some parts of the proposal need clarification or definition, and the Commission needs to make sure that it does not inadvertently prevent issuers from making concurrent offerings under Regulation A and Regulation CF.
  • While we appreciate the proposal to make it easier to hold “demo days” without having to ensure each attendee is accredited, the way the demo day proposal is drafted is unnecessarily restrictive, and it should be amended to make it clear that communications with identified accredited investors at such events can continue as usual without restriction on the content of such communications.
  • We love the idea of a “generic” testing-the-waters exemption, but without preemption from state regulation, its utility will be very limited. The ability to test the waters under Regulation CF will be very helpful.
  • We are not generally in favor of making Rule 506(c) more complicated.
  • We enthusiastically support making the confidential treatment process for Regulation A the same as for registered offerings, and support the proposed simplification of the Regulation A filing process.
  • The SEC is aggressively interpreting its ability to use the general exemptive relief of Section 28 of the Securities Act to expand offering limits. We worry about this being challenged in court. Any increase in offering limits should be accompanied by robust enforcement of existing rules.
  • We love the idea of special purpose vehicles for Regulation CF offerings, but the constraints proposed make the rule unworkable.
  • If the SEC is going to permit only debt, equity and convertible instruments to be offered under Regulation CF, we will need clear guidance as to what convertible debt means in this context, and why SAFEs, for example, do not qualify as such. Revenue-sharing agreements are eminently suited for crowdfunding offerings and should be permitted.

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