SEC Proposes to Expand Private Offerings and Capital Formation
The SEC has proposed new private offering rules that expand Regulation A and Regulation Crowdfunding offerings, allow more “test the waters” activities, and reduce ongoing due diligence burdens. The proposals expand maximum offering limits for Regulation A and Regulation Crowdfunding and reduce limits on investments by accredited investors. A proposed new rule would also exempt certain crowdfunding offerings from the Investment Company Act. The proposal also allows new issuers to test the waters with “demo day” road shows before registration so long as the issuer does not engage in general solicitation. For more expanded Reg D offerings, the SEC proposes to allow issuers to dispense with repeated accredited investor due diligence in a subsequent offering if the issuer “previously took reasonable steps to verify” the accredited investor and then receives a written representation than nothing has changed. According to SEC Chairman Jay Clayton, “These proposals are intended to create a more rational framework that better allows entrepreneurs to access capital while preserving and enhancing important investor protections.”
We have been cheerleaders for the SEC’s efforts to modernize the private offering rules to allow access to the capital markets. Over-regulated markets tilt the scales in favor of large issuers with expensive lawyers at the expense of entrepreneurship and creativity.