On April 8, Commissioner Aguilar and Commissioner Stein spoke at the North American Securities Administrators Association conference.
Commissioner Aguilar noted in his remarks that "Regulation A-plus remains a work in progress, and no one can say what the ultimate outcome will be." The Commissioner went on to note that a workable exemption would "attract issuers that might otherwise choose more opaque exemptions for their capital-raising needs." Indeed, in Rule 506 offerings to accredited investors, there are no disclosure requirements, no investment limit, and no ongoing reporting obligations. The proposed Reg A+ framework provides enhanced investor protections that should mitigate any concerns; however, the debate regarding pre-emption continues.
Even with coordinated review, an issuer faced with a range of capital-raising alternatives, will not choose a Tier 2 offering if state review is necessary. Tier 2 offerings are unlikely to be "local" in nature. Statements of Policy applied by state regulators have not been updated in a meaningful way and are inconsistent with practices in "public" offerings.
A Tier 2 Reg A+ offering will have more in common with a public offering than with a private placement. Many states require that each investor in their state sign a subscription agreement. Of course, in a registered offering that clears and settles through DTC and is sold by a broker-dealer, individual subscription agreements generally are not used. A recent state review triggered comments from examiners inquiring about the rules of DTC, and requested more information about Cede & Co, DTC's nominee, as well as about the "officers, directors and purpose/role of Cede & Co." Presumably, Tier 2 Reg A+ offerings will clear through DTC. These are the just examples of speed bumps that do little to add to investor protection.
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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