Resource Guide: SEC Regulation A + Plus

Proposed Rules

Regulation A does not currently limit the amount of securities an investor can purchase in a qualified Regulation A offering. As we noted in the Proposing Release, however, we recognize that with the increased annual offering limitation provided in

108 17 CFR 230.251(b) (2014).
109 See Proposing Release, at Section II.B.3.
110 See discussions in Section II.G (Bad Actor Disqualification) below and Section II.B.1 (Eligible Issuers) above.
Section 3(b)(2) comes a risk of commensurately greater investor losses.111 To address that risk we proposed, among other things, to limit the amount of securities investors can purchase in a Tier 2 offering to no more than 10% of the greater of their annual income or their net worth. For this purpose, annual income and net worth would be calculated as provided in the accredited investor definition under Rule 501 of Regulation D.112 Under the proposal, issuers would be required to make investors aware of the investment limitations,113 but would otherwise be able to rely on an investor’s representation of compliance with the proposed investment limitation unless the issuer knew, at the time of sale, that any such representation was untrue.
Comments on Proposed Rules
A number of commenters generally supported investment limitations for Tier 2 offerings.114 These commenters believed that an investment limitation would serve as an important investor protection. Several commenters recommended revisiting the necessity of the limitations after a one- to three- year trial period,115 and another commenter116 recommended extending the investment limitation to Tier 1 offerings to make them more consistent with our proposed rules for securities-based crowdfunding transactions conducted pursuant to Section 4(a)(6) of the Securities Act.117 Some commenters’

111 See Proposing Release, at Section II.B.4.
112 17 CFR 230.501.
113 See paragraph (a)(5) to Part II of proposed Form 1-A.
114 CFA Institute Letter; IPA Letter; Letter from Robert Kisel, Small Business Owner, March 18, 2014 (“Kisel Letter”) (erroneously referring to the 10% limit as a 5% limit); MCS Letter; REISA Letter; Richardson Patel Letter; WDFI Letter.
115 CFIRA Letter 1; Kisel Letter; Milken Institute Letter.
116 CFA Institute Letter.
117 See Crowdfunding, Rel. No. 33-9470 [78 FR 66427] (Nov. 5, 2013).
support for the proposed investment limitations was conditioned on suggested changes to the proposed rules that would require issuers to do more to ensure compliance with the limitations and that would impose adverse consequences on issuers for the failure to do so.118 One commenter believed that the 10% limitation is “significantly higher” than is
appropriate for “all but the wealthiest, least risk averse” investors.119 Two commenters suggested that the 10% limitation should be aggregated across all Regulation A offerings instead of being applied on a per offering basis,120 while one commenter specifically argued against such an aggregated limit.121
Numerous commenters recommended eliminating the investment limitation for Tier 2 offerings.122 Several of these commenters alternatively recommended at least doubling the limit if the provision is not eliminated entirely.123 Other commenters thought that the investment limitation is unnecessary in light of the other investor protections for Tier 2 offerings, such as the expanded disclosure requirements.124 Several