Resource Guide: SEC Regulation A + Plus

Secondary Sales Offering Limitation

Several commenters specifically supported the proposed limitations on secondary sales.76 While some commenters indicated their support for resale limitations,77 they expressed a preference for either proscribing resales entirely78 or requiring the approval of the resale offering by a majority of the issuer’s independent directors upon a finding that the offering is in the best interests of both the selling securityholders and the issuer.79 One commenter recommended prohibiting resales under Regulation A entirely.80
Another commenter recommended requiring selling securityholders to hold the issuer’s securities for 12 months before being eligible to sell pursuant to Regulation A, in order to distinguish between investors seeking to invest in a business and investors simply seeking to sell to the public for a gain.81

75 Andreessen/Cowen Letter; cf. Proposing Release, fn. 112.
76 Massachusetts Letter 2; NASAA Letter 2; Richardson Patel Letter; WDFI Letter.
77 Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
78 Massachusetts Letter 2; NASAA Letter 2.
79 NASAA Letter 2 (supporting the proposed limits coupled with a board approval requirement in lieu of prohibiting resales entirely); WDFI Letter (not expressing a preference for prohibiting resales entirely).
80 Carey Letter.
81 Letter from Andrew M. Hartnett, Missouri Commissioner of Securities, March 24, 2014 (“MCS Letter”).
Many other commenters recommended raising the resale limits or eliminating them entirely.82 One such commenter recommended alternatively removing non-affiliate securityholders from the resale limitation since concerns over investor information asymmetries would be reduced when dealing with non-affiliate securityholders.83 This commenter also recommended that the Commission reevaluate the need for resale limits within a year of implementing the rules. Another commenter also recommended allowing for unlimited sales by non-affiliate selling securityholders and further suggested that the rules not aggregate such sales with issuer sales.84 Two commenters suggested that limitations on resales are contrary to the Congressional intent behind the enactment of Title IV of the JOBS Act.85
Rule 251(b)

Many commenters specifically supported the proposed elimination of the requirement that issuers must have had net income from continuing operations in at least one of its last two fiscal years in order for affiliate resales to be permitted, generally noting that many companies have net losses for many years, including, for example, due to high research and development costs.86

82 ABA BLS Letter; B. Riley Letter; Canaccord Letter; CFIRA Letter 1; Milken Institute Letter; MoFo Letter; Richardson Patel Letter; WR Hambrecht + Co Letter.
83 Milken Institute Letter.
84 B. Riley Letter.
85 CFIRA Letter 1; WR Hambrecht + Co Letter (noting that the JOBS Act contemplated an increase in the offering threshold to $50 million, but did not limit the percentage that could be sold by selling securityholders).
86 ABA BLS Letter; B. Riley Letter; Canaccord Letter; CFIRA Letter 1; Milken Institute Letter; MoFo Letter; WR Hambrecht + Co Letter.