Final Rules
We are adopting, as proposed, an integration safe harbor, with one clarifying change. Under the final rules, offerings pursuant to Regulation A will not be integrated with:
prior offers or sales of securities; or
subsequent offers and sales of securities that are:
registered under the Securities Act, except as provided in Rule 255(c);
made pursuant to Rule 701 under the Securities Act;
made pursuant to an employee benefit plan;
made pursuant to Regulation S;
made pursuant to Section 4(a)(6) of the Securities Act; or
made more than six months after completion of the Regulation A
170 Id.
171 See Proposing Release, Section II.B.5.
172 ABA BLS Letter.
173 CFA Letter.
offering.174
We believe that the integration safe harbor has historically provided and, as amended, will continue to provide, issuers, particularly smaller issuers whose capital needs often change, with valuable certainty as to the contours of a given offering and their eligibility for an exemption from Securities Act registration. The addition of subsequent offers or sales made pursuant to Section 4(a)(6), which is the only substantive change to the existing safe harbor being adopted today, should not significantly alter the application of the doctrine in practice. Given the unique capital formation method available to issuers and investors through Section 4(a)(6) of the Securities Act and the small dollar amounts involved, we believe that the addition to the safe harbor list of subsequent crowdfunding offers and sales conducted pursuant to such section is appropriate and will not unduly increase risks to investors.175 As with any exemption from registration, the burden of proof of compliance with a claimed exemption rests with the party claiming it.176 In our view, the benefits of providing issuers with certainty as to the scope of the integration doctrine, particularly for Regulation A, outweighs the concern expressed by one commenter that compliance with the doctrine may be difficult to enforce.177 In light of the broad permissible target audience of Regulation A solicitations, the potential for expanded use of solicitation materials in Regulation A discussed more fully in Section II.D. below, and the addition of similar provisions for registered offerings under Section 5(d), we believe the integration provisions in the final
174 Rule 251(c).
175 See 15 U.S.C.77d(a)(6); see also Rel. No. 33-9470.
176 See Ralston Purina Co., 346 U.S. 119.
177 CFA Letter.
rule are necessary to ensure that amended Regulation A functions as a viable capital raising option for issuers.
We are also clarifying in the final rules the scope of the proposed safe harbor from integration in instances where an issuer abandons a contemplated Regulation A offering before qualification, but after soliciting interest in such offering to persons other than QIBs and institutional accredited investors. The proposed language could be read to imply that issuers must wait at least 30 calendar days to avoid integration with a subsequent registered offering or else be subject to integration. The final rules clarify that waiting less than 30 calendar days before a subsequent registered offering would not necessarily result in integration and would instead depend on the particular facts and
circumstances.178
We are also reaffirming the integration guidance provided in the Proposing Release, which is consistent with guidance provided by the Commission in a 2007 rule proposal on Regulation D.179 As noted in the Proposing Release, we believe that an offering made in reliance on Regulation A should not be integrated with another exempt offering made by the issuer, provided that each offering complies with the requirements of the exemption that is being relied upon for the particular offering. For example, an issuer conducting a concurrent exempt offering for which general solicitation is not
178 See Note to Rule 251(c) and Rule 255(e); see also Section II.D. below for a discussion on solicitation materials.
179 See Revision of Limited Offering Exemptions in Regulation D, Release No. 33-8828 (Aug. 3, 2007) (expressing the view that the determination as to whether the filing of the registration statement should be considered to be a general solicitation or general advertising that would affect the availability of an exemption under Securities Act Section 4(a)(2) for such a concurrent unregistered offering should be based on a consideration of whether the investors in the private placement were solicited by the registration statement or through some other means that would otherwise not foreclose the availability of the Section 4(a)(2) exemption).
permitted will need to be satisfied that purchasers in that offering were not solicited by means of the offering made in reliance on Regulation A, including without limitation any “testing the waters” communications.180 Alternatively, an issuer conducting a concurrent exempt offering for which general solicitation is permitted, for example, under
Rule 506(c), could not include in any such general solicitation an advertisement of the terms of a Regulation A offering, unless that advertisement also included the necessary legends for, and otherwise complied with,