Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

Federal RegisterJan 14, 2021

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 227, 229, 230, 239, 240, 249, 270, and 274

[Release Nos. 33-10884; 34-90300; IC-34082; File No. S7-05-20]

RIN 3235-AM27

Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets

AGENCY:

Securities and Exchange Commission.

ACTION:

Final rule.

SUMMARY:

We are adopting amendments to facilitate capital formation and increase opportunities for investors by expanding access to capital for small and medium-sized businesses and entrepreneurs across the United States. Specifically, the amendments simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections. The amendments also seek to close gaps and reduce complexities in the exempt offering framework that may impede access to investment opportunities for investors and access to capital for businesses and entrepreneurs.

DATES:

General:

This final rule is effective on March 15, 2021.

Exceptions:

1. Revised 17 CFR 227.100(b)(7) (amendatory instruction 2), previously effective until Sept. 1, 2021 at 85 FR 27132, May 7, 2020, is now effective from January 14, 2021, to March 1, 2023.

2. Newly redesignated and revised 17 CFR 227.201(aa) (amendatory instruction 4) is effective from January 14, 2021, and remains effective until September 1, 2021.

3. 17 CFR 227.201(bb) (amendatory instruction 5) and 17 CFR 227.301(e) (amendatory instruction 10) are effective from January 14, 2021, to March 1, 2023.

4. Amendments to 17 CFR 227.303(g) (amendatory instruction 11) and 17 CFR 227.304(e) (amendatory instruction 12) are effective from January 14, 2021, and remain effective until September 1, 2021.

5. The amendments to the introductory paragraph in the Optional Question and Answer Format for an Offering Statement of Form C (referenced in § 239.900) are applicable from January 14, 2021, to March 1, 2023.

FOR FURTHER INFORMATION CONTACT:

Anthony Barone or John Byrne, Special Counsel, Office of Small Business Policy, or Steven G. Hearne, Senior Special Counsel, Office of Rulemaking, at (202) 551-3460, Division of Corporation Finance; Jennifer Songer, Branch Chief, or Lawrence Pace, Senior Counsel, at (202) 551-6999, Investment Adviser Regulation Office, Division of Investment Management; U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION:

We are adopting amendments to:

15 U.S.C. 77a

et seq.

15 U.S.C. 78a

et seq.

15 U.S.C. 80a-1

et seq.

Commission Reference

CFR citation

(17 CFR)

Regulation Crowdfunding:

Rules 100 through 504

§§ 227.100 through 227.504.

Rule 100

§ 227.100.

Rule 201

§ 227.201.

Rule 203

§ 227.203.

Rule 204

§ 227.204.

Rule 206

§ 227.206.

Rule 301

§ 227.301.

Rule 303

§ 227.303.

Rule 304

§ 227.304.

Rule 503

§ 227.503.

§ 227.504.

Securities Act of 1933 (Securities Act):

Rule 147

§ 230.147.

Rule 147A

§ 230.147A.

Rule 148

§ 230.148.

Rule 152

§ 230.152.

Rule 155

§ 230.155.

Rule 241

§ 230.241.

Regulation A:

Rules 251 through 263

§§ 230.251 through 230.263.

Rule 251

§ 230.251.

Rule 255

§ 230.255.

Rule 259

§ 230.259.

Rule 262

§ 230.262.

Regulation D:

Rules 500 through 508

§§ 230.500 through 230.508.

Rule 500

§ 230.500.

Rule 502

§ 230.502.

Rule 504

§ 230.504.

Rule 506

§ 230.506.

Regulation S-K:

Items 10 through 1305

§§ 229.10 through 229.1305.

Item 601

§ 229.601.

Form S-6

§ 239.16.

Form N-14

§ 239.23.

Form 1-A

§ 239.90.

Form C

§ 239.900.

Securities Exchange Act of 1934 (Exchange Act):

Rule 12g-6

§ 240.12g-6.

Rule 12g5-1

§ 240.12g5-1.

Form 20-F

§ 249.220f.

Form 8-K

§ 249.308.

Investment Company Act of 1940 (Investment Company Act):

Rule 3a-9

§ 270.3a-9.

Form N-8B-2

§ 274.12.

Securities Act and Investment Company Act:

Form N-1A

§§ 239.15A and 274.11A.

Form N-2

§§ 239.14 and 274.11a-1.

Form N-3

§§ 239.17a and 274.11b.

Form N-4

§§ 239.17b and 274.11c.

Form N-5

§§ 239.24 and 274.5.

Form N-6

§§ 239.17c and 274.11d.

Table of Contents

I. Introduction and Background

II. Discussion of Final Amendments

A. Integration

1. Integration Principles and Application (Rule 152(a) General Principle and Introductory Language to Rule 152)

2. Integration Safe Harbors

3. Commencement, Termination, and Completion of Offerings (Rules 152(c) and 152(d))

4. Conforming Amendments to Securities Act Exemptions

B. General Solicitation and Offering Communications

1. Exemption From General Solicitation for “Demo Days” and Similar Events

2. Solicitations of Interest

3. Other Regulation Crowdfunding Offering Communications

C. Rule 506(c) Verification Requirements

1. Proposed Amendments

2. Comments

3. Final Amendments

D. Harmonization of Disclosure Requirements

1. Rule 502(b) of Regulation D

2. Proposed Amendments To Simplify Compliance With Regulation A

3. Confidential Information Standard

E. Offering and Investment Limits

1. Regulation A

2. Rule 504

3. Regulation Crowdfunding

F. Regulation Crowdfunding and Regulation A Eligibility

1. Regulation Crowdfunding Eligible Issuers

2. Regulation Crowdfunding Eligible Securities

3. Regulation A Eligibility Restrictions for Delinquent Exchange Act Filers

G. Bad Actor Disqualification Provisions

1. Proposed Amendments

2. Comments

3. Final Amendments

III. Other Matters

IV. Economic Analysis

A. Broad Economic Considerations

B. Baseline

C. Economic Effects of the Final Amendments

1. Integration

2. General Solicitation and Offering Communications

3. Rule 506(c) Verification Requirements

4. Disclosure Requirements

5. Offering and Investment Limits

6. Eligibility Requirements in Regulation Crowdfunding and Regulation A

7. Bad Actor Disqualification Provisions

V. Paperwork Reduction Act

VI. Final Regulatory Flexibility Analysis

VII. Statutory Authority

I. Introduction and Background

On March 4, 2020, the Securities and Exchange Commission (the “SEC” or “Commission”) proposed amendments

to simplify, harmonize, and improve certain aspects of the exempt offering framework to promote capital formation while preserving or enhancing important investor protections.

Specifically, the Commission proposed amendments that (1) address the ability of issuers to move from one exemption to another, (2) set clear and consistent rules governing offering communications between investors and issuers, (3) address potential gaps and inconsistencies in our rules relating to offering and investment limits, and (4) harmonize certain disclosure requirements and bad actor disqualification provisions.

See

Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Release No. 33-10763 (Mar. 4, 2020) [85 FR 17956 (Mar. 31, 2020)] (“Proposing Release”).

The Securities Act requires that every offer

and sale of securities be registered with the Commission, unless an exemption from registration is available. The Securities Act, however, also contains a number of exemptions from its registration requirements and authorizes the Commission to adopt additional exemptions. Section 3 of the Securities Act generally provides exemptions that are based on characteristics of the securities themselves.

Section 4 of the Securities Act identifies transactions that are exempt from the registration requirements.

In addition, Section 28 of the Securities Act authorizes the Commission to exempt other persons, securities, or transactions to the extent necessary or appropriate in the public interest and consistent with the protection of investors.

The current exempt offering framework is complex and made up of differing, exemption-specific requirements and conditions. The scope of the exempt offering framework has evolved over time through Commission rules and legislative changes, including most recently through the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”),

the Fixing America's Surface Transportation Act of 2015,

and the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.

On June 18, 2019, the Commission issued a concept release that solicited public comment on possible ways to simplify, harmonize, and improve the exempt offering framework under the Securities Act to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.

While commenters on the Concept Release expressed many perspectives on what changes would best serve the interests of emerging companies raising capital, a consistent theme in many comments was that many elements of the current structure work effectively and a major restructuring is not needed.

See

15 U.S.C. 77b(a)(3) (noting that an offer includes every attempt to dispose of a security or interest in a security, for value; or any solicitation of an offer to buy a security or interest in a security).

See

15 U.S.C. 77c. However, some Section 3 exempted securities are identified based on the transaction in which they are offered or sold. For example, Section 3(b)(1) of the Securities Act authorizes the Commission to exempt certain issues of securities where the aggregate amount offered does not exceed $5 million. 15 U.S.C. 77c(b)(1).

See

15 U.S.C. 77d.

15 U.S.C. 77z-3.

Public Law 112-106, 126 Stat. 306 (2012). The JOBS Act, among other things: (1) Directed the Commission to revise Rule 506 to eliminate the prohibition against general solicitation or general advertising for offers and sales of securities to accredited investors (

See

Section 201(a)(1)); (2) Added Section 4(a)(6) [15 U.S.C. 77d(a)(6)] and Section 4A [15 U.S.C. 77d-1(b)] to the Securities Act and directed the Commission to issue rules to permit certain crowdfunding offerings (

See

Section 302); and (3) Directed the Commission to expand Regulation A (

See

Section 401).

Public Law 114-94, 129 Stat. 1312 (2015).

Public Law 115-174, 132 Stat. 1296 (2018).

See

Concept Release on Harmonization of Securities Offering Exemptions, Release No. 33-10649 (June 18, 2019) [84 FR 30460 (June 26, 2019)] (“Concept Release”).

See, e.g.,

Letter from AngelList Advisors, LLC dated Sept. 25, 2019; Letter from CrowdCheck, Inc. dated Oct. 30, 2019; and Letter from Crowdfund Capital Advisors dated Sept. 24, 2019, in response to the Concept Release,

available at https://www.sec.gov/comments/s7-08-19/s70819.htm.

See also

Recommendation of the SEC Small Business Capital Formation Advisory Committee regarding the exemptive offering framework (Dec. 13, 2019),

available at https://www.sec.gov/spotlight/sbcfac/recommendation-harmonization-general-principles.pdf

(“2019 Small Business Advisory Committee Recommendation on the Exemptive Offering Framework”); and Report of the 2019 SEC Government-Business Forum on Small Business Capital Formation (Dec. 2019),

available at https://www.sec.gov/files/small-business-forum-report-2019.pdf

(“2019 Forum Report”).

Building on the comments received in response to the Concept Release and other comments and recommendations received from the SEC Small Business Capital Formation Advisory Committee, the SEC Investor Advisory Committee, the annual Government-Business Forums on Small Business Capital Formation (each a “Small Business Forum”), and other market participants, the Commission proposed a set of amendments that would generally retain the current exempt offering structure and reduce potential friction points. The proposed amendments were intended to facilitate capital formation while preserving and in some cases enhancing investor protections. The proposed amendments were further intended to address gaps and complexities in the exempt offering framework and help provide viable alternatives to the dominant capital raising tools.

We received many comment letters on the Proposing Release expressing a range of views.

We also received comments and recommendations on the Proposing Release from the SEC Small Business Capital Formation Advisory Committee

and the 2020 Small Business Forum.

After considering the public comments received and the other comments and recommendations, we are adopting the amendments substantially as proposed but with certain modifications in response to commenters' feedback. We believe that the final rules will facilitate the use of the exempt offering framework, particularly by smaller issuers.

We acknowledge concerns about and recommendations relating to transparency and investor protections in the private securities marketplace.

We further acknowledge concerns that by encouraging exempt offerings, these amendments could reduce incentives for issuers to conduct registered public offerings. However, we estimate, as discussed further in Section IV (Economic Analysis) below, that while these amendments may encourage more exempt offerings, these offerings will

have only a marginal impact on the number of registered offerings.

Commenters' views on different aspects of the proposed amendments, as well as their effects, are discussed topically below.

Unless otherwise indicated, comments cited in this release are to comment letters received in response to the Proposing Release, which are available at

https://www.sec.gov/comments/s7-05-20/s70520.htm.

See

Letter from SEC Small Business Capital Formation Advisory Committee dated May 28, 2020 (“SEC SBCFAC Letter”).

See

Final Report of the 2020 SEC Government-Business Forum on Small Business Capital Formation (June 2020),

available at https://www.sec.gov/files/2020-oasb-forum-report-final_0.pdf

(“2020 Forum Report”).

We are mindful of concerns expressed in the Recommendation of the SEC Small Business Capital Formation Advisory Committee regarding how our capital markets are serving underrepresented founders and investors (Aug. 26, 2020), available at

https://www.sec.gov/spotlight/sbcfac/underrepresented-founders-recommendation.pdf.

The recommendation states that minority- and women-owned businesses and funds face barriers to entry due to less access to capital than their peers. We believe that the amendments adopted in this release will enable small businesses generally to access capital through exempt offerings more effectively and we encourage further specific, tangible suggestions for action by the Commission and are committed to continued engagement on this topic.

See

Letter from North American Securities Administrators Association, Inc. dated October 21, 2020 (“NASAA Letter II”). NASAA Letter II recommended requiring the filing of a Form D concurrent with the beginning of a general solicitation, expanding the Form D to capture additional information about the offering, the filing of a closing Form D amendment, and certain legends for Rule 506(c) offerings. While we did not propose and are not adopting these recommended changes, we are committed to continued engagement to enhance small business capital formation and investor protection.

See

discussion of the Broad Economic Considerations in Section IV.A. below, noting among other things that the amendments with the greatest potential to expand the use of individual exemptions affect the smallest market segments (Regulation Crowdfunding and Regulation A), whose issuers tend to be at a much earlier stage of development than those that conduct a traditional initial public offering. In addition, based on data collected on Regulation D offerings from 2009 through 2019, given the small size of a typical Regulation D issuer and offering, the amendments, including the adoption of a new comprehensive integration framework, are unlikely to reduce the incentives or need of issuers contemplating registered offerings.

See

infra

note 596,

infra

Table 7 and related discussion.

II. Discussion of Final Amendments

We are amending the exempt offering framework to close gaps and reduce complexities that may impede access to capital for issuers and thereby limit investment opportunities, while preserving or enhancing important investor protections. The amendments generally:

• Modernize and simplify the Securities Act integration framework for registered and exempt offerings;

• Set clear and consistent rules governing offering communications between issuers and investors;

• Increase offering and investment limits for certain exemptions; and

• Harmonize certain disclosure requirements and bad actor disqualification provisions.

Table 1 summarizes key characteristics of the most commonly used exemptions

from registration, as amended by this release.

Commission rules also provide exemptions for certain offerings where the purpose of the offering is other than to raise capital. For example, 17 CFR 230.701 (“Rule 701”) exempts certain sales of securities made to compensate employees, consultants, and advisors.

Generally, Table 1 is organized by typical offering size from largest to smallest. The information in this table is not comprehensive and is intended only to highlight some of the more significant aspects of the current rules. Certain regulatory exemptions from registration provide specific frameworks or safe harbors to comply with statutory exemptions. For example, offers and sales of securities by an issuer that satisfy the conditions in paragraphs (b) and (c) of Rule 506 are deemed to be transactions not involving any public offering within the meaning of Section 4(a)(2) of the Securities Act [15 U.S.C. 77d(a)(2)].

See

17 CFR 230.506(a). Similarly, Rule 147 provides a safe harbor under Section 3(a)(11) of the Securities Act [15 U.S.C. 77c(a)(11)]. In contrast, for example, Rule 147A is a stand-alone exemption promulgated by the Commission pursuant to its authority under Section 28 of the Securities Act [15 U.S.C. 77z-3].

See

17 CFR 230.147A(a).

Table 1—Overview of Capital-Raising Exemptions

Type of offering

Offering limit within

12-month period

General solicitation

Issuer requirements

Investor requirements

SEC filing

requirements

Restrictions on resale

Preemption of

state registration

and qualification

Section 4(a)(2)

None

Transactions by an issuer not involving any public offering.

See SEC

Ralston Purina Co

None

Yes. Restricted securities

No.

17 CFR 230.506(b) (“Rule 506(b)” of Regulation D)

None

“Bad actor” disqualifications apply

Unlimited accredited investors. Up to 35 sophisticated but non-accredited investors in a 90-day period

17 CFR 239.500 (“Form D”)

Yes. Restricted securities

Yes.

17 CFR 230.506(c) (“Rule 506(c)”) of Regulation D

None

Yes

“Bad actor” disqualifications apply

Unlimited accredited investors. Issuer must take reasonable steps to verify that all purchasers are accredited investors *

Form D

Yes. Restricted securities

Yes.

Regulation A: Tier 1

$20 million

Permitted; before qualification, testing the waters permitted before and after the offering statement is filed

U.S. or Canadian issuers. Excludes blank check companies, registered investment companies, business development companies, issuers of certain securities, certain issuers subject to a Section 12(j) order, and Regulation A and Exchange Act reporting companies that have not filed certain required reports. “Bad actor” disqualifications apply.* No asset-backed securities

None

Form 1-A, including two years of financial statements

Exit report

No.

Regulation A: Tier 2

$75 million

Non-accredited investors are subject to investment limits based on the greater of annual income and net worth, unless securities will be listed on a national securities exchange

Form 1-A, including two years of audited financial statements. Annual, semi-annual, current, and exit reports

Yes.

Rule 504 of Regulation D

$10 million

Permitted in limited circumstances

Excludes blank check companies, Exchange Act reporting companies, and investment companies. “Bad actor” disqualifications apply

None

Form D

Yes. Restricted securities except in limited circumstances

No.

Regulation Crowdfunding; Section 4(a)(6)

$5 million

Testing the waters permitted before Form C is filed. Permitted with limits on advertising after Form C is filed. Offering must be conducted on an internet platform through a registered intermediary

Excludes non-U.S. issuers, blank check companies, Exchange Act reporting companies, and investment companies. “Bad actor” disqualifications apply

No investment limits for accredited investors. Non-accredited investors are subject to investment limits based on the greater of annual income and net worth

Form C, including two years of financial statements that are certified, reviewed or audited, as required. Progress and annual reports

12-month resale limitations

Yes.

Intrastate: Section 3(a)(11)

No Federal limit (generally, individual State limits between $1 and $5 million)

Offerees must be in-state residents

In-state residents “doing business” and incorporated in-state; excludes registered investment companies

Offerees and purchasers must be in-state residents

None

Securities must come to rest with in-state residents

No.

Intrastate: Rule 147

No Federal limit (generally, individual State limits between $1 and $5 million)

Offerees must be in-state residents

In-state residents “doing business” and incorporated in-state; excludes registered investment companies

Offerees and purchasers must be in-state residents

None

Yes. Resales must be within State for six months

No.

Intrastate: Rule 147A

No Federal limit (generally, individual State limits between $1 and $5 million)

Yes

In-state residents and “doing business” in-state; excludes registered investment companies

Purchasers must be in-state residents

None

Yes. Resales must be within State for six months

No.

We discuss specific aspects of the final amendments in detail below.

A. Integration

The integration doctrine seeks to prevent an issuer from improperly avoiding registration by artificially dividing a single offering into multiple offerings such that Securities Act exemptions would apply to the multiple offerings that would not be available for the combined offering.

The Securities Act integration framework for registered and exempt offerings consists of a mixture of rules and Commission guidance for determining whether multiple securities transactions should be considered part of the same offering. As the number of exemptions from registration available to issuers has evolved over time, the integration framework has grown more complex.

See, e.g.,

Revisions of Limited Offering Exemptions in Regulation D, Release No. 33-8828 (Aug. 3, 2007) [72 FR 45116 (Aug. 10, 2007)] (“Regulation D 2007 Proposing Release”), at Section II.C.1.

See

Proposing Release, at Section II.A.

The Commission first articulated the integration concept in 1933 and further developed it in two interpretive releases issued in the 1960s.

The interpretive releases state that determining whether a particular securities offering should be integrated with another offering requires an analysis of the specific facts and circumstances of the offerings. The Commission identified the following five factors to consider in determining whether the offerings should be integrated: (1) Whether the different offerings are part of a single plan of financing; (2) Whether the offerings involve issuance of the same class of security; (3) Whether the offerings are made at or about the same time; (4) Whether the same type of consideration is to be received; and (5) Whether the offerings are made for the same general purpose.

See

Release No. 33-97 (Dec. 28, 1933); Section 3(a)(11) Exemption for Local Offerings, Release No. 33-4434 (Dec. 6, 1961) [26 FR 11896 (Dec, 13, 1961)] (“Section 3(a)(11) Release”); and Non-Public Offering Exemption, Release No. 33-4552 (Nov. 6, 1962) [27 FR 11316 (Nov. 16, 1962)] (“Non-Public Offering Exemption Release”).

See

Section 3(a)(11) Release; and Non-Public Offering Exemption Release.

In adopting Regulation D in 1982, the Commission relied on the five-factor test in establishing a framework used to determine whether two offerings that fall outside of the 17 CFR 230.502(a) (“Rule 502(a)”) safe harbor should be integrated and treated as one offering.

The Rule 502(a) safe harbor provided that offers and sales more than six months before a Regulation D offering or more than six months after the completion of a Regulation D offering will not be considered part of the same offering. This provided issuers with a bright-line test on which they could rely to avoid the integration of multiple offerings. However, for offerings occurring within six months of each other, the determination as to whether separate sales of securities were part of the same offering (

i.e.,

were considered integrated) depended on the particular facts and circumstances of the offerings, including an analysis of the five-factor test.

See

Revision of Certain Exemptions From Registration for Transactions Involving Limited Offers and Sales, Release No. 33-6389 (Mar. 8, 1982) [47 FR 11251 (Mar. 16, 1982)] (“Regulation D Adopting Release”).

See also

Rule 502(a).

Notwithstanding the fact that Rule 502(a) only applies to Regulation D offerings, the integration framework in Rule 502(a)—including the use of the five-factor test for determining the integration of offerings occurring within six months of each other—is often referred to when considering integration issues arising in other exempt offerings that do not have their own integration guidelines, such as Section 4(a)(2).

In 2007, the Commission issued guidance setting forth a framework for analyzing the integration of simultaneous registered and private offerings, where the five-factor test does not apply.

The Commission noted that the determination as to whether the filing of a registration statement should be considered to be a general

solicitation or general advertising

that would affect the availability of the Section 4(a)(2) exemption for a concurrent private placement 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 not foreclose the availability of the Section 4(a)(2) exemption.

See

Regulation D 2007 Proposing Release, at Section II.C.1.

See

Section II.B.

infra

for a discussion of the terms “general solicitation” and “general advertising.” In this release, we sometimes refer to both general solicitation and general advertising as they relate to an offer of securities as “general solicitation.”

See

Regulation D 2007 Proposing Release. The Commission stated that issuers should analyze whether the offering is exempt under Section 4(a)(2) “on its own,” including whether securities were offered and sold to the private placement investors through the means of a general solicitation in the form of the registration statement. The Commission provided the following examples: If an issuer files a registration statement and then seeks to offer and sell securities without registration to an investor who became interested in the purportedly private placement offering by means of the registration statement, then the Section 4(a)(2) exemption would not be available for that offering. If the prospective private placement investor became interested in the concurrent private placement through some means other than the registration statement that was consistent with Section 4(a)(2), such as through a substantive, pre-existing relationship with the issuer or direct contact by the issuer or its agents outside of the public offering effort, then the filing of the registration statement generally would not impact the potential availability of the Section 4(a)(2) exemption for that private placement and the private placement could be conducted while the registration statement for the public offering was on file with the Commission. Similarly, if the issuer is able to solicit interest in a concurrent private placement by contacting prospective investors who (1) were not identified or contacted through the marketing of the public offering, and (2) did not independently contact the issuer as a result of the general solicitation by means of the registration statement, then the private placement could be conducted in accordance with Section 4(a)(2) while the registration statement for a separate public offering was pending.

See id.

More recently, in connection with the Regulation A and Regulation Crowdfunding rulemakings in 2015 and the Rule 147 and Rule 147A rulemaking in 2016, the Commission set forth a facts-and-circumstances integration framework in the context of concurrent exempt offerings.

The facts-and-circumstances integration framework applies to situations where one offering permits general solicitation and the other does not, as well as situations where both offerings rely on exemptions permitting general solicitation. Under this analysis, where an integration safe harbor is not available, integration of concurrent or subsequent offers and sales of securities with any offering conducted under Regulation A, Regulation Crowdfunding, Rule 147, or Rule 147A will depend on the particular facts and circumstances, including whether each offering complies with the requirements of the exemption on which the particular offering is relying.

See

Amendments for Small and Additional Issues Exemptions under the Securities Act (Regulation A), Release No. 33-9741 (Mar. 25, 2015) [80 FR 21805 (Apr. 20, 2015)] (“2015 Regulation A Release”) at Section II.B.5; Crowdfunding, Release No. 33-9974 (Oct. 30, 2015) [80 FR 71387 (Nov. 16, 2015)] (“Crowdfunding Adopting Release”) at Section II.A.1.c; and Exemptions to Facilitate Intrastate and Regional Securities Offerings, Release No. 33-10238 (Oct. 26, 2016) [81 FR 83494 (Nov. 21, 2016)] (“Intrastate and Regional Offerings Release”) at Section II.B.5.

For a concurrent offering under Rule 506(b), purchasers in the Rule 506(b) offering could not be solicited by means of a general solicitation used in connection with an offering under Regulation A (including any “testing-the-waters” communications), Regulation Crowdfunding, or Rule 147 or 147A. The issuer would need to establish that purchasers in the Rule 506(b) offering were solicited through other means. For example, the issuer may have had a pre-existing substantive relationship with such purchasers.

See

2015 Regulation A Release, at Section II.B.5; Crowdfunding Adopting Release, at Section II.A.1.c; and Intrastate and Regional Offerings Release, at Section II.B.5.

We believe that statutory and regulatory changes to the Securities Act exemptive structure, including those arising from the JOBS Act, developments in the capital markets, and the evolution of communications technology make it necessary and appropriate for the Commission to modernize and simplify the Securities Act integration framework for registered and exempt offerings and its application throughout the Securities Act rules. New Rule 152 builds on the approach to integration in the Commission's recent rulemakings and provides a comprehensive integration framework composed of a general principle of integration, as set forth in new 17 CFR 230.152(a) (“Rule 152(a)”), and four safe harbors applicable to all securities offerings under the Securities Act, including registered and exempt offerings, as set forth in new 17 CFR 230.152(b) (“Rule 152(b)”).

Tables 2(a) and 2(b) provide an overview of the general integration principle and safe harbors in new Rule 152, each discussed in more detail below.

Revised introductory language has been added to new Rule 152 clarifying that the plan or scheme to evade the registration requirements language applies to the entire rule, and not just the safe harbors, as proposed. Specifically, the new introductory language states that because of the objectives of Rule 152 and the policies underlying the Securities Act, the provisions of the rule will not have the effect of avoiding integration for any transaction or series of transactions that, although in technical compliance with the rule, is part of a plan or scheme to evade the registration requirements of the Securities Act.

Table 2(

)—Overview of the General Integration Principle in New Rule 152

Integration Principle in New Rule 152(a)

General Principle of Integration

If the safe harbors in Rule 152(b) do not apply, in determining whether two or more offerings are to be treated as one for the purpose of registration or qualifying for an exemption from registration under the Securities Act, offers and sales will not be integrated if, based on the particular facts and circumstances, the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.

Application of the General Principle to an exempt offering prohibiting general solicitation. 17 CFR 230.152(a)(1) (“Rule 152(a)(1)”)

The issuer must have a reasonable belief, based on the facts and circumstances, with respect to each purchaser in the exempt offering prohibiting general solicitation, that the issuer (or any person acting on the issuer's behalf) either:

(i) Did not solicit such purchaser through the use of general solicitation; or

(ii) Established a substantive relationship with such purchaser prior to the commencement of the exempt offering prohibiting general solicitation.

Application of the General Principle to concurrent exempt offerings that each allow general solicitation. 17 CFR 230.152(a)(2) (“Rule 152(a)(2)”)

In addition to satisfying the requirements of the particular exemption relied on, general solicitation offering materials for one offering that include information about the material terms of a concurrent offering under another exemption may constitute an offer of the securities in such other offering, and therefore the offer must comply with all the requirements for, and restrictions on, offers under the exemption being relied on for such other offering, including any legend requirements and communications restrictions.

Table 2(

)—Overview of the Integration Safe Harbors in New Rule 152

Non-Exclusive Integration Safe Harbors in New Rule 152(b)

Safe Harbor 1: 17 CFR 230.152(b)(1) (“Rule 152(b)(1)”)

Any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, will not be integrated with such other offering; provided that, for an exempt offering for which general solicitation is not permitted that follows by 30 calendar days or more an offering that allows general solicitation, the provisions of Rule 152(a)(1) shall apply.

Safe Harbor 2: 17 CFR 230.152(b)(2) (“Rule 152(b)(2)”)

Offers and sales made in compliance with Rule 701, pursuant to an employee benefit plan, or in compliance with 17 CFR 230.901 through 230.905 (“Regulation S”) will not be integrated with other offerings.

Safe Harbor 3: 17 CFR 230.152(b)(1) (“Rule 152(b)(3)”)

An offering for which a Securities Act registration statement has been filed will not be integrated if it is made subsequent to: (i) A terminated or completed offering for which general solicitation is not permitted; (ii) a terminated or completed offering for which general solicitation is permitted that was made only to qualified institutional buyers (“QIBs”) and institutional accredited investors (“IAIs”); or (iii) an offering for which general solicitation is permitted that terminated or completed more than 30 calendar days prior to the commencement of the registered offering. See 17 CFR 230.144(a)(1) for the definition of “qualified institutional buyer,” and 17 CFR 230.501(a)(1), (2), (3), (7), (8), (9), (12), and (13) for a list of entities that are considered “institutional accredited investors.”

Safe Harbor 4: 17 CFR 230.152(b)(1) (“Rule 152(b)(4)”)

Offers and sales made in reliance on an exemption for which general solicitation is permitted will not be integrated if made subsequent to any terminated or completed offering.

1. Integration Principles and Application (Rule 152(a) General Principle and Introductory Language to Rule 152)

No integration analysis under Rule 152(a) is required if any of the non-exclusive safe harbors in Rule 152(b) apply. In addition, the revised introductory language to new Rule 152 clarifies that the plan or scheme to evade the registration requirements language encompasses the entire rule, including the safe harbors.

a. Proposed Amendments

The Commission proposed to revise the integration framework by establishing a general principle of integration in a revised Rule 152 that would require an issuer to consider the particular facts and circumstances of each offering, including whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.

The general principle of integration, as set forth in proposed Rule 152(a), would be available for all offers and sales of securities not covered by one of the four safe harbors set forth in proposed Rule 152(b).

This proposed facts-and-circumstances analysis of integration would replace the traditional five-factor test first articulated by the Commission in 1962.

The Commission also proposed to include two provisions applying the general integration principles that would supplement and provide greater specificity and guidance in applying the facts-and-circumstances analysis. Proposed Rule 152(a)(1) would codify and build on Commission guidance

setting forth a framework for analyzing how an issuer can conduct simultaneous registered and private offerings by providing that for an exempt offering for which general solicitation is not permitted, offers and sales would not be integrated with other offerings if the issuer has a reasonable belief, based on the facts and circumstances, that the purchasers in each exempt offering were not solicited through the use of general solicitation, or the purchasers in each exempt offering established a substantive relationship with the issuer (or person acting on the issuer's behalf) prior to the commencement of the offering prohibiting general solicitation. Proposed Rule 152(a)(2) would clarify that for an exempt offering permitting general solicitation that includes information about the material terms of a concurrent exempt offering also permitting general solicitation, the offering materials must comply with all the requirements for, or restrictions on, offers under each exemption, including any legend requirements or communications restrictions.

See

Regulation D 2007 Proposing Release, at Section II.C.1.

In addition, consistent with the introductory language of Rule 155, the introductory language in proposed Rule 152 specified that the four proposed safe harbors would not be available to any issuer for any transaction or series of transactions that, although in technical compliance with the rule, is part of a plan or scheme to evade the registration requirements of the Securities Act.

b. Comments

i. Integration Framework and Establishment of General Principle of Integration

Consistent with comments that we received on the Concept Release

and recommendations of the annual Small Business Forums

that generally supported clarifying and modernizing the existing integration standards, many commenters supported the proposal to provide a comprehensive integration framework applicable to all securities

offerings under the Securities Act, including registered and exempt offerings, by establishing a general principle of integration and four safe harbors in new Rule 152.

These commenters generally supported the Commission's proposal to create one broadly applicable framework to clarify the ability of issuers to engage in contemporaneous or close in time offerings under independent exemptions or pursuant to an effective registration statement. Several of these commenters stated that the structure of proposed Rule 152 would make clear the interaction between the integration provisions in proposed Rule 152(a) and the non-exclusive safe harbors in proposed Rule 152(b).

The SEC Small Business Capital Formation Advisory Committee also supported the proposed integration framework, specifically stating their belief that the new general principle of integration and the four proposed non-exclusive safe harbors would reduce the complexities across the offering framework by consistently defining and clarifying integration.

See, e.g.,

Letter responding to the Concept Release from Davis Polk & Wardwell LLP dated Sept. 24, 2019; Letter responding to the Concept Release from Dechert LLP dated Sept. 24, 2019; Letter responding to the Concept Release from CrowdCheck dated Oct. 30, 2019 (“CrowdCheck Concept Release Letter”); and Letter responding to the Concept Release from Securities Industry and Financial Markets Association dated Sept. 24, 2019.

See also

2019 Small Business Advisory Committee Recommendation on the Exemptive Offering Framework (stating “Integration should be revised so that the exemptions can be better utilized.”).

But see

Letter responding to the Concept Release from Public Investors Advocate Bar Association dated Sept. 24, 2019 (positing that shortening the six month period in Rule 502(a) would “serve to promote” Ponzi schemes); and Letter responding to the Concept Release from North American Securities Administrators Association dated Oct. 11, 2019 (positing that “loosening” integration safe harbors would “increase the likelihood of regulatory arbitrage or create gaps in the investor protection landscape”). Comment letters received in response to the Concept Release are available at

https://www.sec.gov/comments/s7-08-19/s70819.htm.

See

Final Report of the 2016 SEC Government-Business Forum on Small Business Capital Formation (Mar. 2017), available at

https://www.sec.gov/info/smallbus/gbfor35.pdf

(“2016 Forum Report”); Final Report of the 2017 SEC Government-Business Forum on Small Business Capital Formation (Mar. 2018), available at

https://www.sec.gov/files/gbfor36.pdf

(“2017 Forum Report”); and Final Report of the 2018 SEC Government-Business Forum on Small Business Capital Formation (June 2019), available at

https://www.sec.gov/info/smallbus/gbfor37.pdf

(“2018 Forum Report”) (all three forums recommending that the Commission clarify the relationship between exempt offerings in which general solicitation is not permitted and exempt offerings in which general solicitation is permitted, and that Rule 152 applies to a Rule 506(c) offering so that an issuer using Rule 506(c) may subsequently engage in a registered public offering without adversely affecting the Rule 506(c) offering exemption).

See also

2019 Forum Report (recommending using consistent terms in exempt offering rules for ease of understanding, as well as bright line rules and examples).

See, e.g.,

Letter from Geraci LLP dated May 29, 2020 (“Geraci Law Letter”); Letter from Ketsal dated June 30, 2020 (“Ketsal Letter”); Letter from Netcapital Funding Portal Inc. dated May 31, 2020 (“Netcapital Letter”); Letter from Republic dated June 1, 2020 (“Republic Letter”); Letter from Sō.Capital Inc. dated June 1, 2020 (“Sō.Capital Letter”); Letter from William Hubbard, Hubbard Business Counsel dated June 1, 2020 (“W. Hubbard Letter”); Letter from David R. Burton, Senior Fellow in Economic Policy, The Heritage Foundation dated June 1, 2020 (“D. Burton Letter”); Letter from CrowdCheck Inc. dated June 11, 2020 (“CrowdCheck Letter”); Letter from Shearman & Sterling LLP dated June 18, 2020 (“Shearman & Sterling Letter”); Letter from Institute for Portfolio Alternatives dated June 25, 2020 (“IPA Letter”); and Letter from Federal Regulation of Securities Committee, the Private Equity and Venture Capital Committee, and the Commercial Finance Committee of the Business Law Section of the American Bar Association dated July 27, 2020 (“ABA Letter”). One commenter supporting the proposal suggested that the proposal would provide clarifying guidance that would enable issuers to raise capital in reliance on Rule 506(c) which may reduce the disparity between the amount of capital raised in reliance on Rule 506(b) versus Rule 506(c).

See

Letter from Fried, Frank Harris Shriver & Jacobson LLP dated June 1, 2020 (“Fried Frank Letter”).

See, e.g.,

W. Hubbard Letter; D. Burton Letter; and ABA Letter (stating that the proposed structure would add clarity, reduce complexity and provide greater confidence to issuers in planning and choosing their capital raising options).

But see

CrowdCheck Letter (recommending that specific fact patterns be included in the safe harbors rather than in the provisions that apply the general principle).

See

SEC SBCFAC Letter.

A number of commenters opposed the proposed integration framework.

Some of these commenters expressed concerns that the proposed amendments would reduce the need or incentive for companies to go public

or allow issuers to evade the registration requirements of the Securities Act.

Two of these commenters also raised concerns about potential abuse of the general principle by an issuer identifying investors through a general solicitation in one offering and then selling securities to those investors in an offering for which general solicitation is prohibited.

Another commenter recommended that the integration analysis should involve two separate determinations: Whether offerings are functionally the same offering should be determined first; followed by an analysis of whether the integrated offerings satisfy the requirements of an exemption.

See

Letter from Better Markets, et al. dated June 2, 2020 (“Better Markets Letter”); Letter from Consumer Federation of America dated June 4, 2020 (“CFA Letter”); Letter from CFA Institute dated June 12, 2020 (“CFA Institute Letter”); Letter from Robert E. Rutkowski dated June 4, 2020 (“R. Rutkowski Letter”); Letter from Rutheford B. Campbell, Jr. dated Aug. 3, 2020 (“R. Campbell Letter”); Letter from Committee on Securities Law of the Business Law Section of the Maryland State Bar Association dated June 1, 2020 (“Md. St. Bar Assoc. Letter”); and Letter from Council of Institutional Investors dated May 28, 2020 (“CII Letter”) (expressing concern that the proposed integration framework and expansion of the safe harbors would weaken the integration doctrine and result in the inclusion of large numbers of non-accredited investors in exempt offerings).

See also

Letter from North American Securities Administrators Association, Inc. dated June 1, 2020 (“NASAA Letter”) (stating its objection to a 30-day safe harbor in proposed Rule 152(b)(1), although not objecting to the goal of harmonizing the integration regime and the safe harbors in proposed Rule 152(b)(2) through (4)).

See

CFA Letter (stating its concern that the amendments could result in issuers being able to raise unlimited amounts of capital from an unlimited number of investors through exempt offerings, without ever needing to go through the registration process).

See generally

CFA Institute Letter; and R. Rutkowski Letter.

See, e.g.,

CFA Letter (stating that “the original goal of preventing issuers from artificially separating related transactions into multiple offerings to avoid the registration requirement is gone under this approach, so long as the individual offerings each satisfy a particular exemption”); and R. Rutkowski Letter (suggesting that the proposal would allow issuers to avoid registration requirements by dividing large financings into multiple smaller exempt offerings).

See, e.g.,

CFA Letter; and Md. St. Bar Assoc. Letter.

But see

IPA Letter; and Fried Frank Letter (stating that an offering made more than 30 days after the termination of another offering should not be integrated, regardless of whether the purchasers in the exempt offering may have been solicited using general solicitation).

See

Md. St. Bar Assoc. Letter.

Several commenters who supported the concept of revising the integration framework offered alternative approaches to the proposal.

One of these commenters stated the current integration doctrine should be replaced with general anti-evasion principles and noted its potential adverse effect on early-stage companies.

Another commenter recommended elimination of the current integration doctrine and expressed concern that it has negative effects, particularly for small companies that commonly rely on Section 4(a)(2), Rule 504 or Rule 506(b) for their offerings.

See

CrowdCheck Letter; Letter from John R. Clarke, dated May 30, 2020 (“J. Clarke Letter”) (stating that the integration framework should be replaced with a filing requirement describing all historical and current exempt and registered offerings made by the issuer); and Letter from Invesco Ltd. dated June 1, 2020 (“Invesco Letter”) (recommending a single safe harbor permitting offerings “so long as those offerings are reasonably conducted commensurate with the requirements under such rules”).

See

CrowdCheck Letter (stating that, although the proposed rule “is a distinct improvement on the current state of affairs,” they would prefer for the Commission to “eliminate the concept of integration altogether and rely on general anti-evasion principles”).

See

R. Campbell Letter (stating that the integration doctrine “drives up offering costs and provides no protection for investors” and “its pernicious effects fall most heavily on small issuers”). This commenter raised a concern that, as proposed with its references to purchasers in “each exempt offering,” the requirements of Rule 152(a)(1) would rarely be met for offerings under Section 4(a)(2), Rule 504, or Rule 506(b)).

Some commenters specifically supported our proposal to replace the five-factor test with the Commission's more recent approach to integration adopted in 2015 and 2016 rulemakings involving Regulation A, Regulation Crowdfunding and Rules 147 and 147A, namely whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act or that an exemption from registration is available for the particular offering.

Other commenters specifically recommended retaining the current five-factor test.

One commenter questioned the need for the proposed new framework, stating that it was not aware of significant problems in applying the current five-factor test,

while another commenter stated its concern that the proposal could permit concurrent and serial offerings that are clearly part of a single plan of financing to avoid integration.

See

ABA Letter; J. Clarke Letter; CrowdCheck Letter; Geraci Letter (suggesting that it is difficult for issuers to determine whether subsequent offers might be integrated into a single offering under the five-factor test of integration); and W. Hubbard Letter (suggesting that the five-factor test may continue to be useful in limited situations).

See

CFA Letter; and Md. St. Bar Assoc. Letter.

See

Md. St. Bar Assoc. Letter.

See

CFA Letter (stating that the purpose of integration is to look at the totality of a financing scheme rather than different components in isolation).

See also

R. Rutkowski Letter (stating that the proposed integration framework greatly weakens the integration doctrine by permitting issuers to conduct multiple exempt offerings regardless of whether such offerings are part of a single plan of financing, so long as each offering qualifies for an exemption from Securities Act

registration requirements and is separated by at least 30 days).

ii. Introductory Language of Rule 152

One commenter suggested that the Commission expand the introductory language to the proposed rule, concerning a “plan or scheme to evade the registration requirements of the Act” to include not just the rule's safe harbors, as proposed, but rather the entire rule, including the rule's general principle of integration.

This commenter also suggested that the Commission provide examples of facts and circumstances that might be relevant in applying the general principle of integration set forth in proposed Rule 152(a).

See

Md. St. Bar Assoc. Letter.

See id

(questioning the need for the reference to “facts and circumstances”).

iii. Provisions Applying the General Principle (Rules 152(a)(1) and 152(a)(2))

Commenters requested clarification and suggested modifications concerning the guidance on the general principle of integration provided in proposed Rule 152(a)(1)(i) and proposed Rule 152(a)(1)(ii).

Some of these commenters asked the Commission to revise new 17 CFR 230.152(a)(1)(i) (“Rule 152(a)(1)(i)”) and 17 CFR 230.152(a)(1)(ii) (“Rule 152(a)(1)(ii)”) to address an application of the general principle for concurrent exempt offerings where general solicitation is prohibited for one or more, but not all, such offerings.

Commenters also stated their concerns that an issuer could identify investors through a general solicitation and then sell to such investors in a subsequent private offering, and sought clarification of the application of proposed Rule 152(a)(1)(i) and (ii) to exempt offerings prohibiting general solicitation.

Another commenter recommended that the application of proposed Rule 152(a)(1)(i) and (ii) be tied to the particular purchaser, rather than “purchasers.”

One commenter requested that the Commission clarify the application of proposed Rule 152(a)(1) to whether an offering permitting general solicitation would be integrated with an investor's secondary offering in reliance on Section 4(a)(7) of the Securities Act.

Another commenter suggested that a “certification from the investor that the investor did not become aware of a potential Rule 506(b) investment through a general solicitation” should satisfy an issuer's obligation under Rule 152(a)(1) to have, based on the facts and circumstances, a reasonable belief that the investor in the Rule 506(b) offering was not solicited through the use of general solicitation.

In contrast, some commenters suggested that the prohibition on general solicitation in exempt offerings should be eliminated.

See, e.g.,

Md. St. Bar Assoc. Letter; Fried Frank Letter; IPA Letter; ABA Letter; CFA Letter; Invesco Letter; and CrowdCheck Letter.

See

Md. St. Bar Assoc. Letter (requesting clarification as to whether Rule 152(a)(1), as proposed, would codify Commission guidance first issued in 2007, involving one offering where general solicitation is permitted and a private offering where general solicitation is not permitted); Fried Frank Letter (stating that “[t]he Commission should revise Rule 152(a)(1) to clarify that, so long as its conditions are satisfied, an issuer may concurrently engage in an offering in reliance on Rule 506(b) and another offering in reliance on Rule 506(c).”); IPA Letter (recommending that the requirement not be applicable to “each exempt offering” but to “each exempt offering that prohibits the use of general solicitation”); and ABA Letter (recommending revisions to paragraphs (i) and (ii) of Rule 152(a)(1), as proposed, “[s]ince these Rule 152(a)(l) tests are intended to apply only to exempt offerings for which general solicitation is not permitted, but may be used in the context of concurrent or successive offerings with one exempt offering permitting general solicitation (such as Rule 506(c)) and the other prohibiting general solicitation (such as Rule 506(b))”).

See also

2016 Forum Report; 2017 Forum Report; and 2018 Forum Report (all three forums recommending that the Commission clarify the relationship of exempt offerings in which general solicitation is not permitted with Rule 506(c) offerings involving general solicitation).

See e.g.,

CFA Letter; and Md. St. Bar Assoc. Letter.

See

ABA Letter (“An issuer should be able to rely on Rule 152(a)(l) if the issuer has a reasonable belief, based on the facts and circumstances, that each purchaser (rather than `purchasers') in such exempt offering (rather than `each exempt offering') either (i) was not solicited through the use of general solicitation in connection with the offerings not permitting general solicitation that are being analyzed or (ii) established a substantive relationship with the issuer before the offer was made (rather than `commenced') to that purchaser.”).

See

Fried Frank Letter.

See

IPA Letter.

See

Invesco Letter (suggesting eliminating the prohibition on general solicitation “or combining the safe harbors laid out in Rules 506(b) and (c) to permit open communications about an offering when targeted at a limited group of purchasers at a higher eligibility level than the minimums provided for in the `accredited investor' definition.”); and IPA Letter (stating that the prohibition on general solicitation in an exempt offering is archaic, and there are a variety of ways that investor protections can be built into securities offerings “without regulating how the investor became aware of the offering.”).

Other commenters requested clarifications and modifications with respect to proposed Rule 152(a)(2), concerning an exempt offering permitting general solicitation that includes information about the material terms of a concurrent offering under another exemption also permitting general solicitation. One commenter recommended revising the rule to clarify whether the requirement in proposed Rule 152(a)(2) that the offering materials mentioning the terms of the other concurrent offering must comply with “the requirements of each exemption” refers solely to the offering materials, or to the offering in general.

This commenter also expressed concern that this aspect of the proposal may contradict the general principle that each exempt offering should be analyzed individually for compliance only with its claimed exemption.

Another commenter stated its specific concerns about potential difficulties issuers may have in complying with Rule 152(a)(2) in connection with concurrent Regulation A and Regulation Crowdfunding offerings.

See

Md. St. Bar Assoc. Letter.

See id.

See

CrowdCheck Letter (stating that when a Form C discusses the material terms of a concurrent Regulation A offering that has been qualified, it is problematic for the issuer to file on EDGAR a Form C with a live active hyperlink to the Regulation A offering circular in order to satisfy the issuer's delivery obligation under Regulation A, and also noting that a Form 1-A filed with the Commission that discusses the material terms of a Regulation Crowdfunding offering would not comply with the limitations on advertising in Rule 204 of Regulation Crowdfunding).

c. Final Amendments

After considering the comments, we are adopting a new comprehensive integration framework, in new Rule 152,

substantially as proposed, but with modifications in response to comments received. In addition to introductory anti-evasion language, new Rule 152(a) sets forth a general principle of integration, and applies the general principle to two specific fact patterns, if the four safe harbors set forth in new Rule 152(b) do not apply.

Revised Rule 152 as adopted will replace current Rules 152 and 155 concerning the integration of non-public and public offerings and references to Rule 152 will replace the integration provisions of Regulation D, Regulation A, Regulation Crowdfunding, and Rules 147 and 147A. Consistent with current Rule 155, new Rule 152 specifies that the provisions of the rule are not available to any issuer for any transaction or series of transactions that, although in technical compliance with the rule, is part of a plan or scheme to evade the registration requirements of the Securities Act. As a result of the amendments, Rule 155 will be removed and reserved.

i. Introductory Language

We are adopting the introductory language of Rule 152 substantially as proposed to describe what is provided in the rule and caution issuers that Rule 152 may not be used as part of a plan or scheme to evade the registration requirements of the Securities Act. As suggested by a commenter, we have revised the introductory language to encompass all of the provisions of the rule, not just the provisions of the safe harbors. Therefore, the provisions of

Rule 152 will not have the effect of avoiding integration for any transaction or series of transactions that, although in technical compliance with the rule, is part of a plan or scheme to evade the registration requirements of the Securities Act. We believe this change adds important clarity about the availability of Rule 152 as a basis for concluding that two or more offerings will not be integrated in certain situations by making it clear that, although it may be possible to structure two or more offerings such that they appear to technically comply with the terms of applicable exemptions, if that structuring is part of a plan or scheme to evade the registration requirements of the Securities Act, the offerings would still be subject to integration.

ii. Integration Framework and General Principle

The general principle of integration we are adopting in Rule 152(a) looks to the particular facts and circumstances of each offering.

Specifically, the general principle provides that, for all offerings not covered by a safe harbor in Rule 152(b), offers and sales will not be integrated if, based on the particular facts and circumstances, the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering.

Consistent with the discussion in the Proposing Release and to provide further clarification, we note that the focus of this rulemaking effort is capital-raising offerings. However, the new rules that we adopt in this release, especially new Rule 152, apply equally to a series of transactions, whether registered or exempt from Securities Act registration, that involve one or more business combination transactions and/or capital-raising transactions that occur concurrently or close in time. The new rules that we adopt in this release do not otherwise alter or affect the current regulatory scheme that governs communications made in connection with business combination transactions, such as 17 CFR 230.162, 17 CFR 230.165, and 17 CFR 230.166, which were adopted in recognition of the special nature of business combination transactions (such as mergers, recapitalizations, and acquisitions).

See

Regulation of Takeovers and Security Holder Communications, Release No. 33-7760 (Oct. 22, 1999) [64 FR 61408 (Nov. 10, 1999)].

We continue to believe that providing additional clarity on how securities offerings interrelate, including the relationship between exempt and registered offerings, and when two or more securities offerings will be considered integrated as one offering, will reduce perceived risk among issuers when considering and planning possible capital raising alternatives, while preserving investor protections built into the respective offering exemptions. We are not persuaded by commenters who raised concerns that our proposed integration framework may promote greater reliance on exempt offerings and thereby reduce the need or incentive for issuers to undertake registered public offerings.

Rather, we are of the view that the greater clarity that the integration framework will provide on how securities offerings interrelate: (1) Will facilitate capital-raising in exempt markets when using the public markets is not practical, and (2) will provide issuers the flexibility to choose between types of offerings, which may encourage more issuers to raise more capital in our securities markets, including in both exempt and registered offerings.

Because the amended framework will provide certainty to an issuer conducting exempt and registered offerings close in time, it may ultimately result in more issuers undertaking the risks, time, and expense of conducting a registered public offering. It may also facilitate some small issuers in raising enough external financing to develop their business model and scale up to a point where they may become viable candidates for a registered public offering, thereby providing Main Street investors with more registered investment options, as well as all the benefits that flow from registration.

See

CFA Letter; and R. Rutkowski Letter.

See also

Md. St. Bar Assoc. Letter.

See, e.g.,

Netcapital Letter (suggesting that clarification and modernization of the existing integration standards is an important objective that will reduce unnecessary complexities and reduce uncertainties and risks for issuers when planning and carrying out capital raising activities). Further, based on data compiled by the Division of Economic and Risk Analysis on Regulation D issuer and offering characteristics from 2009 through 2019, extracted from Forms D filed with the Commission, we note that a registered offering likely would not be appropriate for the typical Regulation D issuer, based on the following: The median amount sold (if reported) was $1.50 million; the median offer size (if reported) was $2.25 million; the median years of a Regulation D issuer since incorporation was two years; the median issuer size (if reported) of Non-Fund Issuers (Revenue) was $1 million to $5 million; only 20% of all Regulation D offerings used an intermediary; and the average number of investors in an offering (if reported) was 10 investors.

See

Report to Congress on Regulation A/Regulation D Performance: As Directed by the House Committee on Appropriations in H.R. Rept. No. 116-122 (Aug. 25, 2020),

available at https://www.sec.gov/files/report-congress-regulation-a-d.pdf

(“Report to Congress on Regulation A/Regulation D Performance”) at Table 2.

See also

2016 Forum Report; 2017 Forum Report; and 2018 Forum Report (all three forums recommended that the Commission clarify the relationship of exempt offerings in which general solicitation is not permitted with Rule 506(c) offerings involving general solicitation).

We caution issuers, however, that a general solicitation permitted in connection with one offering that mentions the material terms of a concurrent or subsequent exempt offering prohibiting general solicitation may constitute an offer for the concurrent or subsequent exempt offering prohibiting general solicitation and thereby violate the prohibition on general solicitation with respect to that concurrent or subsequent offering prohibiting general solicitation.

See

Interpretive Release on Regulation D, Release No. 33-6455 (Mar. 3, 1983) [48 FR 10045 (Mar. 10, 1983)] at Section III(c).

In response to commenters who raised concerns that the proposed language of Rule 152(a)(1) could enable an issuer to identify investors through a general solicitation and then sell to such investors in a subsequent exempt offering prohibiting general solicitation,

we note the introductory language, discussed above, which clarifies that Rule 152 may not be used as part of a plan or scheme to evade the registration requirements of the Securities Act, as well as the requirement in new Rule 152(a)(1) itself, which would not allow an issuer to avoid integration of such offerings. For example, an issuer could not engage in general solicitation in an offering made in reliance on Rule 506(c) and then sell to investors in an offering made in reliance on Rule 506(b), unless either the issuer did not solicit the purchaser in the Rule 506(b) offering through the use of the general solicitation used in the Rule 506(c) offering, or the issuer established a substantive relationship with such purchaser prior to the commencement of the Rule 506(b) offering.

See supra

notes 57-58.

An issuer may not conduct a Rule 506(c) general solicitation in order to identify potential investors for the Rule 506(b) offering. In that instance, such Rule 506(b) offering may be deemed to be commenced at the time of such solicitation under new Rule 152(c).

New Rule 152(a)(1)(ii) codifies and expands the Commission's 2007 guidance that the existence of a pre-existing substantive relationship between the issuer, or its agent, and a prospective investor may be one means by which an investor may become interested in, or become aware of, a private placement conducted while a registration statement for a public offering is on file with the Commission that may be consistent with Section 4(a)(2). In response to a commenter that questioned the application of this guidance,

we also confirm that the existence of such a relationship prior to the commencement of an offering is one means, but not the exclusive means, of demonstrating the absence of a general solicitation in a Regulation D offering.

Accordingly, an offer of the issuer's securities to a person with whom the issuer, or a person acting on its behalf, has a pre-existing substantive relationship would not constitute a general solicitation, so long as the relationship was established prior to the commencement of the offering.

See

Md. St. Bar Assoc. Letter.

See

Regulation D; Accredited Investor and Filing Requirements, Release No. 33-6825 (Mar. 15, 1989) [54 FR 11369 (Mar. 20, 1989)], at note 12.

We reiterate the guidance provided in the Proposing Release that we generally view a “pre-existing” relationship as one that the issuer has formed with an offeree prior to the commencement of the offering or, alternatively, that was established through another person (for example, a registered broker-dealer or investment adviser) prior to that person's participation in the offering.

A “substantive” relationship is one in which the issuer (or a person acting on its behalf, such as a registered broker-dealer or investment adviser) has sufficient information to evaluate, and does, in fact, evaluate, an offeree's financial circumstances and sophistication, in determining his or her status as an accredited or sophisticated investor.

Certain offerings by private funds that rely on the exclusions from the definition of “investment company” set forth in Investment Company Act Sections 3(c)(1) (15 U.S.C. 80a-3(c)(1) and 3(c)(7) (15 U.S.C. 80a-3(c)(7) posted on a website or platform may be able to rely on a limited staff accommodation with respect to the timing of the formation of a relationship.

See

Division of Investment Management no-action letter to Lamp Technologies, Inc. (May 29, 1997).

We do not believe that self-certification alone (by checking a box) without any other knowledge of a person's financial circumstances or sophistication would be sufficient to form a “substantive” relationship for these purposes. Persons other than registered broker-dealers and investment advisers may form a pre-existing, substantive relationship with an offeree as a means of establishing that a general solicitation is not involved in a Regulation D offering. Generally, whether a “pre-existing, substantive relationship” exists turns on procedures established by broker-dealers in connection with their customers. This is because traditional broker-dealer relationships require that a broker-dealer deal fairly with, and make suitable recommendations to, customers, and, thus, implies that a substantive relationship exists between the broker-dealer and its customers. We have long stated, however, that the presence or absence of a general solicitation is always dependent on the facts and circumstances of each particular case. Thus, there may be facts and circumstances in which a third party, other than a registered broker-dealer, could establish a “pre-existing, substantive relationship” sufficient to avoid a “general solicitation.”

See, e.g.,

Use of Electronic Media, Release No. 33-7856 (Apr. 28, 2000) [65 FR 25843 (May 4, 2000)] (“Use of Electronic Media Release”). We also recognize there may be particular instances where issuers may develop pre-existing, substantive relationships with offerees. However, in the absence of a prior business relationship or a recognized legal duty to offerees, it is likely more difficult for an issuer to establish a pre-existing, substantive relationship, especially when contemplating or engaged in an offering over the internet. Issuers would have to consider not only whether they have sufficient information about particular offerees, but also whether they in fact use that information appropriately to evaluate the financial circumstances and sophistication of the offerees prior to commencing the offering.

Investors with whom the issuer has a pre-existing substantive relationship may include the issuer's existing or prior investors, investors in prior deals of the issuer's management, or friends or family of the issuer's control persons. Similarly, such investors may also include customers of a registered broker-dealer or investment adviser with whom the broker-dealer or investment adviser established a substantive relationship prior to the participation in the exempt offering by the broker-dealer or investment adviser.

Certain investment advisers that rely on an exemption from registration under the Investment Advisers Act of 1940, 15 U.S.C. 80b-1

et seq.

(“Advisers Act”) may be registered under an appropriate State authority.

We are not providing guidance, as requested by a commenter, with respect to the relevant facts and circumstances to be considered in applying Rule 152(a)(1). We believe it is incumbent on the issuer and its agents to consider all relevant facts and circumstances when analyzing whether the offering satisfies the requirements of Rule 152.

iv. Integration With Exempt Offerings Permitting General Solicitation (Rule 152(a)(2))

We are adopting new Rule 152(a)(2), substantially as proposed, with certain clarifying revisions in response to commenters' concerns. In the context of two or more concurrent offerings each relying on a Securities Act exemption permitting general solicitation,

new

Rule 152(a)(2) clarifies that an issuer's general solicitation offering materials for one offering that includes information about the material terms of a concurrent offering under another exemption may constitute an “offer” of the securities in such other offering, and therefore the offer must comply with all the requirements for, and restrictions on, offers under the exemption being relied on for such other offering, including any necessary legends or communications restrictions.

For example, Rule 506(c), Regulation A, and Regulation Crowdfunding. Concurrent offerings permitting general solicitation may also include intrastate or regional offerings relying on Rules 147 and 147A or 17 CFR 230.504(b)(1)(i) (“Rule

504(b)(1)(i)”), 17 CFR 230.504(b)(1)(ii) (“Rule 504(b)(1)(ii)”), or 17 CFR 230.504(b)(1)(iii) (“Rule 504(b)(1)(iii)”), all of which permit general solicitation but also require compliance with State registration requirements or exemptions to State registration under State securities laws. However, an issuer would not be able to describe the terms of a Rule 147 offering using any form of general solicitation viewable by out-of-state residents, as this would constitute an offer by the issuer to residents residing out of the State in which the issuer has its principal place of business, which is prohibited by the Rule 147 safe harbor for a valid Section 3(a)(11) exempt offering. Two or more exempt offerings permitting general solicitation occurring close in time, but not concurrent, may be eligible for the safe harbor in new Rule 152(b)(4).

For example, the limitations on advertising the terms of an offering pursuant to Rule 204 of Regulation Crowdfunding would limit the issuer's ability to reference the terms of that offering in a general solicitation in connection with a concurrent offering made pursuant to Regulation A, Rule 506(c), or Rule 147A.

See

Concept Release, at note 483.

See infra

Section II.B.3 for a discussion of revisions we are making to Rule 204 of Regulation Crowdfunding.

New Rule 152(a)(2) builds on the Commission guidance in its 2015 Regulation A and Regulation Crowdfunding rulemakings and in its 2016 Rule 147 and Rule 147A rulemaking to provide issuers with greater flexibility and the ability to rely on existing Securities Act exemptions more effectively without compromising the investor protections of each exemption.

See

2015 Regulation A Release, at Section II.B.5; Crowdfunding Adopting Release, at Section II.A.1.c; and Intrastate and Regional Offerings Release, at Section II.B.5.

For example, under new Rule 152(a)(2), an issuer may undertake an offering in reliance on Rule 506(c), so long as the issuer meets all of the conditions of that exemption, including taking reasonable steps to verify that all purchasers in the Rule 506(c) offering are accredited investors, while conducting a concurrent offering in reliance on Regulation A, so long as the concurrent offering complies with all the requirements of Regulation A. If this issuer were to discuss in its Rule 506(c) general solicitation materials the material terms of the Regulation A offering, new Rule 152(a)(2) would require the Rule 506(c) general solicitation to comply with all the requirements for offers under Regulation A, including all necessary legends and comply with any restrictions on the use of general solicitation imposed on issuers making offers under Regulation A.

Similarly, an issuer undertaking a Rule 506(c) offering concurrently with a Regulation Crowdfunding offering must make sure that any general solicitation materials used in connection with the Rule 506(c) offering that mention the material terms of the Regulation Crowdfunding offering comply with the off-portal offering limitations in Rule 204 of Regulation Crowdfunding.

Rule 255 of Regulation A requires certain statements in any communications constituting offers made in reliance on Regulation A. Any such legends or statements need not be included in the issuer's Rule 506(c) general solicitation materials if such materials do not mention the material terms of the other concurrent offering.

See infra

Section II.B.3 for a discussion of revisions adopted to Rule 204 of Regulation Crowdfunding.

2. Integration Safe Harbors

The Commission proposed new Rule 152(b) which would provide four non-exclusive safe harbors from integration. For offers and sales meeting the conditions of these safe harbors, the issuer would not need to conduct any further integration analysis. A number of commenters supported the proposed safe harbors,

indicating that the safe harbors would provide clarity and bright line rules to simplify compliance.

Some commenters recommended expanding on the proposed safe harbors.

See

Fried Frank Letter; Geraci Law Letter; W. Hubbard Letter; Letter from Raise Green Inc., and New Haven Community Solar, LLC dated June 1, 2020 (“Raise Green & New Haven Comm. Solar Letter”); D. Burton Letter; and Shearman & Sterling Letter.

See, e.g.,

ABA Letter (supporting harmonization of the rules for both exempt and registered offerings and simplifying the integration analysis); Geraci Law Letter; and Raise Green & New Haven Comm. Solar Letter.

See

Fried Frank Letter (recommending an additional safe harbor providing that any offering commenced in reliance on an exemption that does not permit general solicitation can be continued in reliance on an exemption that does permit general solicitation); and Shearman & Sterling Letter (recommending revisions to the proposed safe harbors to cover shelf registration statements and the exercise of outstanding warrants or the conversion of convertible or exchangeable securities).

Several commenters, however, opposed one or more of the proposed safe harbors.

Some of these commenters expressed particular concern that the revisions could lead to more frequent offerings involving non-accredited investors.

One commenter expressed concern that a 30-day integration safe harbor could render the integration doctrine a nullity.

See, e.g.,

NASAA Letter; CFA Letter; Better Markets Letter; Md. St. Bar Assoc. Letter; and CII Letter.

See, e.g.,

CII Letter; and NASAA Letter.

See

NASAA Letter.

Some commenters expressed concern with the proposed approach to expanding the integration framework or offered alternatives for how to expand the integration framework.

One commenter recommended use of a single integration safe harbor that would permit issuers intending to conduct distinct offerings under different Securities Act rules to treat them as separate so long as those offerings are reasonably conducted commensurate with the requirements of such rules.

See, e.g.,

CrowdCheck Letter (expressing concern that the focus on the safe harbors may lead to issuers relying on the safe harbors instead of the general principles); Invesco Letter; W. Hubbard Letter (recommending a safe harbor for all offers or sales to investors with whom the issuer has a pre-existing substantive relationship, but opposing a safe harbor for all offerings limited to qualified institutional buyers and accredited investors that would exclude non-accredited investors); and J. Clarke Letter (recommending a safe harbor for issuers that comply with a new recommended disclosure that integrates Form D, Form C, and an issuer's offering statements).

See

Invesco Letter.

a. 30-Day Integration Safe Harbor (Rule 152(b)(1))

Current Securities Act integration safe harbors generally provide for a six-month safe harbor time period, outside of which other offerings will not be integrated or considered as part of the same offering.

See

Rule 502(a), 17 CFR 230.251(c) (“Rule 251(c)”), 17 CFR 230.147(g) (“Rule 147(g)”), and 17 CFR 230.147A(g) (“Rule 147A(g)”). These rules rely on a six-month time period, but include exceptions for certain offers and sales under specific exemptions or circumstances. For example, Rule 502(a) excludes offers or sales of securities under an employee benefit plan as defined in 17 CFR 230.405 (“Rule 405”). In addition, Rules 251(c), 147(g), and 147A(g) all exclude from integration all prior offers and sales of securities without regard to a time period so long as the prior offers and sales have terminated. Under Rules 147, 147A, and 251, subsequent offers and sales will not be integrated with offers and sales that are registered under the Securities Act, exempt from registration under Rule 701, Regulation A, Regulation S, or Section 4(a)(6) of the Securities Act, or made pursuant to an employee benefit plan. Further, generally, transactions otherwise meeting the requirements of an exemption will not be integrated with simultaneous offers and sales of securities being made outside the United States in compliance with Regulation S.

See, e.g.,

17 CFR 230.500(g) (“Rule 500(g)”) and Note to Rule 502(a).

i. Proposed Amendments

The Commission proposed Rule 152(b)(1) to shorten the six-month time period to 30 days and harmonize current Securities Act exemptions by providing the same 30-day safe harbor time period throughout the Securities Act's integration provisions. The proposed safe harbor would apply to both offerings for which a registration

statement has been filed under the Securities Act and exempt offerings.

Specifically, the proposed safe harbor in Rule 152(b)(1) would provide that any offering made more than 30 calendar days before the commencement of any other offering, or more than 30 calendar days after the termination or completion of any other offering, will not be integrated with the other offering, provided that for an exempt offering for which general solicitation is not permitted, the proposed safe harbor would require either: (i) That the purchasers were not solicited through the use of general solicitation, or (ii) that the issuer established a substantive relationship with the purchasers prior to the commencement of the offering.

Both this proposed safe harbor and the safe harbor in proposed Rule 152(b)(3)(iii) would apply to a registered offering made more than 30 calendar days after the termination or completion of any other offering.

In conjunction with this safe harbor, the Commission also proposed to amend 17 CFR 230.506(b)(2)(i) (“Rule 506(b)(2)(i)”) to address the concern that a 30-day safe harbor could result in some issuers seeking to undertake serial Rule 506(b) offerings each month, selling to up to 35 unique non-accredited investors in each offering, potentially resulting in unregistered sales of securities to hundreds of non-accredited investors in a year. As proposed, where an issuer conducts more than one offering under Rule 506(b), the number of non-accredited investors purchasing in all such offerings within 90 calendar days of each other would be limited to 35.

Proposed Rule 506(b)(2)(i) provides that there are no more than, or the issuer reasonably believes that there are no more than, 35 purchasers of securities from the issuer in offerings under this section in any 90 calendar day period. Under 17 CFR 230.501(e), only non-accredited investors are included in computing the number of “purchasers.”

In addition, because proposed Rule 152(b)(1) would generally supersede the specific requirements in Rule 155 relating to the integration of abandoned offerings with subsequent offerings, the Commission proposed to remove and reserve Rule 155.

17 CFR 230.155(b) (“Rule 155(b)”) and 17 CFR 230.155(c) (“Rule 155(c)”) provide safe harbors for integration of abandoned offerings. Specifically, Rule 155(b) provides that an abandoned private offering of securities will not be considered part of an offering for which the issuer later files a registration statement if the offering meets certain enumerated conditions, including that the issuer does not file the registration statement until at least 30 calendar days after termination of all offering activity in the private offering, unless the issuer and any person acting on its behalf offered securities in the private offering only to persons who were (or who the issuer reasonably believes were) accredited investors or who satisfy the knowledge and experience standard of Rule 506(b)(2)(ii). Rule 155(c) provides a similar safe harbor for a registered offering followed by a private offering of securities subject to a similar set of enumerated conditions, including that neither the issuer nor any person acting on the issuer's behalf commences the private offering earlier than 30 calendar days after the effective date of withdrawal of the registration statement.

ii. Comments

Some commenters supported,

and others opposed,

proposed Rule 152(b)(1). Some commenters supporting the 30-day safe harbor expressed their belief that 30 days was sufficient to mitigate concerns that an exempt offering may condition the market for a subsequent offering or undermine the protections of a subsequent exempt offering.

100

Another commenter stated that a 30-day time period is consistent with market practice in registered offerings to address gun-jumping concerns.

101

One supportive commenter suggested that the Commission clarify that “the 30-day period before and the 30-day period after each offering—have to be free of offers in all cases.”

102

Commenters opposed to the proposed 30-day safe harbor expressed concern that the 30 day time period was too short.

103

Many of these commenters recommended a 90-day safe harbor.

104

See, e.g.,

J. Clarke Letter; Republic Letter; Letter from Securities Industry and Financial Markets Association dated June 1, 2020 (“SIFMA Letter”); W. Hubbard Letter; D. Burton Letter; CrowdCheck Letter; and Shearman & Sterling Letter.

See, e.g.,

Letter from Silicon Prairie Holdings, Inc. dated May 31, 2020 (“Silicon Prairie Letter”); NASAA Letter; Md. St. Bar Assoc. Letter; Letter from Americans for Financial Reform Education Fund dated June 1, 2020 (“AFREF Letter”); CFA Letter; R. Campbell Letter; and R. Rutkowski Letter.

100

See, e.g.,

Shearman & Sterling Letter; and SIFMA Letter (suggesting a 30-day cooling off period is appropriate given changes to markets, technologies and the securities laws since the six-month time frame was adopted).

101

See

CrowdCheck Letter.

102

See

ABA Letter (suggesting clarification that the 30-day separation period be “applied separately to

each

other offering potentially subject to integration, on an individualized basis, with a 30-day separation required between each pair of offerings relying on this provision.”).

103

See, e.g.,

Silicon Prairie Letter; NASAA Letter; Md. St. Bar Assoc. Letter; AFREF Letter; CFA Letter; and R. Rutkowski Letter.

104

See

Silicon Prairie Letter (suggesting that 30 days is not enough time to assess an offering); NASAA Letter (expressing concern that the 30-day safe harbor would render integration a nullity); Md. St. Bar Assoc. Letter (suggesting that 90 days would more effectively impede issuers from improperly avoiding registration by artificially dividing a single offering into multiple offerings); CFA Letter (citing to the Regulation D 2007 Proposing Release, at note 135, and noting that for issuers that provide quarterly reports, the 90-day requirement would provide transparency and time for investors and the market to take into account the offering and its results); AFREF Letter; CFA Letter; and R. Rutkowski Letter.

Commenters addressing the proposal to revise Rule 506(b) to limit the total number of non-accredited investors purchasing in such offerings to 35 persons within 90 calendar days were divided in their support for,

105

or opposition to,

106

the proposed amendments. One commenter stated that limiting sales to non-accredited investors to no more than 35 in any 90-day period will encourage issuers seeking capital from non-accredited investors to use Regulation Crowdfunding and Regulation A.

107

Another commenter suggested shortening the time period or increasing the number of non-accredited investors in the proposal.

108

105

See, e.g.,

Md. St. Bar Assoc. Letter (supporting the proposal but acknowledging a preference for a 90-day, safe harbor); and CFA Letter (contending that the speed with which information is disseminated for a small, private company has not increased in the way it has for public companies and that while the markets have changed a great deal since the 1980s, today's markets do not look all that different than they did in 2007, when the Commission rejected a 30-day cooling off period for Regulation D offerings).

106

See, e.g.,

Ketsal Letter (recommending eliminating the limit on sales to non-accredited investors); and Letter from Darshun N. Kendrick dated May 14, 2020 (suggesting the proposed amendment would not help with clarifying or streamlining the rules).

107

See

Republic Letter.

108

See

W. Hubbard Letter.

Commenters were also divided in their support for,

109

or opposition to,

110

conditioning the availability of the 30-day safe harbor on the requirement that, for an exempt offering for which general solicitation is not permitted, the issuer did not solicit the purchasers in such offering through the use of general solicitation or that the issuer established a substantive relationship with the purchaser prior to commencement of the offering for which general solicitation is not permitted. One commenter opposed to these requirements suggested that the effects of any offers made more than 30 days prior to or after the commencement of another offering would be sufficiently diluted by intervening market developments so as to render an integration analysis unnecessary.

111

This commenter further stated that an issuer should be able to rely on the general principle without having to wait 30 calendar days from the termination of the prior offering if the issuer has a reasonable belief, based on the facts and circumstances, that purchasers in an

exempt offering for which general solicitation is not permitted were either not solicited through general solicitation or had a pre-existing relationship with the issuer or person acting on its behalf.

112

Another commenter expressed concern that an issuer relying on the exemptions provided by Section 4(a)(2), Rule 504, and Rule 506(b) would not likely be able to satisfy the conditions to the availability of the 30-day safe harbor as proposed.

113

109

See, e.g.,

CrowdCheck Letter; J. Clarke Letter; and W. Hubbard Letter (recommending allowing a limited number of investors to be solicited through general solicitation in a twelve month period).

110

See, e.g.,

Fried Frank Letter (recommending not integrating offerings after 30 days regardless of whether the purchasers may have been solicited using general solicitation); Shearman & Sterling Letter; and IPA Letter (suggesting that the proposed amendment would address the integration concern, but not the general solicitation concern).

111

See

Shearman & Sterling Letter.

112

See id. See also

ABA Letter (recommending that both Rule 152(a)(1) and Rule 152(b)(1) “be tied to the particular purchaser,” rather than “purchasers”).

113

See

R. Campbell Letter (stating amending proposed Rule 152 “to provide clear and complete two-way safe harbor integration protection for all exemptions . . . is especially important for the exemptions used by small businesses, including the exemptions provided by Section 4(a)(2), Rule 504 and Rule 506(b)”).

Some commenters also recommended that the Commission harmonize the provisions in the general principle of integration in proposed Rule 152(a)(1) with the similar provision in the safe harbor in proposed Rule 152(b)(1), or provide an explanation of how they differ.

114

These commenters stated their belief that, although paragraph (a)(1) and the proviso in paragraph (b)(1) of proposed Rule 152 have an almost identical standard, unlike the general principle of integration in proposed Rule 152(a)(1), the 30-day safe harbor in paragraph (b)(1) omits the “reasonable belief” standard, as well as the provision allowing a “person acting on the issuer's behalf,” to establish a pre-existing substantive relationship with the purchaser.

115

114

See, e.g.,

Md. St. Bar Assoc. Letter; and Shearman & Sterling Letter (suggesting that as proposed, the non-solicitation and pre-existing relationship conditions to the availability of the 30-day safe harbor are stricter than the corresponding requirements in the general principle of integration).

115

Id.

Some commenters recommended alternative approaches to the proposal, such as: Eliminating the prohibition on general solicitation in Rule 506(b), or combining the exemptions laid out in Rules 506(b) and (c) to permit open communications to a more limited group of purchasers at a higher eligibility level;

116

or permitting serial offerings pursuant to a new reporting form for exempt offerings.

117

116

See

Invesco Letter.

117

See

J. Clarke Letter.

iii. Final Amendments

After considering the comments received, we are adopting the 30-day non-exclusive safe harbor in Rule 152(b)(1) with modifications consistent with certain commenters' suggestions. We are also harmonizing current Securities Act exemptions by replacing their existing integration provisions with a reference to Rule 152. This safe harbor will apply to both offerings for which a registration statement has been filed under the Securities Act and exempt offerings.

118

Both this safe harbor and the safe harbor in 17 CFR 230.152(b)(3)(iii) (“Rule 152(b)(3)(iii)”) may apply to a registered offering made more than 30 calendar days after the termination or completion of any other offering.

Several commenters stated that a 90-day safe harbor may be more effective at preventing issuers from attempting to improperly avoid Securities Act registration by artificially dividing a single offering into multiple offerings such that Securities Act exemptions would apply to the multiple offerings that would not be available for the combined offering. However, we believe that a 30-day time frame is sufficient to mitigate concerns that an exempt offering may condition the market for a subsequent registered offering or undermine the protections of a subsequent exempt offering. In light of the changes in technology, the markets, and the securities laws since the adoption of Regulation D in 1982, we believe that a 30-day safe harbor time period will enhance an issuer's flexibility and expand the capital-raising options available to issuers under the Securities Act to access capital when needed, while still providing a sufficient length of time to impede what integration seeks to prevent: Improperly avoiding registration by artificially dividing a single offering into multiple offerings.

We are also not persuaded by commenters that suggested that a 90-day time frame is preferable because it would allow needed time for investors and the market to assess an offering, in light of the accelerating speed and consumption of electronically disseminated information in today's financial marketplace, and especially the rapidly evolving informational environment since the adoption of a six-month safe harbor in Regulation D in 1982.

119

Because of this informational access, we also think it likely that the effects of any offers made more than 30 days prior to or after commencement of another offering would be sufficiently diluted by intervening market developments so as to render an integration analysis unnecessary.

119

See

Regulation D Adopting Release, at text accompanying note 18.

See also

Proposed Revisions of Certain Exemptions from the Registration Provisions of the Securities Act of 1933 for Transactions Involving Limited Offers and Sales, Release No. 33-6339 (Aug. 7, 1981) [46 FR 41791 (Aug. 18, 1981)], at Section V.C.1 (referring to uniform six month safe harbor provisions in now rescinded 17 CFR 230.146(b)(1) and 17 CFR 230.242(b)).

Further, as proposed, we are shortening the current six-month time frame in Rules 502(a), 251(c), 147(g), and 147A(g) to 30 days by replacing these existing integration provisions with references to Rule 152.

120

We believe that the 30-day safe harbor time period we are adopting in Rule 152(b)(1) is appropriate throughout the exemptions under the Securities Act. We note that a 30-day safe harbor time period is consistent with several current integration provisions that also require 30-day minimum waiting periods between offerings. For example, in conjunction with certain other requirements, existing Rule 155 requires an issuer to wait at least 30 days between an abandoned private offering and a subsequent registered offering,

121

or an abandoned registered offering followed by a subsequent private offering.

122

Similarly, 17 CFR 230.255(e) (“Rule 255(e)”), 17 CFR 230.147(h) (“Rule 147(h)”) and 17 CFR 230.147A(h) (“Rule 147A(h)”) currently provide safe harbors from integration, if an issuer waits at least 30 days between the last solicitation of interest in a subsequently abandoned Regulation A offering, or the last offer made pursuant to Rule 147 or Rule 147A, and the filing of a registration statement for a subsequent offering.

120

See infra

Section II.A.4.

121

See

Rule 155(b). As discussed below, new Rule 152(b)(1) supersedes existing Rule 155, which is being removed and reserved.

122

See

Rule 155(c).

One commenter stated that a comparison with the 30-day safe harbors set forth in Rule 155, Rule 147(h), Rule 147A(h) and Rule 255(e) was not an appropriate justification for decreasing all integration safe harbors to 30 days, but we believe that in light of the changes in technology, the markets, and the securities laws over time, the existing safe harbor time periods need to be shortened and updated to account for the increasing speed and consumption of electronically disseminated information in today's financial marketplace. As a result, we believe that the current six-month safe harbor time period in Rules 502(a), 251(c), 147(g), and 147A(g) is longer than necessary to protect investors and could inhibit issuers, particularly smaller issuers, from meeting their capital raising needs.

123

Smaller issuers may face capital raising challenges because they are seeking relatively small amounts of capital.

See, e.g.,

Transcript of SEC Small Business Capital Formation Advisory Committee (Nov. 12, 2019),

available at https://

www.sec.gov/info/smallbus/acsec/sbcfac-transcript-111219.pdf,

at 15-62 (discussing the fact that transaction costs make raising amounts under $750,000 “not worth it”); and Transcript of SEC Small and Emerging Companies Advisory Committee (Feb. 15, 2017),

available at https://www.sec.gov/info/smallbus/acsec/acsec-transcript-021517.pdf,

at 144-145 (indicating that it is easier for issuers to access $100 million of capital than amounts under $10 million).

As proposed, we are also removing and reserving Rule 155. The new safe harbors in Rule 152(b) will apply when determining whether integration of abandoned offerings with subsequent offerings is required, superseding the current requirements of Rule 155. Specifically, for an abandoned private offering followed by a registered offering that would currently be covered by Rule 155(b), an issuer could look to the safe harbors in new Rule 152(b)(1) or Rule 152(b)(3). For an abandoned registered offering followed by a private offering that would currently be covered by Rule 155(c), an issuer could look to the safe harbors in new Rule 152(b)(1) or Rule 152(b)(4). As a result, we believe the lists of conditions in Rules 155(b) and (c) are no longer warranted and may be eliminated without compromising investor protections for the same reasons that support our determination to reduce the integration safe harbors from six months to 30 days.

In addition, we are adopting as proposed an amendment to Rule 506(b) to limit the number of non-accredited investors purchasing in Rule 506(b) offerings to no more than 35 within a 90 calendar day period. As we stated in the Proposing Release, we are mindful that a shortened integration time frame could allow issuers to undertake serial Rule 506(b) exempt offerings each month to up to 35 non-accredited investors in reliance on a 30-day safe harbor, resulting in unregistered sales to a significant number of non-accredited investors in a year.

124

Several commenters echoed this concern.

125

As the Commission stated in 2007, we believe that improper reliance on exemptions from registration harms investors by depriving them of the benefits of full and fair disclosure and the civil remedies that flow from registration.

126

While recent data suggests that shortening the safe harbor to 30-days is not likely to result in a large increase in the number of non-accredited investors participating in Rule 506(b) offerings,

127

we have determined that the rule change will prevent issuers from using the new 30-day safe harbor to effectively conduct a public distribution of securities to non-accredited investors.

124

See

Proposing Release, at text accompanying note 93.

See also

Regulation D 2007 Proposing Release, at Section II.C.1.

125

See

Better Markets Letter; CFA Letter; CFA Institute Letter; CII Letter; R. Rutkowski Letter; and Md. St. Bar Assoc. Letter.

126

See

Regulation D 2007 Proposing Release, at Section II.C.1.

127

Based on the analysis of Form D data on initial Form D filings, we estimate that, in 2019 among all Rule 506(b) offerings by issuers other than pooled investment funds, between approximately 4.45 percent and 9 percent of offerings included non-accredited purchasers. This estimated range is based on Division of Economic and Risk Analysis staff analysis of data in initial Form D filings, excluding pooled investment funds. In particular, the 4.45 percent estimate is based on offerings that report that at least one non-accredited investor already has invested in the offering as of the Form D filing and may represent a lower bound because it relies on available Form D filings, and because a final Form D upon the conclusion of an offering is not required to be filed. If we also include Rule 506(b) offerings on Form D that accept non-accredited investors but reported having zero non-accredited investors in the initial filing, the estimated percentage of offerings involving accredited investors during 2019 is approximately 9 percent, which may be viewed as an upper bound estimate.

Finally, in a change from the proposal, we are replacing the conditions set forth in proposed Rule 152(b)(1), which were similar, but not identical, to the conditions in proposed Rule 152(a)(1) with language clarifying that for an exempt offering for which general solicitation is not permitted that follows by 30 calendar days or more an offering that allows general solicitation, the provisions of Rule 152(a)(1) shall apply. This means that such an issuer must have a reasonable belief, based on the facts and circumstances, with respect to each purchaser in the exempt offering prohibiting general solicitation, that the issuer (or any person acting on the issuer's behalf) either did not solicit such purchaser through the use of general solicitation, or established a substantive relationship with such purchaser prior to the commencement of the exempt offering prohibiting general solicitation.

We also stress that this safe harbor may not be used as a means to circumvent the prohibition on general solicitation in an exempt offering to which such prohibition applies. That is, regardless of whether an issuer meets the requirements of the 30-day safe harbor from integration, an issuer conducting an offering of securities under an exemption prohibiting general solicitation, such as Rule 506(b), must still ensure that it has not engaged in a general solicitation, and meets the other terms and conditions of the relevant offering exemption. We are not persuaded by commenters who recommended that such conditions to the availability of the 30-day safe harbor are not necessary, given the requirements of the specific exemptions relied on.

128

See

Shearman & Sterling Letter (stating that an issuer should not have to comply with the conditions to the 30-day safe harbor, because “an issuer would still need to comply with the exemption relied upon in connection with the subsequent offering, but not as part of the integration analysis.”).

We also note that if an issuer waits less than 30 days after terminating or completing an offering before commencing a subsequent offering, and therefore cannot rely on the safe harbor in Rule 152(b)(1), it may still avoid integration if it meets the terms and conditions of the general principle of integration in Rule 152(a).

b. Rule 701, Employee Benefit Plans and Regulation S (Rule 152(b)(2))

Certain Commission rules currently provide that offers and sales of securities made pursuant to Rule 701 and other employee benefit plans will not be integrated with certain other offerings.

129

Similarly, the Commission has stated that offshore transactions made in compliance with Regulation S will not be integrated with registered domestic offerings or domestic offerings that satisfy the requirements for an exemption from registration under the Securities Act.

130

129

The safe harbor integration provisions in current Rule 251(c), Rules 147(g), and 147A(g) for these offers or sales do not cover offers or sales concurrent with another offering.

See also

17 CFR 230.701(f) (“Rule 701(f)”). However, the six-month safe harbor in Rule 502(a) provides an exception to the required six-month separation between offerings for offers or sales of securities by or for the issuer that are of the same or a similar class as those offered or sold under Regulation D that occur during the six-month time periods under an employee benefit plan, as defined in Rule 405 under the Securities Act.

130

See

Offshore Offers and Sales, Release No. 33-6863 (Apr. 24, 1990) [55 FR 18306 (May 2, 1990)] (“Offshore Offers and Sales Release”) at Section III.C.1.

i. Proposed Amendments

The Commission proposed Rule 152(b)(2) to provide a non-exclusive safe harbor for all offers and sales made in compliance with Rule 701,

131

pursuant to an employee benefit plan, or made in compliance with Regulation S,

132

regardless of when these offerings occur, including offers and sales made concurrently with other offerings.

133

131

The Rule 701 exemption is only available to issuers that are not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act.

See

17 CFR 230.701(b). The proposed safe harbor is in accord with Rule 701(f), which provides that an offering under Rule 701 will not be integrated with any other offering, as offers and sales exempt under Rule 701 are deemed to be a part of a single, discrete offering and are not subject to integration with any other offers or sales, whether registered under the Securities Act or otherwise exempt from the registration requirements of the Securities Act.

132

Proposed Rule 152(b)(2) would codify the position that “[o]ffshore transactions made in

compliance with Regulation S will not be integrated with registered domestic offerings or domestic offerings that satisfy the requirements for an exemption from registration under the Securities Act.”

See

Offshore Offers and Sales Release, at Section III.C.1.

133

The safe harbor integration provisions in current Rule 251(c), Rules 147(g) and 147A(g) for these offers or sales do not cover offers or sales concurrent with another offering.

In conjunction with the proposed safe harbor, the Commission proposed to amend the definition of “directed selling efforts” in 17 CFR 230.902 (“Rule 902” of Regulation S) in order to address concerns raised by market participants about whether it is possible to conduct concurrent Regulation S and Rule 506(c) offerings, particularly when the offerings are conducted using the internet, and if so, how to comply with the requirement that separate offering materials be used in each offering. Under the proposal, an issuer that engages in general solicitation activity under an exemption that allows general solicitation would not be considered to have engaged in “directed selling efforts” in connection with an offering under Regulation S, if the general solicitation activity is not undertaken for the purpose of conditioning the market in the United States for any of the securities being offered in reliance on Regulation S. This would be a narrowing of the current definition of “directed selling efforts,” which covers any activity undertaken for the purpose of, or that could reasonably be expected to have the effect of, conditioning the market in the United States for the Regulation S securities.

134

See

17 CFR 230.902(c)(1).

The Commission also proposed Rule 906 of Regulation S, applicable to securities offered and sold in a transaction subject to the conditions of 17 CFR 230.901 or 903, that would require an issuer that engages in general solicitation activity covered by the proposed exclusion from the definition of “directed selling efforts” to prohibit resales to U.S. persons (or for the account or benefit of a U.S. person) of the Regulation S securities for a period of six months from the date of sale, except for sales to QIBs or IAIs. The proposed six-month limitation on resales would apply regardless of the Regulation S category applicable to the securities, and notwithstanding, and in addition to, any applicable distribution compliance period.

ii. Comments

Commenters that addressed the proposal supported adopting the integration safe harbor for all offerings made in compliance with Rule 701, pursuant to an employee benefit plan, or in compliance with Regulation S, as proposed in Rule 152(b)(2).

135

No commenters opposed these proposed amendments. Several commenters asked the Commission to specifically reference Rule 701 in Rule 152(b)(2).

136

135

See, e.g.,

J. Clarke Letter; Md. St. Bar Assoc. Letter (noting that the rationale for exempting offers and sales under Rule 701 is also applicable to offers and sales under employee benefit plans generally); W. Hubbard Letter; D. Burton Letter; CrowdCheck Letter; Shearman & Sterling Letter; and NASAA Letter.

136

See, e.g.,

W. Hubbard Letter; D. Burton Letter (suggesting that referencing Rule 701 clarifies the Commission's intent with respect to the application of the integration doctrine to offerings under that rule); and CrowdCheck Letter.

Several commenters supported codifying an explicit integration safe harbor for offers and sales made in compliance with Regulation S.

137

One of these commenters stated that including this safe harbor in proposed Rule 152 would enhance legal certainty and promote more efficient capital raising.

138

137

See, e.g.,

SIFMA Letter; Shearman & Sterling Letter; Md. St. Bar Assoc. Letter; and ABA Letter (supporting the codification, in proposed Rule 152(b)(2), of the Commission's guidance in the 1990 Regulation S Adopting Release that “[o]ff shore transactions made in compliance with Regulation S will not be integrated with registered domestic offerings or domestic offerings that satisfy the requirements for an exemption from registration under the Securities Act.”) (

citing

Offshore Offers and Sales Release, at Section III.C.1).

138

See

Shearman & Sterling Letter.

Some commenters, however, opposed the proposed revisions to the definition of “directed selling efforts” in Regulation S to exclude activities that are “reasonably expected” to condition the U.S. market for the Regulation S securities.

139

One of these commenters questioned the feasibility of determining what activities would condition the market, and what problems preventing such activities would avoid.

140

Another of these commenters raised concerns that the proposed changes would restrict the current market practice of concurrently making Regulation S and 17 CFR 230.144A (“Rule 144A”) offers.

141

This commenter also raised concerns about the discussion in the Proposing Release with respect to widely accessible internet or similar communications in connection with concurrent Regulation S and Rule 506(c) offerings, noting that the conclusion that such communications would be deemed directed selling efforts would effectively preclude combining an exempt offering that permits general solicitation with a contemporaneous offshore offering under Regulation S.

142

139

See

Shearman & Sterling Letter; ABA Letter; and CrowdCheck Letter.

140

See

CrowdCheck Letter.

141

See

Shearman & Sterling Letter (expressing concern that if communications that may be considered general solicitation in Rule 144A offerings are presumed to constitute directed selling efforts that trigger a six-month distribution compliance period, issuers would in many cases have to forgo the concurrent offshore offering because imposing a distribution compliance period is often not practicable).

142

See id.

One commenter expressed support for an amendment to Rule 902 as a means to address uncertainty among market participants regarding whether it is possible to conduct concurrent Regulation S and Rule 506(c) offerings, but recommended that the rule expressly provide that the prohibition on directed selling efforts is not applicable when the Regulation S offering is made concurrently with an offering in reliance on an exemption that permits general solicitation, so long as the issuer does not engage in such general solicitation for the purpose of conditioning the market in the United States for any securities being offered in reliance on Regulation S or registered under the Securities Act.

143

Other commenters stated that they had not experienced significant uncertainty in determining the absence or presence of directed selling efforts in connection with exempt offerings permitting general solicitation.

144

143

See

Fried Frank Letter (recommending that the Commission clarify that the issuer is not required to provide evidence for its intent, and also recommending that the Commission state that concurrent Rule 506(c) and Regulation S offerings will not be integrated even if the issuer uses the same (or substantially identical) offering materials).

144

See

Shearman & Sterling Letter; and CrowdCheck Letter.

Commenters were divided in their support for,

145

or opposition to,

146

the proposed Rule 906 resale restrictions. Some commenters opposing the proposed amendment expressed concern that it would be difficult to implement or add unnecessary complexity to Regulation S.

147

Commenters also noted that the existing distribution compliance period in Regulation S already protects against the

risk of flowback of Regulation S securities to the United States.

148

Another commenter opposing the proposed rule recommended that the resale limitation should limit resales in the first year to QIBs and IAIs to align the rule with Regulation Crowdfunding.

149

145

See

Md. St. Bar Assoc. Letter (expressing support for the proposal to codify a safe harbor for offers and sales made in compliance with Regulation S and noting with favor proposed Rule 906 as a means to prevent flowback of securities to the United States); and Republic Letter (supporting the proposal as a whole with respect to Regulation S offerings).

146

See

J. Clarke Letter; SIFMA Letter; Fried Frank Letter; CrowdCheck Letter; and Shearman & Sterling Letter.

147

See, e.g.,

ABA Letter; SIFMA Letter (expressing concern that issuers and other offering participants would find the requirements of proposed Rule 906 burdensome and difficult to implement, and would simply avoid relying on exemptions that allow for general solicitation); and CrowdCheck Letter.

148

See

SIFMA Letter (stating its belief that proposed Rule 906 is unnecessary and inconsistent with prior Commission guidance on Regulation S, and that Regulation S already applies a distribution compliance period to protect against flowback that is calibrated, in duration and certain other respects, based on the likelihood of flowback); CrowdCheck Letter (questioning whether flowback was likely to occur given the resale restrictions); and ABA Letter.

149

See

J. Clarke Letter.

iii. Final Amendments

After considering the comments, we are adopting new Rule 152(b)(2), to provide a non-exclusive safe harbor for all offers and sales made in compliance with Rule 701, pursuant to an employee benefit plan, or in compliance with Regulation S, regardless of when these offerings occur, including offers and sales made concurrently with other offerings. For the reasons discussed below, we have decided not to adopt the proposed changes to Regulation S itself.

Offers and sales pursuant to Rule 701 and employee benefit plans are limited to investors, such as employees, consultants, and advisors, with whom the issuer has written compensation plans or agreements. We continue to believe, given the relationship between these investors and the issuer, that these offers and sales do not raise the same level of investor protection concerns as offerings to other investors.

With respect to Regulation S offerings, Rule 152(b)(2) codifies the long-standing Commission position that “[o]ffshore transactions made in compliance with Regulation S will not be integrated with registered domestic offerings or domestic offerings that satisfy the requirements for an exemption from registration under the Securities Act.”

150

Therefore, as noted in the Proposing Release, concurrent offshore offerings that are conducted in compliance with Regulation S are not currently, and will not be, integrated with registered domestic offerings or domestic offerings that are conducted in compliance with any exemption.

151

When determining the availability of this safe harbor, it will still be necessary to assess each transaction separately for compliance with the applicable exemption.

150

See

Offshore Offers and Sales Release, at Section III.C.1.

151

In addressing the offshore transaction component of the Regulation S safe harbor, the Commission stated, “Offers made in the United States in connection with contemporaneous registered offerings or offerings exempt from registration will not preclude reliance on the safe harbors.”

Id.

at note 36. Likewise, in addressing directed selling efforts, the Commission stated, “Offering activities in contemporaneous registered offerings or offerings exempt from registration will not preclude reliance on the safe harbors.”

Id.

at note 47.

See also

Rule 500(g) of Regulation D (formerly Preliminary Note No. 7 to Regulation D) (“Regulation S may be relied upon for such offers and sales even if coincident offers and sales are made in accordance with Regulation D inside the United States.”); and Note to Rule 502(a) (“Generally, transactions otherwise meeting the requirements of an exemption will not be integrated with simultaneous offerings being made outside the United States in compliance with Regulation S.”).

In light of certain perceived concerns about the ability of an issuer to conduct concurrent Regulation S and Rule 506(c) offerings, particularly when the offerings are conducted using the internet, we proposed an amendment to the definition of “directed selling efforts” in Rule 902, and related proposed Rule 906, which would have applied to issuers relying on the amended definition. After considering the comments received, we have determined not to adopt the proposed amendments to Regulation S. We are persuaded by commenters who asserted that the existing regulatory framework appropriately addresses concerns relating to the risk of flowback of Regulation S securities to the United States or the use of general solicitation in an exempt offering to condition the market in the United States for the Regulation S securities and acknowledge commenters who expressed concern that the proposal may disrupt existing market practices.

In light of the concerns expressed by commenters about the implications of the proposed amendments and the related discussion in the Proposing Release, we are also clarifying that we do not believe that general solicitation activity for exempt domestic offerings would preclude reliance on Regulation S for concurrent offshore offerings, and reaffirm our existing guidance with respect to concurrent Regulation S and domestic offerings.

152

See id.

We are aware that issuers have conducted domestic exempt or registered offerings concurrently with a Regulation S offering under our existing guidance. Compliance with the terms of both Regulation S and another applicable exemption, such as Rule 506(c), will depend on the facts and circumstances of a particular situation. For example, the use of the same website to solicit U.S. investors under Rule 506(c) and offshore investors under Regulation S could raise concerns about the issuer's compliance with the prohibition on directed selling efforts in Regulation S because the offering material on the website could be deemed to have the effect of conditioning the market in the United States. In such situations, we believe an issuer can take certain steps to distinguish the Regulation S and domestic offering materials, as the Commission has previously discussed.

153

See

Statement of the Commission Regarding Use of internet websites to Offer Securities, Solicit Securities Transactions, or Advertise Investment Services Offshore, Release No. 33-7516 (Mar. 23, 1998) [63 FR 14806 (Mar. 27, 1998)].

c. Subsequent Registered Offerings (Rule 152(b)(3))

Existing Rule 152 provides that the phrase “transactions by an issuer not involving any public offering” in Section 4(a)(2) shall be deemed to apply to transactions that did not involve any public offering at the time of the unregistered offering even if the issuer decides subsequently to make a public offering and/or files a registration statement. In 2007, the Commission clarified that an issuer's contemplation of filing a Securities Act registration statement at the same time that it is conducting an unregistered offering under Section 4(a)(2) would not cause the Section 4(a)(2) exemption to be unavailable for that unregistered offering.

154

So long as all of the applicable requirements of the exemption prohibiting general solicitation were met for offers and sales that occurred prior to the use of general solicitation in connection with the registered public offering, the offers and sales of the exempt offering prohibiting general solicitation would not be integrated with the subsequent registered offering.

155

Once the public offering is commenced or the registration statement is filed, the safe harbor in existing Rule 152 is no longer available for any concurrent or subsequent offers or sales made in connection with an exempt offering prohibiting general solicitation.

154

See

Regulation D 2007 Proposing Release, at text accompanying note 124.

See also

Concept Release, at text accompanying note 499.

155

In these circumstances, companies should be careful to avoid any pre-filing communications regarding the contemplated public offering that could render the Section 4(a)(2) exemption unavailable for what would be an otherwise exempt private placement.

See

Regulation D 2007 Proposing Release, at note 124.

i. Proposed Amendments

The Commission proposed Rule 152(b)(3) to provide a non-exclusive safe harbor for certain offerings made prior to the commencement of an offering for which a Securities Act registration statement has been filed, thus

permitting companies to conduct certain offerings shortly before the filing of a Securities Act registration statement without concern that the two offerings would be integrated. Proposed Rule 152(b)(3)(i) would provide that an offering for which a Securities Act registration statement has been filed will not be integrated with terminated or completed offerings for which general solicitation is not permitted. Proposed Rule 152(b)(3)(ii) would provide that an offering for which a Securities Act registration statement has been filed will not be integrated with a terminated or completed offering for which general solicitation is permitted made only to QIBs and IAIs. Finally, proposed Rule 152(b)(3)(iii) would make clear that an offering for which a registration statement has been filed will not be integrated with any offering for which general solicitation is permitted that terminated or completed more than 30 calendar days prior to the registered offering.

ii. Comments

No commenters opposed the safe harbor in proposed Rule 152(b)(3), and several commenters supported adopting proposed Rule 152(b)(3)(i).

156

In support, one commenter noted that the proposed safe harbor “appears to be generally consistent with existing Rule 152, updated mainly to account for the fact that general solicitation is now permitted for offerings conducted under Rule 506(c).”

157

Another commenter asked the Commission not to include the 30-day cooling-off period contemplated as a condition for use of proposed Rule 152(b)(3)(iii), because the commenter believed it undercuts the objective of the rules to “encourage use of registration to the maximum extent possible.”

158

Alternatively, the commenter suggested that proposed Rule 152(b)(3)(ii) should be revised to refer to a terminated or completed offering for which general solicitation is permitted

in which sales are made

only to the specified institutional investors.

159

156

See, e.g.,

Md. St. Bar Assoc. Letter; W. Hubbard Letter; and NASAA Letter (not objecting to the proposed safe harbor).

157

See

Md. St. Bar Assoc. Letter.

158

See

ABA Letter (stating that the 30-day cooling-off period serves “no real practical purpose,” noting that “[i]n these situations, investors in the registered offering will have the benefit of the liability provisions set forth in Section 11 and 12(a)(2) of the Securities Act.”).

159

See id.

iii. Final Amendments

After considering these comments, we are adopting new Rule 152(b)(3), as proposed, providing a non-exclusive safe harbor for certain offerings made prior to the commencement of an offering for which a Securities Act registration statement has been filed. New 17 CFR 230.152(b)(3)(i) (“Rule 152(b)(3)(i)”) provides that an offering for which a Securities Act registration statement has been filed will not be integrated with terminated or completed offerings for which general solicitation is not permitted.

160

New 17 CFR 230.152(b)(3)(ii) (“Rule 152(b)(3)(ii)”) provides that an offering for which a Securities Act registration statement has been filed will not be integrated with a terminated or completed offering for which general solicitation is permitted made only to QIBs and IAIs.

161

Finally, new Rule 152(b)(3)(iii) provides that an offering for which a registration statement under the Securities Act has been filed will not be integrated with any offering for which general solicitation is permitted that terminated or completed more than 30 calendar days prior to the registered offering.

162

160

New Rule 152(b)(3)(i) builds on the Commission's prior integration guidance relating to offerings for which general solicitation is not permitted. Offers and sales preceding registered offerings that do not involve general solicitation are generally not the type of offerings that, when taken together, appear to be susceptible to concerns relating to the prior offers and sales conditioning the market for the registered offering.

161

New Rule 152(b)(3)(ii) builds on current Rule 255(e) of Regulation A, and current Rules 147(h) and 147A(h), which provide that offerings limited to QIBs and IAIs are not integrated with a subsequently filed registered offering. Similarly, where an issuer has solicited interest in a contemplated, but subsequently abandoned Regulation A offering only to QIBs or IAIs, the abandoned Regulation A offering would not be subject to integration with a subsequently filed registered offering. We do not believe it is appropriate, as suggested by a commenter, that we revise this provision to refer only to offerings in which sales are made to QIBs and IAIs, as to do so would expand the scope of this safe harbor to effectively permit broad use of general solicitation at any time, including immediately prior to commencement of a registered offering, so long as the issuer limits sales in the exempt offerings to the specified institutional investors, thereby raising concerns about the prior offers conditioning the market for the registered offering.

162

New Rule 152(b)(3)(iii) will work in coordination with new Rule 152(b)(1) to clarify the application of the 30-day safe harbor to subsequent registered offerings. As discussed with respect to the non-exclusive safe harbor in new Rule 152(b)(1) in Section II.A.2, if an issuer files a registration statement under the Securities Act less than 30 calendar days after a terminated or completed offering for which general solicitation is permitted, although new Rule 152(b)(3)(iii) would not be available, integration would depend on the availability of the general principle of integration in Rule 152(a).

We continue to believe that capital raising around the time of a public offering, in particular an initial public offering, including immediately before the filing of a registration statement, is often critical if issuers are to have sufficient funds to continue to operate while the public offering process is ongoing.

163

We believe that Rule 152 as currently written is unnecessarily restrictive, given the changing financial requirements and circumstances of issuers, particularly smaller issuers, immediately prior to a registered public offering and may be revised without compromising investor protections. A lengthy waiting period prior to a registered offering combined with a potentially uncertain registration process are particular concerns for smaller issuers contemplating a registered public offering, whose financing needs are often erratic and unpredictable, due in part to limited amounts of working capital, cash reserves, and access to credit.

164

However, we are not persuaded by a commenter's suggestion that we eliminate the 30-day period applicable to an offering for which a registration statement under the Securities Act has been filed subsequent to a terminated or completed offering for which general solicitation is permitted. New Rule 152(b)(3)(iii) does not impose an additional requirement beyond that set forth in the 30-day safe harbor of new Rule 152(b)(1), but rather is meant to clarify the application of that provision to subsequent registered offerings. As discussed above, we believe a 30-day time frame is sufficient to mitigate concerns that an exempt offering may condition the market for a subsequent registered offering. For this reason, we are adopting new Rule 152(b)(3) as proposed to permit issuers to conduct offerings shortly before the filing of a Securities Act registration statement without concern that the two offerings would be integrated.

165

163

See

Regulation D 2007 Proposing Release, at Section II.C.

164

See, e.g.,

Final Report of the Advisory Committee on Smaller Public Companies to the U.S. Securities and Exchange Commission (Apr. 23, 2006),

available at https://www.sec.gov/info/smallbus/acspc/acspc-finalreport.pdf,

at 96.

See also

Regulation D 2007 Proposing Release, at note 116 and accompanying text.

165

We note that, as discussed above, the plan or scheme to evade restrictions in the introductory language to Rule 152 apply to all the provisions of new Rule 152, including the safe harbors in Rule 152(b), as well as the general principle of integration in new Rule 152(a) when the safe harbors in new Rule 152(b) are not available. In this regard, none of the provisions of new Rule 152 may be used as a means to circumvent the communication restrictions prior to a registered offering, for example, for communications occurring within 30 days of a registered offering. Section 5(c) of the Securities Act prohibits any written or oral offers prior to the filing of a registration statement. Generally, written and oral offers prior to filing a registration statement are prohibited, absent an exemption. Rule 163B, for example, provides an exemption to issuers, and those authorized to act on their behalf, to gauge market interest in a

possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement.

d. Offers or Sales Preceding Exempt Offerings Permitting General Solicitation (Rule 152(b)(4))

Rule 251(c) of Regulation A, and the intrastate offering safe harbor and exemption in Rule 147(g) and Rule 147A(g), respectively, currently provide that offers and sales made pursuant to these exemptive provisions and safe harbors that permit general solicitation will not be integrated with terminated or completed offers and sales made prior to the commencement of these exempt offerings.

166

These integration provisions also provide that offers and sales subsequent to these exempt offerings will not be integrated if they are: (1) Registered under the Securities Act; (2) exempt from registration under Rule 701; (3) made pursuant to an employee benefit plan; (4) exempt from registration under Regulation S; (5) exempt from registration under Section 4(a)(6) of the Securities Act; (6) made more than six months after completion of the offering; or (7) limited to QIBS and IAIs.

See

Rule 251(c); Rule 255(e); Rule 147(g) and (h); and Rule 147A(g) and (h).

i. Proposed Amendments

The Commission proposed Rule 152(b)(4) to provide a safe harbor for all offers and sales made in reliance on an exemption for which general solicitation is permitted that follow any other terminated or completed offering. The proposed safe harbor would expand the current integration safe harbors in Regulation A and Rules 147 and 147A to include offerings relying on: Regulation Crowdfunding; Rules 504(b)(1)(i), (ii), or (iii) that, depending on State registration requirements, permit general solicitation; and Rule 506(c).

ii. Comments

Several commenters supported the safe harbor in proposed Rule 152(b)(4) that would apply to any offering in reliance on an exemption for which general solicitation is permitted made subsequent to an offering that has been terminated or completed,

167

while others opposed the proposed safe harbor.

168

167

See

W. Hubbard Letter; D. Burton Letter; CrowdCheck Letter (expressing concern about issuer compliance with disclosure requirements of Regulation Crowdfunding); and NASAA Letter (not objecting to the proposed safe harbor).

168

See

Md. St. Bar Assoc Letter; and CFA Letter.

One commenter supporting the proposal recommended that the integration safe harbor should be the same whether the new or terminated offering involves general solicitation or not.

169

Another commenter recommended an additional safe harbor providing that any offering commenced in reliance on an exemption that does not permit general solicitation may be continued in reliance on an exemption that does permit general solicitation.

170

According to this commenter, such a safe harbor would be particularly beneficial to issuers commencing an offering in reliance on Rule 506(b) and desiring to continue it in reliance on Rule 506(c) and would permit the issuer to use the same or substantially identical materials to continue the offering in reliance on Rule 506(c).

171

In contrast, one commenter opposing the safe harbor in proposed Rule 152(b)(4) suggested that permitting a Rule 506(c) offering to commence immediately following the completion of a Rule 506(b) offering for the same securities at the same price is essentially like permitting general solicitation in a Rule 506(b) offering conducted in two phases.

172

One commenter questioned the Commission's basis for claiming that the exemptions allowing general solicitation are sufficiently protective.

173

169

See

D. Burton Letter.

170

See

Fried Frank Letter (stating that this additional safe harbor would be consistent with the Commission's guidance in its 2013 release adopting Rule 506(c)) (

citing

Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33-9415 (July 10, 2013) [78 FR 44771 (July 24, 2013)] (“Rule 506(c) Adopting Release”)).

171

See id.

172

See

Md. St. Bar Assoc. Letter.

173

See

CFA Letter (additionally expressing concern over fraud in the Regulation A market and non-compliance in the Regulation Crowdfunding market).

See also

CrowdCheck Letter.

iii. Final Amendments

After considering comments, we are adopting new Rule 152(b)(4), as proposed, to provide a non-exclusive safe harbor for all offers and sales made in reliance on an exemption for which general solicitation is permitted that follow any other terminated or completed offering. This new safe harbor expands on the current integration safe harbors in Regulation A and Rules 147 and 147A to include offerings relying on: Regulation Crowdfunding; Rules 504(b)(1)(i), (ii), or (iii) that, depending on State registration requirements, permit general solicitation; and Rule 506(c). The following table summarizes the types of offerings that will not be integrated under this new safe harbor:

Table 3—Summary of Types of Offerings Not Integrated Under the Safe Harbor

Offering 1

Offering 2

Any offering, which includes:

Exempt offering permitting general solicitation, including:

• Regulation A.

• Regulation Crowdfunding.

• Rule 147 or 147A.

• Rules 504(b)(1)(i), (ii), or (iii).

• Rule 506(c).

Exempt offering permitting general solicitation, including:

• Regulation A.

• Regulation Crowdfunding.

• Rule 147 or 147A.

• Rules 504(b)(1)(i), (ii), or (iii).

• Rule 506(c).

Exempt offering prohibiting general solicitation, including:

• 17 CFR 230.504(b)(1).

• Rule 506(b).

• Section 4(a)(2).

Securities Act registered offering.

Exempt offerings that permit general solicitation and follow other offers and sales are generally not the type of offerings that appear to be susceptible to concerns about the prior offers and sales conditioning the market for the subsequent exempt offering. We do not believe integrating any type of offers or sales with a subsequent exempt offering permitting general solicitation, such as an offering pursuant to Regulation A, Rule 147, Rule 147A, Rules 504(b)(1)(i), (ii), or (iii), Rule 506(c), or Regulation Crowdfunding, is necessary to further investor protection.

In response to a commenter's request,

174

we are providing guidance with respect to an issuer's ability to rely on Rule 152(b)(4) with respect to an offering that was commenced in reliance on an exemption that does not permit general solicitation, but that the issuer wishes to continue in reliance on an exemption that does permit general solicitation. We are of the view that an issuer may rely on the safe harbor in new Rule 152(b)(4) if, for example, the issuer commences an offering under Rule 506(b) and thereafter engages in general solicitation in reliance on Rule 506(c) so long as once the issuer engages in general solicitation, it relies on Rule 506(c) for all subsequent sales, thereby effectively terminating the Rule 506(b) offering, including by selling exclusively to accredited investors and taking reasonable steps to verify the accredited investor status of each purchaser.

175

The use of general solicitation in reliance on Rule 506(c) will not affect the exempt status of prior offers and sales of securities made in reliance on Rule 506(b).

176

It is also not necessary for an issuer to use different offering materials for offerings that rely on different exemptions, so long as the issuer satisfies the disclosure and other requirements of each applicable exemption.

174

See

Fried Frank Letter.

175

We do not believe that this approach will permit general solicitation in a Rule 506(b) offering conducted in two phases, in light of the significant investor protections of Rule 506(c) that become applicable as soon as the issuer commences general solicitation activity.

176

This guidance is consistent with the Commission's 2013 guidance in implementing Rule 506(c).

See

Rule 506(c) Adopting Release, at Section II.A.3.

3. Commencement, Termination, and Completion of Offerings (Rules 152(c) and 152(d))

Existing rules under the Securities Act do not clearly define commencement or completion with respect to exempt and registered offerings, although several rules state when exempt offerings under Regulation A

177

and Regulation Crowdfunding terminate under certain circumstances,

178

as well as when registered offerings terminate.

179

177

See, e.g.,

17 CFR 230.257(a) (“Rule 257(a)”) (requiring filing of “an exit report on [17 CFR 239.94 (“Form 1-Z”)] not later than 30 calendar days after the termination or completion of [a Regulation A/Tier I] offering.”); 17 CFR 230.259(b) (“Rule 259(b)”) (declaration by the Commission that the offering statement has been abandoned); and 17 CFR 230.251(d)(3)(i)(F) (“Rule 251(d)(3)(i)(F)”) (required termination of the offering by the third anniversary of the initial qualification date of the offering statement).

178

See, e.g.,

17 CFR 230.201(g) (“Rule 201(g)”) (disclosure required of the “target offering amount and the deadline to reach the target offering amount”); and 17 CFR 227.304(b) (“Rule 304(b)”) (notice provided by the Regulation Crowdfunding intermediary of the early completion of an offering).

179

See, e.g.,

17 CFR 230.477 (“Rule 477”) (withdrawal of the registration statement after application granted by the Commission); 17 CFR 230.479 (“Rule 479”) (order by the Commission that the registration statement has been abandoned); and 17 CFR 230.415(a)(5) (“Rule 415(a)(5)”) (on the third anniversary of the initial effective date of the registration statement).

a. Proposed Amendments

To provide greater certainty to issuers as to the availability of the safe harbors under proposed Rule 152(b) that require the prior offering to be “terminated or completed,”

180

the Commission proposed Rule 152(c) to define “terminated or completed” in the context of Rule 152 as follows:

180

See

proposed Rules 152(b)(1), (b)(3), and (b)(4).

• Offerings of securities made under Section 4(a)(2), Regulation D, Rule 147 or 147A would be considered “terminated or completed,” on the later of: (i) The date the issuer entered into a binding commitment to sell securities under the offering (subject only to conditions outside of the investor's control); or (ii) the date the issuer and its agents ceased efforts to make further offers to sell the issuer's securities.

181

Efforts to sell securities through the offering include, but are not limited to, the distribution of any offering materials. For purposes of exemptions permitting the use of general solicitation, the cessation of selling efforts would require the removal of any publicly available general solicitation materials, to the extent possible.

• Offerings under Regulation A would be considered “terminated or completed”: (i) Upon the withdrawal of an offering statement under 17 CFR 230.259(a) (“Rule 259(a)” of Regulation A); (ii) upon the filing of 17 CFR 239.94 (“Form 1-Z”) with respect to that offering; (iii) upon the declaration by the Commission that the offering statement has been abandoned under Rule 259(b) of Regulation A; or (iv) on the third anniversary of the initial qualification date of the offering statement, in the case of continuous or delayed offerings.

• Offerings under Regulation Crowdfunding would be considered “terminated or completed” on the deadline of the offering identified in the offering materials pursuant to Rule 201(g) of Regulation Crowdfunding, or indicated by the Regulation Crowdfunding intermediary in any notice to investors delivered under Rule 304(b) of Regulation Crowdfunding.

• Offerings for which a Securities Act registration statement has been filed would be considered, “terminated or completed,” for purposes of the proposed safe harbors: (i) Upon the withdrawal of the registration statement after the Commission grants such application under Rule 477; (ii) upon the filing of an amendment or supplement to the registration statement indicating that the registered offering has been terminated or completed and the deregistering of any unsold securities if required by 17 CFR 229.512(a)(3); (iii) the entry of an order by the Commission declaring that the registration statement has been abandoned under Rule 479; or (iv) as set forth in Rule 415(a)(5).

b. Comments

Commenters provided various recommendations on how to provide greater certainty to issuers as to the availability of the proposed safe harbors that require a determination as to when an offering should be considered “terminated or completed.”

182

While one commenter supported our proposed definitions of “terminated or completed,”

183

another commenter recommended that the Commission provide guidance for determining when offerings might be considered “terminated or completed” instead of defining the terms, as “the definitions might not catch all possible circumstances.”

184

In order to facilitate an issuer terminating an offering of securities in reliance on one exemption, for example, such as Rule 506(b) that prohibits general solicitation, and simultaneously commencing an offering of securities in reliance on another exemption, for example, such as Rule 506(c) that permits general solicitation, one commenter recommended revising the proposed definition of “terminated or completed” in 17 CFR 230.152(c)(1)(ii) to clarify that the requirement to cease selling efforts is limited only to a particular offering, as opposed to the more general language “to make further offers to sell the issuer's securities,” as proposed.

185

182

One comment letter supported the definitions as proposed.

See

W. Hubbard Letter. Several other commenters either opposed or suggested alternative definitions or approaches.

See, e.g.,

Shearman & Sterling Letter; CrowdCheck Letter; and J. Clarke Letter.

183

See

W. Hubbard Letter (stating that under other alternatives too many “complications otherwise would arise.”).

184

See

CrowdCheck Letter.

185

See

Fried Frank Letter (stating that this may occur because the issuer initially believes that it can raise capital without engaging in general solicitation, but subsequently determines that it is unable to raise the capital without engaging in

general solicitation and that the issuer should be able to seamlessly, using the same (or substantially identical) offering materials continue the offering in reliance on an exemption permitting general solicitation, such as Rule 506(c)).

Several commenters provided further recommendations with regard to specific sections of the definitions on when an offering is considered terminated or completed.

186

In regard to continuous Regulation A Tier 2 offerings that have not been withdrawn or abandoned, one of these commenters noted that under the proposed definition the offering would be deemed completed on the third anniversary of qualification, which would present a problem for purposes of the safe harbors, if the offering by its own terms indicated that it will terminate earlier, for example, one year after qualification.

187

186

See

Shearman & Sterling Letter; and CrowdCheck Letter (suggesting that the definition with regard to Section 4(a)(2), Regulation D, or Rules 147 and 147A should reference “conditions outside the issuer's control” instead of “outside the investor's control”).

187

See

CrowdCheck Letter.

Some commenters asked the Commission to provide guidance on when an offering is considered to be “commenced,”

188

including one commenter who stated that such guidance would be useful, especially in the context of testing the waters or seeking indications of interest in a contemplated securities offering.

189

188

See

CrowdCheck Letter; Shearman & Sterling Letter; and ABA Letter (expressing concern that it is unclear how the “commencement” of an offering would be applied to continuous offerings).

189

See

CrowdCheck Letter.

See also

ABA Letter (stating that determining the meaning of “commencement” of an offering can cause uncertainty).

Another commenter raised concerns with respect to termination and commencement in the context of shelf registration statements, and noted that if a registered offering is deemed commenced with the filing of the registration statement, the 30-day safe harbor may be effectively unavailable for shelf registration statements.

190

Accordingly, this commenter suggested that in the case of shelf registration statements on 17 CFR 239.13 (“Form S-3”) or 17 CFR 239.33 (“Form F-3”), the relevant commencement date should be the commencement of public efforts to sell the issuer's securities, rather than the filing or existence of a shelf registration statement, and that a particular delayed registered offering, commonly referred to as a take-down (or off the shelf) from an effective shelf registration statement, should be deemed terminated or completed when the distribution of the registered securities has been completed or public efforts to sell the issuer's securities in the proposed registered offering have been abandoned.

191

This commenter also suggested that the completion of the distribution in a registered offering could be determined, for example, by reference to the completion

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