This is the second in a series of blog posts on the topic of the SEC’s proposed changes to the exempt offering matrix. Below is a link to the first post:
Oh, SEC, how you tease. Back in June 2019, the Concept Release on exempt offerings discussed the Regulation A offering circular (OC) delivery requirements that we flagged as problematic some time ago. (The rules require that, after qualification, written offers -- this includes radio and TV -- must be “accompanied or preceded by” the OC. This is not something you can do on TV or radio, or, for that matter, in tombstone ads in the WSJ.) The discussion in the text of the Concept Release (page 87) focused more on the post-sale OC delivery requirements, but the recommendation made by participants in the 2018 Small Business Forum, that delivery could be effected by a QR code as opposed to an active hyperlink (which the SEC cited), was broader than that. And the questions raised in the Concept Release brought joy to our hearts. Question 53 asked:
Should we, as recommended by the 2018 Small Business Forum, permit the use of QR codes in lieu of a hyperlink to the most recent offering circular? Are there other technological solutions that we should consider, such as use of the issuer’s website address, other URL addresses, or other methods or technologies that would facilitate access to such information? Should we define permissible delivery methods more broadly so as to allow subsequently developed delivery technologies that become generally accepted elsewhere in the marketplace to be used in lieu of a hyperlink to a qualified offering circular? If so, how should we define permissible delivery methods?
“Yes, yes!" we cried, and in our comment letter on the Concept Release we urged the SEC to adopt a more flexible approach to the OC delivery requirements. Technology changes so rapidly that there are many different ways of getting a document into the hands of a prospective investor, and an issuer could even set up an online process that prevented an investor from investing unless he was able to prove that he had read the OC.
But the proposed changes include no changes to the OC delivery rules.
So the status quo remains. Once an offering is qualified, pursuant to Rule 251(d)(1)(iii), written offers (and again, TV and radio are “written” for the purposes of the securities laws) must be accompanied or preceded by the latest version of the OC, which means that only online offers with live hyperlinks will work. Also, remember, how broad the term “offer” is, and claiming that a TV communication that is clearly intended to foster interest in an offering is not an “offer” will not work.
We speculate that part of the reason this issue was not addressed in the proposals may well be a reaction to some exceedingly problematic TV ads that occurred in the past. (Yeah, we saw those too.) But surely the solution is to focus on the content of communications, not to foreclose on issuers’ ability to use broadcast TV and radio altogether?