Scope of Exemption
Eligible Issuers
Proposed Rules
Section 401 of the JOBS Act does not include any express issuer eligibility requirements. The proposed rules would have maintained Regulation A’s existing issuer
eligibility requirements and added two new categories of ineligible issuers.27 The two new categories would exclude issuers that are or have been subject to any order of the Commission pursuant to Section 12(j) of the Exchange Act entered within five years before the filing of the offering statement and issuers that are required to, but that have not, filed with the Commission the ongoing reports required by the final rules during the two years immediately preceding the filing of an offering statement. Additionally, we requested comment on other potential changes to the existing issuer eligibility requirements, including whether the exemption should be limited to “operating
companies,” United States domestic issuers, or issuers that use a certain amount of the proceeds raised in a Regulation A offering in the United States. We also solicited comment on whether we should extend issuer eligibility to non-Canadian foreign issuers, business development companies as defined in Section 2(a)(48) of the Investment Company Act of 1940 (BDCs),28 blank check companies,29 or Exchange Act reporting companies, or, alternatively, eliminate shell companies or REITs from the exemptive regime.
27 Existing Regulation A limits issuer eligibility to issuers organized, and with a principal place of business, in the United States or Canada, while excluding Exchange Act reporting companies, investment companies, including business development companies, development stage companies that have no specific business plan or purpose or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies, issuers of fractional undivided interests in oil or gas rights or a similar interest in other mineral rights, and issuers disqualified because of Rule 262, 17 CFR 230.262 (2014). See 17 CFR 230.251(a) (2014).
28 15 U.S.C. 80a-2(a)(48).
29 “Blank check companies” are development stage companies that have no specific business plan or purpose or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies. See Securities Act Rule 419(a)(2)(i), 17 CFR 230.419(a)(2)(i); see also SEC Rel. No. 33-6949 [57 FR 36442] (July 30, 1992), at fn. 50 (clarifying that blank check companies regardless of whether they are issuing penny stock are precluded from relying on Regulation A).
Comments on the Proposed Rules
Commenters expressed a wide range of views on the proposed issuer eligibility requirements. A number of commenters expressed general support for the proposed issuer eligibility requirements.30 Many commenters expressly supported the new proposed issuer eligibility criterion relating to the requirement to be current in Tier 2 ongoing reporting obligations.31 One commenter also expressly supported the proposed exclusion of issuers subject to an order of the Commission entered pursuant to
Section 12(j) of the Exchange Act from the list of eligible issuers.32 Other commenters suggested additional limitations on issuer eligibility, including: a requirement that issuers be “operating companies,”33 excluding shell companies and issuers of penny stock,34 and
30 Letter from Catherine T. Dixon, Chair, Federal Regulation of Securities Committee, Business Law Section, American Bar Association, April 3, 2014 (“ABA BLS Letter”); Letter from Gabrielle Buckley, Chair, Section of International Law, American Bar Association, May 14, 2014 (“ABA SIL Letter”); Letter from Andrew F. Viles, Canaccord Letter Genuity Inc., March 27, 2014 (“Canaccord Letter”); Letter from Pw Carey, March 24, 2014 (“Carey Letter”); Letter from Kurt
Schacht, CFA, Managing Director, Standards and Financial Market Integrity, and Linda L. Rittenhouse, Director, Capital Markets, CFA Institute, March 24, 2014 (“CFA Institute Letter”); Letter from Kim Wales, Executive Board Member, Crowdfund Intermediary Regulatory Advocates (CFIRA), May 14, 2014 (“CFIRA Letter 1”); Letter from Christopher Tyrrell, Chair, Crowdfunding Intermediary Regulatory Advocates, February 23, 2015 (“CFIRA Letter 2”); Robert R. Kaplan, Jr. and T. Rhys James, Kaplan Voekler Cunningham & Frank PLC, March 23, 2014 (“KVCF Letter”); Letter from William F. Galvin, Secretary, Commonwealth of Massachusetts, March 24, 2014 (“Massachusetts Letter 2”); Letter from Morrison & Foerster LLP, March 26, 2014 (“MoFo Letter”); Letter from Andrea Seidt, President, North American Securities Administrators Association (NASAA) and Ohio Securities Commissioner, March 24, 2014 (“NASAA Letter 2”); Letter from William M. Beatty, Securities Administrator, Washington Department of Financial Institutions, March 24, 2014 (“WDFI Letter”); Letter from William R. Hambrecht, Chairman, WR Hambrecht+ Co, March 4, 2014 (“WR Hambrecht + Co Letter”).
31 ABA BLS Letter; CFA Institute Letter; Massachusetts Letter 2; NASAA Letter 2; WDFI Letter.
32 CFA Institute Letter.
33 CFIRA Letter 1; WR Hambrecht + Co Letter (suggesting that limiting the availability of the exemption to, among other things, operating companies would provide investors with more confidence in the offerings conducted pursuant to Regulation A). But see KVCF Letter (suggesting that limiting availability of the exemption to operating companies would unnecessarily limit the utility of the exemption).
34 ABA BLS Letter; MoFo Letter.
excluding other types of investment vehicles, such as commodity pools and investment funds that invest in gold or virtual currencies.35
A few commenters recommended allowing blank check companies and special purpose acquisition companies (SPACs) to rely on Regulation A.36 One of these commenters recommended allowing blank check companies seeking to raise at least
$10 million to use Regulation A in the same manner as any other eligible issuer, but suggested that, if a company is raising less than $10 million in a Tier 2 offering, the Commission should implement certain additional requirements.37 Another commenter recommended allowing issuers of fractional interests in oil and gas or other mineral rights to rely on Regulation A based on a “reasonable” eligibility test to be developed by the Commission.38 Several commenters opposed any change to the proposed issuer eligibility requirements that would exclude REITs from participating in Regulation A offerings.39 Other commenters advocated expanding the current categories of eligible