Since the SEC’s adoption of its Regulation A+ rules, creating two tiers of Reg A offerings and two sets of procedures to follow, CrowdCheck has worked with a few companies seeking to qualify offering under Reg A. These companies have found themselves to be guinea pigs for state regulators. In the case of Tier 1, it was working through the coordinated review process. In the case of Tier 2, it has been working with states to figure out what notice needs to be filed and when.
Fortunately, NASAA understands the challenges associated with the disparate filing requirements for Tier 2 offerings. On January 27, 2016, NASAA announced a request for comment regarding its proposed model rule and uniform notice filing for Tier 2 offerings. The model rule follows what Washington State has done and requires a notice filing to be made 21 days prior to the first sale of securities in the state. This would allow companies to engage in testing the waters communications and identifying investment interest in their offerings prior to making any filings in a manner consistent with the filing requirements with the SEC. CrowdCheck submitted a letter in support of the proposed model rule on February 18, 2016.
Now it is up to each state to adopt rules that are substantially similar to this proposed model rule and that are consistent with federal law. For instance, Vermont has recently proposed a wholesale revision of the rules governing the issuance of securities in the state. However, the proposed rules in regard to Tier 2 offerings are inconsistent with the proposed model rule and would require notice filings prior to the first offer in the state and prior to any filing being made with the SEC. This is inconsistent with the preemption provisions of federal law and would pose an undue burden on small companies trying to gauge whether there is sufficient interest in its proposed securities offering under Tier 2 of Reg A.
CrowdCheck will be following the developments out of NASAA and state regulators with great interest. We hope that in the end, each state will adopt rules substantially similar to the proposed model rule, thereby ensuring the smaller companies relying on Reg A will be able to easily understand and comply with state regulations.