Document ID: SEC-2021-0053-0001
Agency: sec
Document Type: Rule
Title: Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets
Posted Date: 2021-01-14T05:00Z

[Federal Register Volume 86, Number 9 (Thursday, January 14, 2021)]
[Rules and Regulations]
[Pages 3496-3605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-24749]

[[Page 3495]]

Vol. 86

Thursday,

No. 9

January 14, 2021

Part III

Securities and Exchange Commission

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17 CFR Parts 227, 229, 230, et al.

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

  Federal Register / Vol. 86 , No. 9 / Thursday, January 14, 2021 / 
Rules and Regulations  

[[Page 3496]]

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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.

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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 Sec.  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:
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    \1\ 15 U.S.C. 77a et seq.
    \2\ 15 U.S.C. 78a et seq.
    \3\ 15 U.S.C. 80a-1 et seq.

------------------------------------------------------------------------
           Commission Reference                 CFR citation (17 CFR)
------------------------------------------------------------------------
Regulation Crowdfunding:
  Rules 100 through 504...................  Sec.  Sec.   227.100 through
                                             227.504.
  Rule 100................................  Sec.   227.100.
  Rule 201................................  Sec.   227.201.
  Rule 203................................  Sec.   227.203.
  Rule 204................................  Sec.   227.204.
  Rule 206................................  Sec.   227.206.
  Rule 301................................  Sec.   227.301.
  Rule 303................................  Sec.   227.303.
  Rule 304................................  Sec.   227.304.
  Rule 503................................  Sec.   227.503.
                                            Sec.   227.504.
Securities Act of 1933 (Securities Act):
 \1\
  Rule 147................................  Sec.   230.147.
  Rule 147A...............................  Sec.   230.147A.
  Rule 148................................  Sec.   230.148.
  Rule 152................................  Sec.   230.152.
  Rule 155................................  Sec.   230.155.
  Rule 241................................  Sec.   230.241.
Regulation A:
  Rules 251 through 263...................  Sec.  Sec.   230.251 through
                                             230.263.
  Rule 251................................  Sec.   230.251.
  Rule 255................................  Sec.   230.255.
  Rule 259................................  Sec.   230.259.
  Rule 262................................  Sec.   230.262.
Regulation D:
  Rules 500 through 508...................  Sec.  Sec.   230.500 through
                                             230.508.
  Rule 500................................  Sec.   230.500.
  Rule 502................................  Sec.   230.502.
  Rule 504................................  Sec.   230.504.
  Rule 506................................  Sec.   230.506.
Regulation S-K:
  Items 10 through 1305...................  Sec.  Sec.   229.10 through
                                             229.1305.
  Item 601................................  Sec.   229.601.
  Form S-6................................  Sec.   239.16.
  Form N-14...............................  Sec.   239.23.
  Form 1-A................................  Sec.   239.90.
  Form C..................................  Sec.   239.900.
Securities Exchange Act of 1934 (Exchange
 Act): \2\
  Rule 12g-6..............................  Sec.   240.12g-6.
  Rule 12g5-1.............................  Sec.   240.12g5-1.
  Form 20-F...............................  Sec.   249.220f.
  Form 8-K................................  Sec.   249.308.
Investment Company Act of 1940 (Investment
 Company Act): \3\
  Rule 3a-9...............................  Sec.   270.3a-9.
  Form N-8B-2.............................  Sec.   274.12.
Securities Act and Investment Company Act:
  Form N-1A...............................  Sec.  Sec.   239.15A and
                                             274.11A.
  Form N-2................................  Sec.  Sec.   239.14 and
                                             274.11a-1.
  Form N-3................................  Sec.  Sec.   239.17a and
                                             274.11b.
  Form N-4................................  Sec.  Sec.   239.17b and
                                             274.11c.
  Form N-5................................  Sec.  Sec.   239.24 and
                                             274.5.
  Form N-6................................  Sec.  Sec.   239.17c and
                                             274.11d.
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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

[[Page 3497]]

to simplify, harmonize, and improve certain aspects of the exempt 
offering framework to promote capital formation while preserving or 
enhancing important investor protections.\4\ 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.
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    \4\ 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'').
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    The Securities Act requires that every offer \5\ 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.\6\ Section 4 of the 
Securities Act identifies transactions that are exempt from the 
registration requirements.\7\ 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.\8\ 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''),\9\ the Fixing America's 
Surface Transportation Act of 2015,\10\ and the Economic Growth, 
Regulatory Relief, and Consumer Protection Act of 2018.\11\ 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.\12\ 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.\13\
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    \5\ 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).
    \6\ 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).
    \7\ See 15 U.S.C. 77d.
    \8\ 15 U.S.C. 77z-3.
    \9\ 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).
    \10\ Public Law 114-94, 129 Stat. 1312 (2015).
    \11\ Public Law 115-174, 132 Stat. 1296 (2018).
    \12\ See Concept Release on Harmonization of Securities Offering 
Exemptions, Release No. 33-10649 (June 18, 2019) [84 FR 30460 (June 
26, 2019)] (``Concept Release'').
    \13\ 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'').
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    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.\14\ We also received comments and 
recommendations on the Proposing Release from the SEC Small Business 
Capital Formation Advisory Committee \15\ and the 2020 Small Business 
Forum.\16\ 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.\17\ We acknowledge concerns about and recommendations relating 
to transparency and investor protections in the private securities 
marketplace.\18\ 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

[[Page 3498]]

have only a marginal impact on the number of registered offerings.\19\ 
Commenters' views on different aspects of the proposed amendments, as 
well as their effects, are discussed topically below.
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    \14\ 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.
    \15\ See Letter from SEC Small Business Capital Formation 
Advisory Committee dated May 28, 2020 (``SEC SBCFAC Letter'').
    \16\ 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'').
    \17\ 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.
    \18\ 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.
    \19\ 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.
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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 \20\ from registration, as amended by this release.\21\
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    \20\ 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.
    \21\ 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
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                                                                                                                                          Preemption of
                                Offering limit                                                                                                state
       Type of offering         within 12-month       General           Issuer           Investor         SEC filing    Restrictions on    registration
                                    period         solicitation      requirements      requirements      requirements        resale            and
                                                                                                                                          qualification
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Section 4(a)(2)..............  None............  No..............  None............  Transactions by   None...........  Yes. Restricted  No.
                                                                                      an issuer not                      securities.
                                                                                      involving any
                                                                                      public
                                                                                      offering. See
                                                                                      SEC v. Ralston
                                                                                      Purina Co.
17 CFR 230.506(b) (``Rule      None............  No..............  ``Bad actor''     Unlimited         17 CFR 239.500   Yes. Restricted  Yes.
 506(b)'' of Regulation D).                                         disqualificatio   accredited        (``Form D'').    securities.
                                                                    ns apply.         investors. Up
                                                                                      to 35
                                                                                      sophisticated
                                                                                      but non-
                                                                                      accredited
                                                                                      investors in a
                                                                                      90-day period.
17 CFR 230.506(c) (``Rule      None............  Yes.............  ``Bad actor''     Unlimited         Form D.........  Yes. Restricted  Yes.
 506(c)'') of Regulation D.                                         disqualificatio   accredited                         securities.
                                                                    ns apply.         investors.
                                                                                      Issuer must
                                                                                      take reasonable
                                                                                      steps to verify
                                                                                      that all
                                                                                      purchasers are
                                                                                      accredited
                                                                                      investors *.
Regulation A: Tier 1.........  $20 million.....  Permitted;        U.S. or Canadian  None............  Form 1-A,        No.............  No.
                                                  before            issuers.                            including two
                                                  qualification,    Excludes blank                      years of
                                                  testing the       check                               financial
                                                  waters            companies,                          statements.
                                                  permitted         registered                         Exit report....
                                                  before and        investment
                                                  after the         companies,
                                                  offering          business
                                                  statement is      development
                                                  filed.            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''
                                                                    disqualificatio
                                                                    ns apply.* No
                                                                    asset-backed
                                                                    securities.
Regulation A: Tier 2.........  $75 million.....  ................  ................  Non-accredited    Form 1-A,        No.............  Yes.
                                                                                      investors are     including two
                                                                                      subject to        years of
                                                                                      investment        audited
                                                                                      limits based on   financial
                                                                                      the greater of    statements.
                                                                                      annual income     Annual, semi-
                                                                                      and net worth,    annual,
                                                                                      unless            current, and
                                                                                      securities will   exit reports.
                                                                                      be listed on a
                                                                                      national
                                                                                      securities
                                                                                      exchange.

[[Page 3499]]

 
Rule 504 of Regulation D.....  $10 million.....  Permitted in      Excludes blank    None............  Form D.........  Yes. Restricted  No.
                                                  limited           check                                                securities
                                                  circumstances.    companies,                                           except in
                                                                    Exchange Act                                         limited
                                                                    reporting                                            circumstances.
                                                                    companies, and
                                                                    investment
                                                                    companies.
                                                                    ``Bad actor''
                                                                    disqualificatio
                                                                    ns apply.
Regulation Crowdfunding;       $5 million......  Testing the       Excludes non-     No investment     Form C,          12-month resale  Yes.
 Section 4(a)(6).                                 waters            U.S. issuers,     limits for        including two    limitations.
                                                  permitted         blank check       accredited        years of
                                                  before Form C     companies,        investors. Non-   financial
                                                  is filed.         Exchange Act      accredited        statements
                                                  Permitted with    reporting         investors are     that are
                                                  limits on         companies, and    subject to        certified,
                                                  advertising       investment        investment        reviewed or
                                                  after Form C is   companies.        limits based on   audited, as
                                                  filed. Offering   ``Bad actor''     the greater of    required.
                                                  must be           disqualificatio   annual income     Progress and
                                                  conducted on an   ns apply.         and net worth.    annual reports.
                                                  internet
                                                  platform
                                                  through a
                                                  registered
                                                  intermediary.
Intrastate: Section 3(a)(11).  No Federal limit  Offerees must be  In-state          Offerees and      None...........  Securities must  No.
                                (generally,       in-state          residents         purchasers must                    come to rest
                                individual        residents.        ``doing           be in-state                        with in-state
                                State limits                        business'' and    residents.                         residents.
                                between $1 and                      incorporated in-
                                $5 million).                        state; excludes
                                                                    registered
                                                                    investment
                                                                    companies.
Intrastate: Rule 147.........  No Federal limit  Offerees must be  In-state          Offerees and      None...........  Yes. Resales     No.
                                (generally,       in-state          residents         purchasers must                    must be within
                                individual        residents.        ``doing           be in-state                        State for six
                                State limits                        business'' and    residents.                         months.
                                between $1 and                      incorporated in-
                                $5 million).                        state; excludes
                                                                    registered
                                                                    investment
                                                                    companies.
Intrastate: Rule 147A........  No Federal limit  Yes.............  In-state          Purchasers must   None...........  Yes. Resales     No.
                                (generally,                         residents and     be in-state                        must be within
                                individual                          ``doing           residents.                         State for six
                                State limits                        business'' in-                                       months.
                                between $1 and                      state; excludes
                                $5 million).                        registered
                                                                    investment
                                                                    companies.
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    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.\22\ 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.\23\
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    \22\ 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.
    \23\ See Proposing Release, at Section II.A.
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    The Commission first articulated the integration concept in 1933 
and further developed it in two interpretive releases issued in the 
1960s.\24\ 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.\25\
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    \24\ 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'').
    \25\ See Section 3(a)(11) Release; and Non-Public Offering 
Exemption Release.
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    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.\26\ 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.\27\
---------------------------------------------------------------------------

    \26\ 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).
    \27\ 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.\28\ The 
Commission noted that the determination as to whether the filing of a 
registration statement should be considered to be a general

[[Page 3500]]

solicitation or general advertising \29\ 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.\30\
---------------------------------------------------------------------------

    \28\ See Regulation D 2007 Proposing Release, at Section II.C.1.
    \29\ 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.''
    \30\ 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.\31\ 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.\32\
---------------------------------------------------------------------------

    \31\ 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.
    \32\ 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.
---------------------------------------------------------------------------

    \33\ 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(a)--Overview of the General Integration Principle in New Rule
                                 152 33
------------------------------------------------------------------------
 
------------------------------------------------------------------------
                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          The issuer must have a reasonable
 Principle to an exempt offering     belief, based on the facts and
 prohibiting general solicitation.   circumstances, with respect to each
 17 CFR 230.152(a)(1) (``Rule        purchaser in the exempt offering
 152(a)(1)'').                       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          In addition to satisfying the
 Principle to concurrent exempt      requirements of the particular
 offerings that each allow general   exemption relied on, general
 solicitation. 17 CFR                solicitation offering materials for
 230.152(a)(2) (``Rule               one offering that include
 152(a)(2)'').                       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.
------------------------------------------------------------------------

[[Page 3501]]

 Table 2(b)--Overview of the Integration Safe Harbors in New Rule 152 34
------------------------------------------------------------------------
 
------------------------------------------------------------------------
        Non-Exclusive Integration Safe Harbors in New Rule 152(b)
------------------------------------------------------------------------
Safe Harbor 1: 17 CFR               Any offering made more than 30
 230.152(b)(1) (``Rule               calendar days before the
 152(b)(1)'').                       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               Offers and sales made in compliance
 230.152(b)(2) (``Rule               with Rule 701, pursuant to an
 152(b)(2)'').                       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               An offering for which a Securities
 230.152(b)(1) (``Rule               Act registration statement has been
 152(b)(3)'').                       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               Offers and sales made in reliance on
 230.152(b)(1) (``Rule               an exemption for which general
 152(b)(4)'').                       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)
---------------------------------------------------------------------------

    \34\ 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.\35\ 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).
---------------------------------------------------------------------------

    \35\ 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 \36\ 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.
---------------------------------------------------------------------------

    \36\ 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 
\37\ and recommendations of the annual Small Business Forums \38\ 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

[[Page 3502]]

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.\39\ 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).\40\ 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.\41\
---------------------------------------------------------------------------

    \37\ 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.
    \38\ 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).
    \39\ 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 
S[omacr].Capital Inc. dated June 1, 2020 (``S[omacr].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'').
    \40\ 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).
    \41\ See SEC SBCFAC Letter.
---------------------------------------------------------------------------

    A number of commenters opposed the proposed integration 
framework.\42\ Some of these commenters expressed concerns that the 
proposed amendments would reduce the need or incentive for companies to 
go public \43\ or allow issuers to evade the registration requirements 
of the Securities Act.\44\ 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.\45\ 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.\46\
---------------------------------------------------------------------------

    \42\ 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)).
    \43\ 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.
    \44\ 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).
    \45\ 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).
    \46\ See Md. St. Bar Assoc. Letter.
---------------------------------------------------------------------------

    Several commenters who supported the concept of revising the 
integration framework offered alternative approaches to the 
proposal.\47\ 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.\48\ 
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.\49\
---------------------------------------------------------------------------

    \47\ 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'').
    \48\ 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'').
    \49\ 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.\50\ Other 
commenters specifically recommended retaining the current five-factor 
test.\51\ 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,\52\ 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.\53\
---------------------------------------------------------------------------

    \50\ 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).
    \51\ See CFA Letter; and Md. St. Bar Assoc. Letter.
    \52\ See Md. St. Bar Assoc. Letter.
    \53\ 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).

---------------------------------------------------------------------------

[[Page 3503]]

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.\54\ 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).\55\
---------------------------------------------------------------------------

    \54\ See Md. St. Bar Assoc. Letter.
    \55\ 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).\56\ 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.\57\ 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.\58\ Another 
commenter recommended that the application of proposed Rule 
152(a)(1)(i) and (ii) be tied to the particular purchaser, rather than 
``purchasers.'' \59\ 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.\60\ 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.\61\ In contrast, some commenters suggested that the 
prohibition on general solicitation in exempt offerings should be 
eliminated.\62\
---------------------------------------------------------------------------

    \56\ See, e.g., Md. St. Bar Assoc. Letter; Fried Frank Letter; 
IPA Letter; ABA Letter; CFA Letter; Invesco Letter; and CrowdCheck 
Letter.
    \57\ 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).
    \58\ See e.g., CFA Letter; and Md. St. Bar Assoc. Letter.
    \59\ 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.'').
    \60\ See Fried Frank Letter.
    \61\ See IPA Letter.
    \62\ 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.\63\ 
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.\64\ 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.\65\
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    \63\ See Md. St. Bar Assoc. Letter.
    \64\ See id.
    \65\ 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).
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c. Final Amendments
    After considering the comments, we are adopting a new comprehensive 
integration framework, in new Rule 152,\66\ 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.
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    \66\ 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.
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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

[[Page 3504]]

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.\67\ 
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.
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    \67\ 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.\68\ 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.\69\ 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.
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    \68\ See CFA Letter; and R. Rutkowski Letter. See also Md. St. 
Bar Assoc. Letter.
    \69\ 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 infra 
note 596 and Table 7.
---------------------------------------------------------------------------

    The final rules replace the five-factor test with the Commission's 
more recent approach to integration adopted in rulemakings involving 
Regulation A, Regulation Crowdfunding, and Rules 147 and 147A. We agree 
with commenters who indicated that the amendments provide a clearer 
framework for determining whether two offerings occurring close in time 
may be considered as integrated than the five-factor test.\70\ As noted 
above, we believe that our new integration framework will facilitate 
both exempt and registered offerings, by providing greater clarity and 
flexibility to issuers in choosing capital raising options to grow 
their businesses without compromising investor protections.
---------------------------------------------------------------------------

    \70\ See, e.g., J. Clarke Letter; CrowdCheck Letter; Geraci 
Letter; and W. Hubbard Letter.
---------------------------------------------------------------------------

iii. Integration With Exempt Offerings Prohibiting General Solicitation 
(Rule 152(a)(1))
    We are adopting Rule 152(a)(1) substantially as proposed, with 
clarifying changes in response to commenters' concerns. Accordingly, 
for an issuer considering the application of the general principle to 
an exempt offering prohibiting general solicitation and one or more 
other offerings, new Rule 152(a)(1) requires that 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:
     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.
    New Rule 152(a)(1) has been revised from the proposal in several 
ways. First, as suggested by several commenters, the language of Rule 
152(a)(1) has been revised to clarify that the restrictions on the use 
of general solicitation only apply to the exempt offering prohibiting 
general solicitation that is being analyzed under the general 
principle, and not to ``each exempt offering.'' We have also revised 
Rule 152(a)(1) to clarify that in exempt offerings prohibiting general 
solicitation, it is the obligation of the issuer, or any person acting 
on the issuer's behalf, to refrain from the use of general solicitation 
to solicit a purchaser.
    New Rule 152(a)(1) codifies and expands on guidance the Commission 
first issued in 2007, and updated through 2016, which sets forth a 
framework for analyzing how an issuer can conduct simultaneous 
registered and private offerings.\71\ Since the adoption of Rule 506(c) 
by the Commission in 2013, commenters have requested that the 
Commission's 2007 guidance on concurrent registered and

[[Page 3505]]

private offerings be extended to concurrent Rule 506(c) and Rule 506(b) 
offerings.\72\ Under the new integration principle in Rule 152(a), 
issuers may conduct concurrent Rule 506(c) and Rule 506(b) offerings, 
or any other combination of concurrent offerings, involving an offering 
prohibiting general solicitation and another offering permitting 
general solicitation, without integration concerns, so long as the 
provisions of Rule 152(a)(1) and all other conditions of the applicable 
exemptions are satisfied.\73\
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    \71\ See supra text accompanying notes 28-32.
    \72\ See Fried Frank Letter; and Md. St. Bar Assoc. Letter. 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).
    \73\ 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).
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    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,\74\ 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.\75\
---------------------------------------------------------------------------

    \74\ See supra notes 57-58.
    \75\ 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,\76\ 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.\77\ 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.
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    \76\ See Md. St. Bar Assoc. Letter.
    \77\ 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.\78\ 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.\79\
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    \78\ 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).
    \79\ 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.\80\
---------------------------------------------------------------------------

    \80\ 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,\81\ new

[[Page 3506]]

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.\82\
---------------------------------------------------------------------------

    \81\ 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).
    \82\ 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.\83\
---------------------------------------------------------------------------

    \83\ 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.\84\ 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.\85\
---------------------------------------------------------------------------

    \84\ 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.
    \85\ See infra Section II.B.3 for a discussion of revisions 
adopted to Rule 204 of Regulation Crowdfunding.
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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,\86\ indicating that the safe 
harbors would provide clarity and bright line rules to simplify 
compliance.\87\ Some commenters recommended expanding on the proposed 
safe harbors.\88\
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    \86\ 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.
    \87\ 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.
    \88\ 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.\89\ Some of these commenters expressed particular concern 
that the revisions could lead to more frequent offerings involving non-
accredited investors.\90\ One commenter expressed concern that a 30-day 
integration safe harbor could render the integration doctrine a 
nullity.\91\
---------------------------------------------------------------------------

    \89\ See, e.g., NASAA Letter; CFA Letter; Better Markets Letter; 
Md. St. Bar Assoc. Letter; and CII Letter.
    \90\ See, e.g., CII Letter; and NASAA Letter.
    \91\ 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.\92\ 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.\93\
---------------------------------------------------------------------------

    \92\ 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).
    \93\ 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.\94\
---------------------------------------------------------------------------

    \94\ 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

[[Page 3507]]

statement has been filed under the Securities Act and exempt 
offerings.\95\ 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.
---------------------------------------------------------------------------

    \95\ 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.\96\
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    \96\ 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.\97\
---------------------------------------------------------------------------

    \97\ 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.
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ii. Comments
    Some commenters supported,\98\ and others opposed,\99\ 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\
---------------------------------------------------------------------------

    \98\ 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.
    \99\ 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

[[Page 3508]]

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\
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    \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\
---------------------------------------------------------------------------

    \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\
---------------------------------------------------------------------------

    \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).

---------------------------------------------------------------------------

[[Page 3509]]

    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\
---------------------------------------------------------------------------

    \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\

[[Page 3510]]

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\
---------------------------------------------------------------------------

    \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

[[Page 3511]]

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.
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    \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\
---------------------------------------------------------------------------

    \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\
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    \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)].
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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.
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    \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

[[Page 3512]]

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\
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    \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.
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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.

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[[Page 3513]]

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\
---------------------------------------------------------------------------

    \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\
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    \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
Exempt offering permitting general           general solicitation,
 solicitation, including:                    including:
 Regulation A.                       Regulation A.
 Regulation Crowdfunding.            Regulation
 Rule 147 or 147A.                   Crowdfunding.
 Rules 504(b)(1)(i), (ii), or        Rule 147 or 147A.
 (iii).                                      Rules 504(b)(1)(i),
 Rule 506(c).                        (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.

[[Page 3514]]

    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.
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    \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\
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    \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\
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    \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)).

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[[Page 3515]]

    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\
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    \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 of the distribution within the 
meaning of 17 CFR 242.100 through 105 (``Regulation M'') under the 
Exchange Act.\192\
---------------------------------------------------------------------------

    \190\ See Shearman & Sterling Letter (stating that requiring 
issuers to wait 30 days after the termination of a shelf 
registration statement before commencing an exempt offering 
prohibiting general solicitation, or requiring issuers that are 
engaged in an exempt offering to postpone filing a new shelf 
registration statement for 30 days after the termination of the 
exempt offering in order for the safe harbor to be available, would 
be burdensome for issuers and would not provide incremental 
protections for investors).
    \191\ See id.
    \192\ See id.
---------------------------------------------------------------------------

c. Final Amendments
    We agree with many of the commenters' suggestions, and, as adopted, 
we have modified Rule 152 accordingly. We are adopting the provisions 
of proposed Rule 152(c) regarding when an offering is terminated or 
completed as new 17 CFR 230.152(d) (``Rule 152(d)''). We also are 
adopting provisions for determining when an offering has commenced as 
new Rule 152(c). In addition, we have structured new Rules 152(c) and 
152(d) as factors to consider, rather than definitions. We share the 
concern expressed by a commenter that definitions might not catch all 
possible circumstances so, consistent with this commenter's suggestion, 
the rule includes factors to consider, instead of definitions.\193\ We 
believe that this will provide more flexibility to issuers applying the 
safe harbors to various offering scenarios and, should make both the 
rule's general principle of integration and the safe harbors more 
workable.
---------------------------------------------------------------------------

    \193\ See CrowdCheck Letter.
---------------------------------------------------------------------------

    New Rule 152(c) provides a non-exclusive list of factors to 
consider in determining when an offering will be deemed to be commenced 
for purposes of both the general principle of integration in Rule 
152(a) and the safe harbors in Rule 152(b). Specifically, regardless of 
the type of offering, new Rule 152(c) states that an offering of 
securities will be deemed to be commenced for purposes of Rule 152 at 
the time of the first offer of securities in the offering by the issuer 
or its agents, and includes a non-exclusive list of factors that should 
be considered in determining when an offering is deemed to be 
commenced. The list of factors covers registered and exempt offerings, 
noting that an issuer or its agents may commence an offering in 
reliance on:
     Rule 241, on the date the issuer first made a generic 
offer soliciting interest in a contemplated securities offering for 
which the issuer has not yet determined the exemption under the 
Securities Act under which the offering of securities would be 
conducted;
     Section 4(a)(2), Regulation D, or Rule 147 or 147A, on the 
date the issuer first made an offer of its securities in reliance on 
these exemptions;
     Regulation A, on the earlier of the date the issuer first 
made an offer soliciting interest in a contemplated securities offering 
in reliance on Rule 255, or the public filing of a Form 1-A offering 
statement;
     Regulation Crowdfunding, on the earlier of the date the 
issuer first made an offer soliciting interest in a contemplated 
securities offering in reliance on new Rule 206, or the public filing 
of a Form C offering statement; and
     A registration statement filed under the Securities Act 
for:
    [cir] A continuous offering that will commence promptly on the date 
of initial effectiveness, on the date the issuer first filed its 
registration statement for the offering with the Commission, or
    [cir] A delayed offering, on the earliest date on which the issuer 
or its agents commenced public efforts to offer and sell the 
securities, which could be evidenced by the earlier of the first filing 
of a prospectus supplement with the Commission describing the delayed 
offering, or the issuance of a widely disseminated public disclosure, 
such as a press release, confirming the commencement of the delayed 
offering.
    Due to their non-public nature, communications between an issuer, 
or its agents and underwriters, and QIBs and IAIs, including those that 
would qualify for the safe harbor in 17 CFR 230.163B (``Rule 163B''), 
will not be considered as the commencement of a registered public 
offering for purposes of new Rule 152. In contrast, the commencement of 
private communications between an issuer, or its agents, including 
private placement agents, and prospective investors in an exempt 
offering in which general solicitation is prohibited, such as under 
Rule 506(b) or Section 4(a)(2), may be considered as the commencement 
of the non-public exempt offering for purposes of new Rule 152, if such 
private communication involves an offer of securities.
    We believe that the safe harbors in new Rule 152(b)(1) and (3) 
should accommodate and facilitate seasoned

[[Page 3516]]

issuers filing shelf registration statements with the Commission. 
Accordingly, consistent with one commenter's recommendation,\194\ for a 
continuous registered offering that will commence promptly on the date 
of initial effectiveness,\195\ we have included guidance that the 
commencement of such an offering is likely to occur on the date the 
issuer first filed its registration statement for the offering with the 
Commission.\196\ However, in the case of a delayed registered offering, 
we agree that the mere filing or existence of a shelf registration 
statement, without any actual selling effort or description of the 
securities to be offered and sold, is unlikely to meaningfully 
condition the market for a subsequent exempt offering. Therefore, based 
on the facts and circumstances, the initial public filing of a shelf 
registration statement with the Commission will not necessarily be 
deemed to be the commencement of the offering. Rather, commencement of 
such an offering is likely to occur upon commencement of the public 
efforts by the issuer, or its agents and underwriters, to offer and 
sell the securities in the particular delayed registered offering, 
including the issuance of a widely disseminated public disclosure, such 
as a press release, or the public filing of a prospectus supplement 
with the Commission.
---------------------------------------------------------------------------

    \194\ See Shearman & Sterling Letter (``In the past three years, 
3,697 Form S-3 registration statements were filed by domestic 
issuers and 405 Form F-3 registration statements by foreign private 
issuers.''). In this regard, we note the critical importance of 
shelf registration statements to capital formation. Based on staff 
analysis of EDGAR filings, during calendar year 2019, we estimate 
that there were 816 filings on Form S-3 and 273 filings on Form F-3. 
In addition, we estimate that during this period there were 2,126 
domestic automated shelf registration filings (S-3ASR) and 61 
foreign automated shelf registration filings (F-3ASR).
    \195\ See, e.g., 17 CFR 230.415(a)(1)(ix).
    \196\ Confidentially submitted registration statements and 
related materials would not be considered as filed for purposes of 
these rules until they are publicly filed on the Commission's EDGAR 
system.
---------------------------------------------------------------------------

    We are adopting new Rule 152(d) to provide a non-exclusive list of 
factors to consider in determining when an offering is deemed to be 
``terminated or completed,'' substantially as proposed, but with 
modifications consistent with commenters' recommendations. Instead of 
definitions, new Rule 152(d) provides a list of factors to consider in 
determining when an offering will be deemed to be ``terminated or 
completed.'' Regardless of the type of offering, Rule 152(d) states 
that termination or completion of an offering is likely to occur when 
the issuer and its agents cease efforts to make further offers to sell 
the issuer's securities under such offering. The rule includes a non-
exclusive list of factors that should be considered in determining when 
an offering is deemed to be terminated or completed, including for 
offerings made in reliance on:
     Section 4(a)(2), Regulation D, or Rule 147 or 147A, on the 
later of the date:
    [cir] The issuer entered into a binding commitment to sell all 
securities to be sold under the offering (subject only to conditions 
outside of the investor's control) \197\; or
---------------------------------------------------------------------------

    \197\ By limiting the conditions to those outside the investor's 
control, an issuer may take the position that an offering is 
terminated or completed at a point in time prior to the actual 
closing of the transaction, so long as the only remaining conditions 
are solely within the issuer's control.
---------------------------------------------------------------------------

    [cir] The issuer and its agents ceased efforts to make further 
offers to sell the issuer's securities under such offering;
     Regulation A, on:
    [cir] The withdrawal of an offering statement under Rule 259(a);
    [cir] The filing of a Form 1-Z with respect to a Tier I offering 
under Rule 257(a);
    [cir] The declaration by the Commission that the offering statement 
has been abandoned under Rule 259(b); or
    [cir] The date, after the third anniversary of the date the 
offering statement was initially qualified, on which Rule 
251(d)(3)(i)(F) prohibits the issuer from continuing to sell securities 
using the offering statement, or any earlier date on which the offering 
terminates by its terms;
     Regulation Crowdfunding, on the deadline of the offering 
identified in the offering materials pursuant to Rule 201(g), or 
indicated by the Regulation Crowdfunding intermediary in any notice to 
investors delivered under Rule 304(b); or
     A registration statement filed under the Securities Act, 
on:
    [cir] The withdrawal of the registration statement after an 
application is granted or deemed granted under Rule 477;
    [cir] The filing of a prospectus supplement or amendment to the 
registration statement indicating that the offering, or particular 
delayed offering in the case of a shelf registration statement, has 
been terminated or completed;
    [cir] The entry of an order of the Commission declaring that the 
registration statement has been abandoned under Rule 479;
    [cir] The date, after the third anniversary of the initial 
effective date of the registration statement, on which Rule 415(a)(5) 
prohibits the issuer from continuing to sell securities using the 
registration statement, or any earlier date on which the offering 
terminates by its terms; or
    [cir] Any other factors that indicate that the issuer has abandoned 
or ceased its public selling efforts in furtherance of the offering, or 
particular delayed offering in the case of a shelf registration 
statement, which could be evidenced by:
    [ssquf] The filing of a Current Report on Form 8-K; or
    [ssquf] The issuance of a widely disseminated public disclosure by 
the issuer, or its agents, informing the market that the offering, or 
particular delayed offering, in the case of a shelf registration 
statement, has been terminated or completed.
    In response to a commenter's suggestion to facilitate reliance on 
the proposed rule by issuers wishing to terminate an offering of 
securities in reliance on one exemption and simultaneously commence an 
offering of the same securities in reliance on another exemption that 
may not be able to say that the issuer has ``ceased efforts to make 
further offers to sell'' its securities,\198\ we are clarifying in new 
17 CFR 230.152(d)(1)(ii) that an issuer and its agents must cease 
efforts to make further offers to sell the issuer's securities under a 
particular exempt offering.
---------------------------------------------------------------------------

    \198\ See Fried Frank Letter.
---------------------------------------------------------------------------

    In new 17 CFR 230.152(d)(2)(iv) (``Rule 152(d)(2)(iv)''), we have 
also clarified that the date after the third anniversary of the date a 
Regulation A offering statement was qualified may constitute the 
termination or completion of an offering for Rule 152 purposes, due to 
the operation of Rule 251(d)(3)(i)(F). In addition, in response to a 
commenter's suggestion,\199\ we have also further clarified that a 
Regulation A offering may terminate on any earlier date on which the 
offering terminates by its terms.
---------------------------------------------------------------------------

    \199\ See CrowdCheck Letter.
---------------------------------------------------------------------------

    With respect to a registration statement filed under the Securities 
Act, in accord with suggestions by another commenter to facilitate 
issuers undertaking shelf offerings, we have provided that the 
abandonment or cessation of public selling efforts may be evidenced by 
the filing of a current report on Form 8-K, or the issuance of a widely 
disseminated public disclosure by the issuer or its agents, informing 
the market about the termination of a registered offering, or in the 
case of a shelf registration statement, a particular

[[Page 3517]]

delayed offering.\200\ We note that a particular delayed offering may 
be deemed terminated or completed, even though the issuer's shelf 
registration statement may still have unused capacity, or an aggregate 
amount of securities available to offer and sell in a later delayed 
registered offering.
---------------------------------------------------------------------------

    \200\ See Shearman & Sterling Letter. We have not, however, 
adopted this commenter's suggestion that the completion of 
distribution in a registered offering could be determined by 
reference to the completion of the distribution within the meaning 
of Regulation M under the Exchange Act. We believe including such 
language in the list of factors to be considered would add an 
unnecessary layer of complexity to new Rule 152(d), and may also 
cause unnecessary confusion with respect to the proper scope and 
application of Regulation M (e.g., market participants may assume 
incorrectly that Regulation M applies only to registered public 
offerings, which is not the case).
---------------------------------------------------------------------------

4. Conforming Amendments to Securities Act Exemptions
a. Proposed Amendments
    The Commission proposed to replace the integration provisions of 
several Securities Act exemptions with references to proposed Rule 152. 
Specifically, the Commission proposed to amend current Rules 502(a), 
251(c), 147(g), and 147A(g) to provide cross-references to the new Rule 
152. Although Regulation Crowdfunding has no codified integration 
provision, in the 2015 adopting release, the Commission provided 
guidance on integration using the same facts-and-circumstances analysis 
set forth in the Commission's 2015 amendments to Regulation A and 2016 
amendments to Rule 147 and adoption of new Rule 147A.\201\ The 
Commission proposed to amend Rule 100 of Regulation Crowdfunding to 
cross-reference proposed Rule 152(b), which would codify the 
Commission's existing guidance on integration.
---------------------------------------------------------------------------

    \201\ Securities Act Section 4A(g) states that ``[n]othing in 
the exemption shall be construed as preventing an issuer from 
raising capital through means other than [S]ection 4(a)(6).'' Given 
this statutory language, the Commission provided guidance in the 
Crowdfunding Adopting Release that an offering made in reliance on 
Section 4(a)(6) is not required to be integrated with another exempt 
offering made by the issuer to the extent that each offering 
complies with the requirements of the applicable exemption that is 
being relied on for that particular offering. See Crowdfunding 
Adopting Release, at text accompanying notes 1343-1344.
---------------------------------------------------------------------------

    The Commission additionally proposed to eliminate Rules 255(e), 
147(h), and 147A(h) as the relief provided by these rules would be 
provided by proposed Rule 152(b)(3).
b. Comments
    Commenters that addressed the proposal generally preferred our 
proposed approach to replace the current integration provisions in each 
Securities Act exemption with a cross-reference to proposed Rule 152, 
instead of revising each exemption's current integration provisions to 
reflect the provisions of proposed Rule 152.\202\
---------------------------------------------------------------------------

    \202\ See W. Hubbard Letter; D. Burton Letter; and CrowdCheck 
Letter.
---------------------------------------------------------------------------

    Commenters also supported codifying in Rule 100 of Regulation 
Crowdfunding, as proposed, the Commission's existing integration 
guidance providing that offers and sales made in reliance on Regulation 
Crowdfunding will not be integrated with other exempt offerings made by 
the issuer, provided that each offering complies with the requirements 
of the applicable exemption that is being relied on for the particular 
offering.\203\ One commenter, however, stated that this change was 
unnecessary if proposed Rule 152 is adopted.\204\ Due to the 
requirements in proposed Rule 152(a)(1) and (b)(1), another commenter 
stated its belief that applying proposed Rule 152 to Regulation 
Crowdfunding offerings would be an incomplete solution to Regulation 
Crowdfunding issuers' concerns.\205\ Another commenter asked the 
Commission to conform existing Rule 500(g) to clarify that the rule 
applies in addition to, and is not a concept separate from, the general 
integration rules in Rule 152, such as by cross-referencing Rule 
152(b)(2) in Rule 500(g).\206\
---------------------------------------------------------------------------

    \203\ See J. Clarke Letter; Netcapital Letter; W. Hubbard 
Letter; R. Campbell Letter; and D. Burton Letter.
    \204\ See CrowdCheck Letter.
    \205\ See R. Campbell Letter (explaining that due to the 
requirements in proposed Rule 152(a)(1) and (b)(1), ``[a]n issuer 
combining a crowdfunding offering with, for example, an offering 
under Section 4(a)(2) would not be entitled to the integration 
protection of proposed Rule 152.'').
    \206\ See ABA Letter.
---------------------------------------------------------------------------

c. Final Amendments
    We are replacing the integration provisions of several Securities 
Act exemptions with references to Rule 152, as proposed. Specifically, 
we are amending Rule 502(a), Rule 251(c), Rule 147(g), and Rule 147A(g) 
to provide cross-references to the new general principle of integration 
and safe harbors for integration in Rule 152.We are also similarly 
amending current Rule 500(g), consistent with a commenter's suggestion. 
Although we did not propose amending Rule 500(g), we believe a cross-
reference to the safe harbor for offers and sales made in compliance 
with Regulation S in new Rule 152(b)(2) is appropriate to avoid any 
potential confusion about the intersection between those provisions. 
This amendment will make it clear that Rule 500(g) provides specific 
guidance in addition to, and not separate from, the general integration 
rules in new Rule 152.
    We are additionally eliminating Rule 255(e), Rule 147(h), and Rule 
147A(h) as the relief provided by these rules is provided by new Rule 
152(b)(3). All of these existing integration provisions currently refer 
to a facts-and-circumstances analysis when their enumerated safe 
harbors do not apply, and the new Rule 152(b) safe harbors are 
generally consistent with the current safe harbors in the individual 
rules.
    As proposed, we are also codifying the Commission's guidance on 
integration of Regulation Crowdfunding offerings by adding a cross-
reference to new Rule 152 in a new provision in Rule 100 of Regulation 
Crowdfunding, which we believe will provide greater certainty to 
issuers contemplating a Regulation Crowdfunding offering who also may 
be considering other offerings under the Securities Act. Codification 
of this guidance should provide issuers that may wish to conduct a 
Regulation Crowdfunding offering concurrent with a Rule 506(c) offering 
with certainty and flexibility to help them meet their capital needs.

B. General Solicitation and Offering Communications

    The Securities Act defines, and the Commission historically has 
interpreted, the term ``offer'' broadly.\207\ The Commission has 
explained that ``the publication of information and publicity efforts, 
made in advance of a proposed financing which have the effect of 
conditioning the public mind or arousing public interest in the issuer 
or in its securities constitutes an offer.'' \208\ Although the terms 
``general solicitation'' and ``general advertising'' are not defined in 
Regulation D, 17 CFR 230.502(c) (``Rule 502(c)'') does provide examples 
of general solicitation and general advertising, including 
advertisements published in newspapers and magazines, communications 
broadcast over television and radio, and seminars where attendees have 
been invited by general solicitation or general

[[Page 3518]]

advertising.\209\ The Commission has stated that other uses of publicly 
available media, such as unrestricted websites, also constitute general 
solicitation and general advertising.\210\
---------------------------------------------------------------------------

    \207\ See Securities Offering Reform, Release No. 33-8591 (July 
19, 2005) [70 FR 44722 (Aug. 3, 2005)] (``Securities Offering Reform 
Release''), at note 88 (``The term `offer' has been interpreted 
broadly and goes beyond the common law concept of an offer.'') 
(citing Diskin v. Lomasney & Co., 452 F.2d 871 (2d. Cir. 1971) and 
SEC v. Cavanaugh, 1 F. Supp. 2d 337 (S.D.N.Y. 1998)). See also 
Section 2(a)(3) of the Securities Act (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).
    \208\ See Securities Offering Reform Release, at note 88.
    \209\ See Rule 502(c).
    \210\ See Use of Electronic Media for Delivery Purposes, Release 
No. 33-7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)], at Section 
II.A.D; and Use of Electronic Media Release, at Section II.C.2.
---------------------------------------------------------------------------

    Whether a transaction is one not involving any public offering 
\211\ is essentially a question of fact and necessitates a 
consideration of the surrounding circumstances, including factors such 
as the relationship between the offerees and the issuer, and the 
nature, scope, size, type, and manner of the offering. The Commission 
adopted Rule 506 of Regulation D in 1982 as a non-exclusive safe harbor 
under Section 4(a)(2), providing objective standards on which an issuer 
could rely to meet the requirements of the Section 4(a)(2) exemption, 
including a prohibition on the use of general solicitation to market 
the securities.\212\
---------------------------------------------------------------------------

    \211\ Section 4(a)(2) of the Securities Act exempts from the 
registration requirements ``transactions by an issuer not involving 
any public offering,'' but does not define the phrase. 15 U.S.C. 
77d(a)(2).
    \212\ See Regulation D Adopting Release, at Section III.C.
---------------------------------------------------------------------------

1. Exemption From General Solicitation for ``Demo Days'' and Similar 
Events
    ``Demo days'' and similar events are generally organized by a group 
or entity (such as a university, angel investors, an accelerator, or an 
incubator) that invites issuers to present their businesses to 
potential investors, with the aim of securing investment. As the 
Commission stated in the Proposing Release, if the issuer's 
presentation at a ``demo day'' or similar event constitutes an offer of 
securities, the issuer would not be deemed to have engaged in general 
solicitation if the organizer of the event has limited participation in 
the event to individuals or groups of individuals with whom the issuer 
or the organizer has a pre-existing substantive relationship or that 
have been contacted through an informal, personal network of 
experienced, financially sophisticated individuals, such as angel 
investors.\213\ However, we understand that in many cases it may not be 
practical for the organizer of the event to limit participation in such 
a manner.
---------------------------------------------------------------------------

    \213\ See Proposing Release, at Section II.B.1.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed new Rule 148 to provide that certain ``demo 
day'' communications would not be deemed general solicitation or 
general advertising.\214\ Specifically, as proposed, an issuer would 
not be deemed to have engaged in general solicitation if the 
communications are made in connection with a seminar or meeting 
sponsored by a college, university, or other institution of higher 
education, a local government, a nonprofit organization, or an angel 
investor group,\215\ incubator, or accelerator.
---------------------------------------------------------------------------

    \214\ Because communications that comply with proposed Rule 148 
would not be deemed a general solicitation or general advertising, 
the limitations on the manner of offering in Rule 502(c) of 
Regulation D would not apply.
    \215\ A proposed instruction to Rule 148 provided that for 
purposes of the rules the term ``angel investor group'' means a 
group: (A) Of accredited investors; (B) that holds regular meetings 
and has written processes and procedures for making investment 
decisions, either individually or among the membership of the group 
as a whole; and (C) is neither associated nor affiliated with 
brokers, dealers, or investment advisers.
---------------------------------------------------------------------------

    With respect to the organization and conduct of the event, proposed 
Rule 148 stated that a sponsor would not be permitted to:
     Make investment recommendations or provide investment 
advice to attendees of the event;
     Engage in any investment negotiations between the issuer 
and investors attending the event;
     Charge attendees of the event any fees, other than 
reasonable administrative fees;
     Receive any compensation for making introductions between 
attendees and issuers, or for investment negotiations between the 
parties;
     Receive any compensation with respect to the event that 
would require it to register as a broker or dealer under the Exchange 
Act or as an investment adviser under the Advisers Act.
    In addition, proposed Rule 148 specified that the advertising for 
the event may not reference any specific offering of securities by the 
issuer and that the information conveyed at the event regarding the 
offering of securities by or on behalf of the issuer would be limited 
to:
     Notification that the issuer is in the process of offering 
or planning to offer securities;
     The type and amount of securities being offered; and
     The intended use of the proceeds of the offering.
b. Comments
    The comments we received on the proposed exemption from general 
solicitation for ``demo days'' and similar events were mixed. Many 
commenters expressed support for the proposal.\216\ Some of the 
commenters generally supported an exemption, but recommended fewer 
limitations on the exemption.\217\ Commenters provided various views on 
the limitations for entities organizing the events, with some 
supporting the proposed limits \218\ and others recommending targeted 
expansions, such as including State governments, or broad expansions of 
the entities permitted to rely on the exemption.\219\ One commenter 
also recommended limiting the pool of investors who may attend the 
events, noting that the sponsors are likely to attract many non-
accredited investors who will be ineligible for many of the exempt 
offerings that may be presented at an event.\220\ Some of the 
commenters supporting the proposal recommended further clarification of 
the language used in proposed Rule 148.\221\
---------------------------------------------------------------------------

    \216\ See, e.g., ABA Letter; Letter from Brandon Andrews, et al. 
dated May 1, 2020 (``B. Andrews, et al. Letter''); Letter from Angel 
Capital Association dated May 26, 2020 (``ACA Letter''); SEC SBCFAC 
Letter; Geraci Law Letter; Md. St. Bar Assoc. Letter; Letter from 
NextSeed Securities LLC dated June 1, 2020 (``NextSeed Letter''); 
S[omacr].Capital Letter; W. Hubbard Letter; Letter from Shareholder 
Advocacy Forum dated June 1, 2020 (``SAF Letter''); Letter from 
Investment Adviser Association dated June 1, 2020 (``IAA Letter''); 
Letter from SSTI dated June 1, 2020 (``SSTI Letter''); Invesco 
Letter; D. Burton Letter; Letter from Morningstar, Inc. dated June 
1, 2020 (``Morningstar Letter''); Letter from Crowdwise, LLC dated 
June 8, 2020 (``Crowdwise Letter''); CrowdCheck Letter; Ketsal 
Letter; and Letter from Pat Toomey, U.S. Senator dated July 1, 2020 
(``Sen. Toomey Letter'').
    \217\ See, e.g., CrowdCheck Letter (stating concern that the 
proposed limits on issuer communications would render issuers unable 
to answer any of the common questions posed by potential investors 
and recommending only limitations on types of entities permitted to 
sponsor events); IAA Letter (recommending permitting disclosure of 
the unsubscribed amount in the offering); ACA Letter (recommending 
that the Commission permit organizations other than those listed in 
the proposal to sponsor events, revise the definition of angel 
investor group, and permit disclosure of the unsubscribed amount in 
an offering); and Ketsal Letter (recommending fewer limitations on 
the scope of information conveyed).
    \218\ See, e.g., CrowdCheck Letter; and Geraci Law Letter.
    \219\ See, e.g., IAA Letter (recommending broadening the 
exemption to permit SEC-registered investment advisers that are 
sponsors of private funds to be included as an entity that may 
sponsor an event); SSTI Letter (recommending adding ``state 
governments'' and ``instrumentalities of state and local 
governments''); ACA Letter (recommending permitting groups of any 
type, including those associated or affiliated with investment 
advisers, venture forums, venture capital associations, trade 
associations, and professional organizations); and D. Burton Letter 
(recommending including any business or organization other than a 
broker-dealer or investment adviser).
    \220\ See Geraci Law Letter. See also CFA Letter; and NASAA 
Letter.
    \221\ See ABA Letter (recommending the rule be expressly framed 
as a non-exclusive ``safe harbor'' such that the issuer may rely on 
other existing Commission guidance, and that the term ``information 
regarding an offering'' be clarified to provide that content 
limitations in the rule do not relate to or prevent communication of 
factual business information); ACA Letter (recommending use of 
``defined processes and procedures'' instead of ``written processes 
and procedures'' in the definition of ``angel investor group'' to 
better provide for how angel groups work); Morningstar Letter 
(recommending that information provided to third parties conducting 
independent analysis not constitute an offering); S[omacr].Capital 
Letter (seeking clarification that traditional events, such as a 
university-sponsored prominent speaker series, for which a fee is 
typically charged, which may be supplemented by the sponsor to 
include a ``demo day''-type event at no charge, would not be 
prohibited); and SSTI Letter (recommending clarification of the 
duration of the prohibition on investment negotiations, whether the 
sponsor may negotiate with issuers or investors separately, and the 
difference between providing advice and investment negotiations). 
See also IAA Letter (recommending that the Commission provide 
guidance that communications not intended for public consumption do 
not constitute general solicitation).

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[[Page 3519]]

    In contrast, a number of commenters opposed the proposed exemption, 
expressing concerns about insufficient investor protections.\222\ One 
of these commenters recommended limiting the exemption by prohibiting 
any form of control or affiliation with the issuer or group of issuers, 
prohibiting entities whose sole or primary purpose is to attract 
investors to private issuers, and limiting an issuer's discussion to 
factual business information and prohibiting discussion of any 
potential securities offering.\223\
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    \222\ See, e.g., NASAA Letter; AFREF Letter; Better Markets 
Letter; CFA Letter; R. Rutkowski Letter; and CFA Institute Letter.
    \223\ See NASAA Letter.
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c. Final Amendments
    We are adopting Rule 148 substantially as proposed, with certain 
modifications in response to commenter feedback. For the reasons 
discussed in the Proposing Release and below, we believe that exempting 
certain ``demo day'' communications from the registration requirements 
of the Securities Act will further the public interest while being 
consistent with the protection of investors.
    As discussed above, the Commission proposed to include local 
governments in the list of entities permitted to rely on the exemption. 
In response to comments, we are expanding the types of entities that 
may sponsor an event to include State governments and instrumentalities 
of State and local governments. We are also revising the definition of 
``angel investor group'' to specify that such a group must have 
``defined'' processes and procedures for making investment decisions, 
but that such processes and procedures do not necessarily need to be 
written. In addition, to address concerns raised by commenters with 
respect to the possibility of offering-related communications being 
made broadly to non-accredited investors, we are adopting certain 
limitations on the types of investors that may attend virtual events as 
a condition to the availability of Rule 148. In a change from the 
proposal, we have also added a requirement that more than one issuer 
participate in the seminar or meeting in order for new Rule 148 to 
apply.
    As adopted, an issuer will not be deemed to have engaged in general 
solicitation if the communications are made in connection with a 
seminar or meeting sponsored by a college, university, or other 
institution of higher education, a State or local government or 
instrumentality of a State or local government, a nonprofit 
organization, or an angel investor group, incubator, or accelerator. We 
believe it is appropriate to add State governments and 
instrumentalities of State or local governments to the list of eligible 
sponsors, because, as mentioned by commenters, State as well as local 
governments, and special entities created by such governments, may 
conduct significant economic development activities. Due to their 
similarities, we do not believe it is necessary to differentiate 
between State and local governments for this purpose.
    With respect to the definition of angel investor groups, we are 
persuaded by commenters who recommended that such groups be required to 
have ``defined processes and procedures'' for investment decisions 
rather than requiring written processes and procedures. We understand 
from such commenters that there are established angel investor groups 
that have well-settled and defined, but not necessarily written, 
processes and procedures for investment decisions. Therefore, this 
change from the proposal will reflect the way that many angel groups 
are organized and administered, and will not disrupt existing angel 
investor group practices by requiring them to formally memorialize 
their established processes and procedures.
    We do not believe it is appropriate to further expand the list of 
eligible sponsors, as suggested by some commenters, to include entities 
such as sponsors of private funds, venture forums, venture capital 
associations, trade associations, and professional organizations. In 
addition, we do not believe it is appropriate to expand the proposed 
definition of angel investor groups to include groups associated or 
affiliated with brokers, dealers, or investment advisers, and therefore 
are adopting the proposed instruction to Rule 148 that excludes such 
groups from the definition.\224\ We note that some of these 
organizations may be able to qualify as eligible sponsors under the 
proposed categories, for example, if they are organized as non-profit 
organizations. We also do not agree with commenters who recommended 
that we exclude from the scope of the exemption any sponsors that 
control or are affiliated with the issuer or group of issuers, in light 
of the limits on the sponsors' activities. We believe the tailored list 
of organizations eligible to act as event sponsors and the exclusion of 
brokers, dealers and investment advisers from the scope of the 
exemption will help to limit the application of Rule 148 to events 
sponsored by organizations less likely to have a profit motive for 
their involvement in the event or whose sole or primary purpose is to 
attract investors to private issuers. In order to address commenters' 
concerns about the potential misuse of the exemption and clarify the 
nature of the events covered by new Rule 148, we have also added a 
requirement that more than one issuer participate in the seminar or 
meeting. This requirement will help to prevent an organization from 
attempting to hold an event that is, in essence, a sales pitch for the 
securities of one issuer, while characterizing the event as a ``demo 
day.''
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    \224\ We acknowledge that members of angel investor groups may 
include individuals who are employed as brokers, dealers, or 
investment advisers. Such an individual's membership in the group 
will not, by itself, result in the angel investor group being deemed 
to be associated or affiliated with brokers, dealers, or investment 
advisers for the purpose of new Rule 148.
---------------------------------------------------------------------------

    As proposed, under the final rule the sponsor will not be permitted 
to:
     Make investment recommendations or provide investment 
advice to attendees of the event;
     Engage in any investment negotiations between the issuer 
and investors attending the event;
     Charge attendees of the event any fees, other than 
reasonable administrative fees;
     Receive any compensation for making introductions between 
event attendees and issuers, or for investment negotiations between the 
parties; or
     Receive any compensation with respect to the event that 
would require it to register as a broker or dealer under the Exchange 
Act, or as an investment adviser under the Advisers Act.
    In addition, as proposed, the advertising for the event may not 
reference any specific offering of securities by the issuer.
    We believe that these limitations on the sponsors' activities 
provide

[[Page 3520]]

important investor protections by limiting the potential for a sponsor 
to profit from its involvement or to have a potential conflict of 
interest due to its relationships with either the issuer or investors 
attending the event and that it is not necessary to adopt additional 
restrictions on the relationship between sponsors and the issuers 
involved in the event. Similarly, although some commenters sought 
clarification, we are not providing bright-line rules as to whether the 
administrative fees charged by the sponsor are reasonable, but 
emphasize that the limitation on fees should be construed consistent 
with our goal of limiting the potential for a sponsor to profit from 
its involvement. We note that the limitation on fees charged to 
attendees of an event is not intended to limit a sponsoring 
organization's ability to collect membership dues or similar fees from 
individuals.
    As noted above, some commenters raised concerns about these events 
allowing for broad offering-related communications to non-accredited 
investors. We share this concern, particularly in light of the 
increasing prevalence of virtual ``demo days'' that are more accessible 
and widely attended by the general public. In light of these concerns, 
we are persuaded that an incremental approach to relaxing ``demo day'' 
communication restrictions is warranted with respect to events that are 
conducted, in whole or in part, in a virtual format. Accordingly, we 
are narrowing the scope of the proposed exemption so that online 
participation in the event is limited to: (a) Individuals who are 
members of, or otherwise associated with the sponsor organization (for 
example, members of an angel investor group or students, faculty, or 
alumni of a college or university); (b) individuals that the sponsor 
reasonably believes are accredited investors; or (c) individuals who 
have been invited to the event by the sponsor based on industry or 
investment-related experience reasonably selected by the sponsor in 
good faith and disclosed in the public communications about the event.
    In contrast to an online event, the number of potential investors 
who can attend an in-person ``demo day'' event is limited by factors 
such as venue size, administrative capacity, and distance from the 
event. The limitations we are adopting will help prevent broad offering 
communications over the internet to unlimited numbers of non-accredited 
investors by requiring the sponsor to limit participation to a 
population of potential investors related to the sponsor or about whose 
qualifications the sponsor has some knowledge, but at the same time 
will provide sponsors with ample flexibility to continue to conduct 
such events.
    We are adopting the limitations on the information conveyed at the 
event regarding the offering of securities by or on behalf of the 
issuer as proposed, with one expansion in response to comment. As 
adopted the issuer is allowed to convey only:
     Notification that the issuer is in the process of offering 
or planning to offer securities;
     The type and amount of securities being offered;
     The intended use of the proceeds of the offering; and
     The unsubscribed amount in an offering.
    We believe that permitting an issuer to disclose the unsubscribed 
amount in an offering will provide investors with useful information, 
but is unlikely to affect investor protection in light of the limits on 
the overall information about the offering that may be conveyed, and 
the fact that potential investors will be able to seek additional 
disclosure about the investment opportunity outside of the event 
setting. We do not agree with commenters who suggested other expansion 
of the information that issuers may convey about an offering of 
securities. The exemption provided by new Rule 148 is not intended to 
provide for broad communication about a securities offering at a ``demo 
day'' event. Rather, the rule is intended to allow issuers, in 
discussing their business plans with potential investors at these 
events, the flexibility to note that they are seeking capital without 
uncertainty as to whether they have jeopardized their ability to rely 
on a certain exemption from registration.\225\
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    \225\ We understand that small businesses may face challenges in 
accessing capital when they are not able to note that they are 
seeking capital when pitching their business to potential investors. 
See, e.g., Transcript of SEC Small Business Capital Formation 
Advisory Committee (May 8, 2020), available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, at 70 
(``Entrepreneurs, when they leave out this vital information, they 
are pitching with one arm behind their back, and this is a deterrent 
to accessing the capital from professional sources that help these 
companies scale, create jobs and grow the U.S. economy.'').
---------------------------------------------------------------------------

    Overall, we believe that expanding the information permitted to be 
conveyed beyond the limits in the final rules may undermine the 
prohibition on general solicitation that is an important condition of 
certain exemptions. The limited scope of the offering-related 
communications permitted under the exemption, along with the 
limitations on online participation and a sponsor's ability to profit 
from the event, should help to address commenters' concerns about the 
potential for increased risk of fraud or misconduct. Moreover, issuers 
may continue to rely on our previously issued guidance, and not be 
subject to the conditions of Rule 148, including the limit on 
communications, if the organizer of the event has limited participation 
in the event to individuals or groups of individuals with whom the 
issuer or the organizer has a pre-existing substantive relationship or 
that have been contacted through an informal, personal network of 
experienced, financially sophisticated individuals.\226\
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    \226\ See Proposing Release, at Section II.B.1.
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2. Solicitations of Interest
    As discussed in the Proposing Release, we believe that it is 
helpful for issuers to be able to gauge interest in a securities 
offering prior to incurring the expense of preparing and conducting an 
offering. Securities Act Rule 163B permits issuers and those authorized 
to act on their behalf to gauge market interest in a registered 
securities offering through discussions with QIBs and IAIs prior to, or 
following, the filing of a registration statement.\227\ Regulation A 
also permits issuers to test the waters with, or solicit interest in a 
potential offering from, the general public either before or after the 
filing of the offering statement.\228\ These solicitations of interest 
are deemed to be offers of a security for sale for purposes of the 
antifraud provisions of the Federal securities laws.\229\
---------------------------------------------------------------------------

    \227\ See Solicitations of Interest Prior to a Registered Public 
Offering, Release No. 33-10699 (Sep. 25, 2019) [84 FR 53011 (Oct. 4, 
2019)] (``Solicitations of Interest Release''). Securities Act 
Section 5(d) [15 U.S.C. 77e(d)] statutorily provides these 
accommodations to emerging growth companies. Securities Act Rule 
163B extends these accommodations to all issuers, including fund 
issuers.
    \228\ See 17 CFR 230.255.
    \229\ See Solicitations of Interest Release; and 17 CFR 
230.255(a).
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a. Generic Solicitation of Interest Exemption
i. Proposed Amendments
    The Commission proposed new Rule 241 to permit an issuer to use 
generic solicitation of interest materials for an offer of securities 
prior to a making a determination as to the exemption under which the 
offering may be conducted.\230\ As proposed, Rule 241 would not permit 
an issuer to identify the specific exemption from registration on which 
it intends to rely for a subsequent offer and sale of the securities. 
Proposed Rule 241(b) would

[[Page 3521]]

require the generic testing-the-waters materials to provide specific 
disclosures notifying potential investors about the limitations of the 
generic solicitation of interest.
---------------------------------------------------------------------------

    \230\ Proposed Rule 241 was substantially based on Rule 255 of 
Regulation A.
---------------------------------------------------------------------------

    As proposed, these solicitations would be deemed to be offers of a 
security for sale for purposes of the antifraud provisions of the 
Federal securities laws.\231\ Furthermore, depending on the method of 
dissemination of the information, such offers may be considered a 
general solicitation. Proposed Rule 241 would provide an exemption from 
registration only with respect to the generic solicitation of interest, 
not for a subsequent offer or sale. Should the issuer move forward with 
an exempt offering following the generic solicitation of interest, the 
issuer would need to comply with an available exemption for the 
subsequent offering, and investors would have the benefit of the 
investor protections encompassed in such exemption.
---------------------------------------------------------------------------

    \231\ Proposed Rule 241(a).
---------------------------------------------------------------------------

    In the event that the issuer commences an offering under Regulation 
A or Regulation Crowdfunding within 30 days of the generic 
solicitation, in addition to the information currently required to be 
disclosed under Regulation A and Regulation Crowdfunding, the 
Commission proposed to require that the generic solicitation materials 
be made publicly available as an exhibit to the offering materials 
filed with the Commission.\232\ The Commission also proposed to require 
an issuer that sells securities under Rule 506(b) to any purchaser that 
is not an accredited investor within 30 days of the generic 
solicitation of interest to provide such purchaser with any written 
communication used under proposed Rule 241.
---------------------------------------------------------------------------

    \232\ See proposed Rule 201(z); and proposed paragraph 13 of 
Form 1-A, Part III, Item 17. Currently, an issuer that solicits 
indications of interest in reliance on Rule 255 of Regulation A is 
required to submit or file solicitation materials to the Commission 
as an exhibit when the offering statement is either submitted for 
non-public review or filed (and update for substantive changes in 
such material after the initial nonpublic submission or filing).
---------------------------------------------------------------------------

ii. Comments
    Commenters' views were mixed. Many commenters expressed support for 
the proposal.\233\ Some commenters that supported the proposal 
recommended that the Commission permit use of the exemption even if an 
issuer has identified the exemption on which it intends to rely.\234\ 
One of these commenters stated that determining when an issuer has 
decided to proceed with a specific exemption is difficult and could 
work counter to thoughtful exploration of which exemption to use.\235\ 
This commenter recommended permitting issuers to use Rule 241 so long 
as an offering statement under Regulation A or Regulation C has not 
been filed. Some commenters that were generally supportive of the 
proposal recommended that the exemption permit a generic public 
solicitation followed by a private offering.\236\
---------------------------------------------------------------------------

    \233\ See, e.g., ABA Letter; B. Andrews, et al. Letter; Letter 
from Crowdfunding Professional Association dated May 22, 2020 
(``CfPA Letter''); SEC SBCFAC Letter; J. Clarke Letter; Republic 
Letter; S[omacr].Capital Letter; Letter from Michael H. Shuman, Esq. 
dated June 1, 2020 (``M. Shuman Letter''); W. Hubbard Letter; SAF 
Letter; IAA Letter; Invesco Letter; D. Burton Letter; R. Campbell 
Letter; and CrowdCheck Letter.
    \234\ See, e.g., ABA Letter; SIFMA Letter; and Invesco Letter.
    \235\ See ABA Letter.
    \236\ See, e.g., ABA Letter (recommending permitting an issuer 
to conduct an offering for which general solicitation is not 
permitted 20 days following termination of the generic solicitation 
or, in the alternative, another specific period of time such as 90 
days as provided in proposed Rule 506(b)(2)(i)); CfPA Letter 
(recommending a 90-day safe harbor after which a private offering 
could be made following a generic public solicitation); SIFMA Letter 
(recommending permitting a private offering to QIBs and IAIs after a 
generic public solicitation); R. Campbell Letter (recommending 
eliminating the requirements in proposed Rule 152(a)(1) and (b)(1), 
so that issuers may rely on proposed Rule 152 for integration 
protection, if the offering following the generic solicitation was 
made pursuant to an exemption provided by Section 4(a)(2), Rule 504 
or Rule 506(b)); and M. Shuman Letter (recommending permitting 
private offerings after the generic solicitation).
---------------------------------------------------------------------------

    A number of commenters opposed the proposal.\237\ Some of these 
expressed concern that expanding the testing-the-waters provisions 
would weaken investor protection.\238\ One of these commenters 
suggested that a generic testing-the-waters provision that provides 
information without indicating what kind of offering is to follow blurs 
the line between what is acceptable for a Rule 506(b) offering and what 
constitutes general solicitation.\239\ One commenter expressed concern 
that the proposed rule would permit an issuer to engage in testing-the-
waters communications with all types of investors prior to a registered 
offering.\240\
---------------------------------------------------------------------------

    \237\ See, e.g., NASAA Letter; AFREF Letter; Better Markets 
Letter (questioning the Commission's authority to adopt the rule); 
CFA Letter; R. Rutkowski Letter; CFA Institute Letter; and IPA 
Letter.
    \238\ See, e.g., NASAA Letter (suggesting the rules would be 
evaded and exploited); and CFA Letter.
    \239\ See IPA Letter.
    \240\ See Better Markets Letter.
---------------------------------------------------------------------------

    Commenters generally supported the proposed requirements to file 
generic solicitation materials when followed by a Regulation A or 
Regulation Crowdfunding offering \241\ and to provide those materials 
to non-accredited investors in a Rule 506(b) exempt offering within 30 
days of the generic solicitation.\242\ However, one commenter expressly 
opposed requiring the filing of generic solicitation materials.\243\ 
Several commenters also recommended that the Commission preempt State 
securities law registration and qualification requirements for offers 
made under proposed Rule 241.\244\
---------------------------------------------------------------------------

    \241\ See, e.g., J. Clarke Letter; W. Hubbard Letter; CrowdCheck 
Letter (recommending not requiring the filing of materials used more 
than 30 days prior to the offering); and Ketsal Letter.
    \242\ See, e.g., Geraci Law Letter; J. Clarke Letter 
(recommending filing all solicitation materials); W. Hubbard Letter; 
and CrowdCheck Letter (supporting providing the materials to 
investors, but not filing with the Commission).
    \243\ See NextSeed Letter (acknowledging, however, the potential 
benefit of requiring the filing of materials that occurred 
immediately prior to the offering).
    \244\ See, e.g., D. Burton Letter; W. Hubbard Letter; CrowdCheck 
Letter (suggesting lack of preemption would affect utility); R. 
Campbell Letter (suggesting lack of preemption could subject the 
issuer to civil and criminal liabilities under State securities laws 
and legal counsel to risks relating to professional ethical rules); 
and Ketsal Letter (suggesting there is no practical reason to 
distinguish between communications made pursuant to any of Rule 506, 
Rule 255, or proposed Rule 206, all of which preempt, or will 
preempt, State securities law requirements, and proposed Rule 241).
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the proposed amendments substantially as proposed, 
using our exemptive authority under Section 28 of the Securities Act to 
create a new offering exemption. New Rule 241 exempts the class of 
persons who are issuers and use generic solicitation of interest 
materials pursuant to the conditions of the rule from the prohibitions 
on offers prior to filing a registration statement in Section 5(c) of 
the Securities Act.\245\ As discussed in the Proposing Release and 
below, we believe that the proposed amendments include appropriate 
investor protections and further the public interest by allowing 
issuers to gauge market interest, tailor the size and other terms

[[Page 3522]]

of the offering (possibly with input from potential investors), and 
reduce the costs of conducting an exempt offering.\246\
---------------------------------------------------------------------------

    \245\ As noted above, one commenter questioned the Commission's 
authority to adopt Rule 241. See Better Markets Letter. Section 28 
of the Securities Act gives the Commission broad authority to 
``conditionally or unconditionally exempt any person . . . or any 
class or classes of persons . . . from any provision or provisions 
of'' the Securities Act and rules or regulations issued thereunder 
``to the extent that such exemption is necessary or appropriate in 
the public interest, and is consistent with the protection of 
investors.'' 15 U.S.C. 77z-3. Notwithstanding the commenter's 
suggestion, nothing in the JOBS Act indicates that Congress sought 
to limit the Commission's ability to extend the accommodations 
currently available to emerging growth companies to other issuers, 
nor does Section 28 include any such limitation. The final rule's 
use of exemptive authority is thus consistent with the plain 
language of Section 28.
    \246\ See, e.g., Transcript of SEC Small Business Capital 
Formation Advisory Committee (May 8, 2020), available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, at 70 
(``Startups and young companies, by their nature, are capital 
constrained. Expanding that test-the-waters rule provides them 
flexibility to explore the optimal avenue for raising capital before 
spending multiple thousands of dollars on legal fees.'').
---------------------------------------------------------------------------

    As noted above, commenters that addressed the proposal were 
generally supportive of the proposed changes. We are not persuaded by 
commenters who recommended that we revise the rule to permit an issuer 
to conduct a general solicitation of interest after the issuer has 
identified the specific exemption on which it intends to rely. We 
believe that limiting generic solicitations of interest to 
solicitations prior to the issuer's determination of which exemption to 
use appropriately and adequately differentiates these testing-the-
waters communications, which are meant to gauge preliminary market 
interest, from offers that occur closer to the time of sale. Because 
the determination of which exemption will be used is within the 
issuer's control, we believe that issuers and their advisers should be 
able to apply the new rule to their specific circumstances. We disagree 
with the suggestion from a commenter that an issuer should be permitted 
to rely on new Rule 241 after determining to conduct a Regulation 
Crowdfunding or Regulation A offering, so long as the issuer has not 
filed a Form C for a Regulation Crowdfunding offering or a Form 1-A for 
a Regulation A offering. To do so would undermine the utility of the 
existing Regulation A testing-the-waters provision and the new 
Regulation Crowdfunding testing-the-waters provision we are adopting in 
this release, and may lead to potential confusion for issuers and 
investors over which rule applies once an issuer has determined the 
exemption on which it will rely.
    Under new Rule 241, an issuer or any person authorized to act on 
behalf of an issuer may communicate orally or in writing to determine 
whether there is any interest in a contemplated offering of securities 
exempt from registration under the Securities Act.\247\ The rule 
provides an exemption from registration only with respect to the 
generic solicitation of interest and the solicitation will be deemed to 
be an offer of a security for sale for purposes of the antifraud 
provisions of the Federal securities laws. In addition, no solicitation 
or acceptance of money or other consideration, nor of any commitment, 
binding or otherwise, from any person is permitted until the issuer 
makes a determination as to the exemption on which it will rely and 
commences the offering in compliance with the exemption.
---------------------------------------------------------------------------

    \247\ To avoid any confusion with respect to the scope of the 
exemption, we have revised Rule 241 from the proposal to make it 
clear that it applies only to solicitations of interest relating to 
contemplated offerings of securities exempt from registration under 
the Securities Act.
---------------------------------------------------------------------------

    If the issuer moves forward with an exempt offering following the 
generic solicitation of interest, it will be required to comply with an 
applicable exemption for the subsequent offering, and investors will 
have the benefit of the investor protections included in such 
exemption. We are not persuaded by commenters that recommended 
expanding the generic solicitation of interest rules to permit private 
offerings immediately following public solicitations of interest or to 
provide a safe harbor that would permit private offerings after a 
prescribed period of time following a public solicitation of interest. 
Similarly, we do not believe it is necessary to provide, as suggested 
by a commenter, that testing-the-waters activity limited to QIBs and 
IAIs would not result in the Rule 241 offer being integrated with a 
subsequent private placement that does not permit general solicitation. 
We believe, as the commenter noted, that an issuer may reasonably 
conclude on its own that testing-the-waters activity so limited would 
not constitute general solicitation, depending on the facts and 
circumstances.
    As discussed in the Proposing Release, if the generic solicitation 
is done in a manner that would constitute general solicitation, and the 
issuer ultimately decides to conduct an unregistered offering under an 
exemption that does not permit general solicitation, the issuer will 
need to analyze whether that solicitation and the subsequent private 
offering will be integrated, thereby making unavailable an exemption 
that does not permit general solicitation. Under the new integration 
rules adopted in this release, an issuer will not be able to follow a 
generic solicitation of interest that constituted a general 
solicitation with an offering pursuant to an exemption that does not 
permit general solicitation, such as Rule 506(b), unless the issuer has 
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.\248\
---------------------------------------------------------------------------

    \248\ See new Rules 152(a)(1) and 152(b)(1); and supra Sections 
II.A.1 and II.A.2.
---------------------------------------------------------------------------

    Rule 241 further requires the generic testing-the-waters materials 
to provide specified disclosures notifying potential investors about 
the limitations of the generic solicitation. The issuer's 
communications must state that:
    (1) The issuer is considering an offering of securities exempt from 
registration under the Act, but has not determined a specific exemption 
from registration the issuer intends to rely on for the subsequent 
offer and sale of the securities;
    (2) No money or other consideration is being solicited, and if sent 
in response, will not be accepted;
    (3) No offer to buy the securities can be accepted and no part of 
the purchase price can be received until the issuer determines the 
exemption under which the offering is intended to be conducted and, 
where applicable, the filing, disclosure, or qualification requirements 
of such exemption are met; and
    (4) A person's indication of interest involves no obligation or 
commitment of any kind. The rule additionally provides that the 
communication may include a means for a person to indicate interest in 
a potential offering and an issuer may require such indication to 
include the person's name, address, telephone number, and/or email 
address. We are adopting these provisions as proposed as commenters 
were generally supportive of this aspect of Rule 241, providing no 
recommendation to further revise these requirements.
    In addition, we are adopting amendments to Regulation A and 
Regulation Crowdfunding as proposed to require that the Rule 241 
generic solicitation materials be made publicly available as an exhibit 
to the offering materials filed with the Commission if the Regulation A 
or Regulation Crowdfunding offering is commenced within 30 days of the 
generic solicitation.\249\ As discussed above, commenters generally 
supported this aspect of the proposed rules. Although some commenters 
expressed the view that such a requirement would be unnecessary, we 
believe that issuers should be accountable for the content of 
solicitation materials and that the

[[Page 3523]]

requirement will help ensure that issuers use solicitation materials 
with appropriate caution. We are requiring issuers to file these 
materials only during the 30-day time period because once 30 days 
elapses following a terminated or completed generic solicitation, that 
offer would not be subject to integration with a subsequent Regulation 
Crowdfunding offering in accordance with new Rule 152(b)(1).
---------------------------------------------------------------------------

    \249\ See new Rule 201(z) and paragraph 13 of Form 1-A, Part 
III, Item 17. In connection with this amendment to Rule 201, we are 
also renumbering current paragraph (z), which is a temporary 
provision, as paragraph (aa).
---------------------------------------------------------------------------

    We are also adopting, as proposed, the requirement that an issuer 
provide purchasers with any written generic solicitation of interest 
materials used under new Rule 241 if the issuer sells securities under 
Rule 506(b) within 30 days of the generic solicitation of interest to 
any purchaser that is not an accredited investor. This provision, which 
we believe is appropriate for the same reasons as discussed above with 
respect to Regulation A and Regulation Crowdfunding, will apply whether 
or not the issuer engaged in general solicitation through its 
communications under new Rule 241 and whether or not the generic 
solicitation would be subject to integration with the Rule 506(b) 
offering. Consistent with Rule 255 of Regulation A, these amendments to 
Regulation A, Regulation Crowdfunding, and 17 CFR 230.502(b) (``Rule 
502(b)'' of Regulation D) require issuers to provide any written 
communications or broadcast scripts used under new Rule 241.
    While some commenters recommended that we preempt State blue sky 
laws for these offers, we are not doing so at this time. We acknowledge 
the concerns raised by commenters about the possibility that the lack 
of preemption will affect the utility of the new rule and potentially 
subject issuers to civil and criminal liabilities under State blue sky 
laws. However, in light of the novel nature of this new exemption and 
the concerns expressed by other commenters about potential misuse of 
the exemption, we believe a more measured approach is warranted.\250\ 
We believe that generic solicitation of interest can still be useful to 
issuers and investors without such preemption and that issuers and 
their advisers will be able to navigate applicable State law 
requirements as they have done in connection with other Federal 
exemptions from registration that do not provide for preemption. 
Although we are not preempting State securities law registration and 
qualification requirements at this time, the Commission will have the 
opportunity to receive feedback on how State regulation may be 
affecting the use of generic solicitations of interest through its 
Small Business Capital Formation Advisory Committee and annual Small 
Business Forum, and that feedback may help inform future determinations 
about whether State law preemption is warranted.
---------------------------------------------------------------------------

    \250\ As we noted in the Proposing Release, in connection with 
the 2015 amendments to Regulation A, the Commission did not provide 
for preemption of State securities law registration and 
qualification requirements for Tier 1 offerings in light of concerns 
raised by State regulators about the testing-the-waters provisions 
applicable to Regulation A, as well as what the Commission 
anticipated would be the generally more local nature of Tier 1 
offerings.
---------------------------------------------------------------------------

b. Regulation Crowdfunding
    Rule 255 of Regulation A permits an issuer to test the waters prior 
to filing the offering statement with the Commission. In contrast to 
Regulation A, an issuer conducting an offer pursuant to Regulation 
Crowdfunding currently may not solicit interest or make offers or sales 
under Regulation Crowdfunding prior to filing a Form C with the 
Commission.\251\
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    \251\ See Section 4A(b) of the Securities Act.
---------------------------------------------------------------------------

i. Proposed Amendments
    The Commission proposed to permit Regulation Crowdfunding issuers 
to test the waters orally or in writing prior to filing a Form C with 
the Commission under proposed Rule 206, which is based on existing Rule 
255 of Regulation A.\252\ As proposed, Rule 206 would permit issuers to 
test the waters with potential investors, and such testing-the-waters 
materials would be considered offers subject to the antifraud 
provisions of the Federal securities laws. Similar to Rule 255, 
proposed Rule 206 would require issuers to include legends providing 
that:
---------------------------------------------------------------------------

    \252\ The Commission also proposed an amendment to Rule 204 to 
permit issuers to engage in communications under proposed Rule 206.
---------------------------------------------------------------------------

     No money or other consideration is being solicited, and if 
sent, will not be accepted;
     No sales will be made or commitments to purchase accepted 
until the Form C offering statement is filed with the Commission and 
only through an intermediary's platform; and
     Prospective purchaser's indications of interest are non-
binding.
    In addition, pursuant to proposed Rule 201(z), issuers would be 
required to include any Rule 206 solicitation materials with the Form C 
that is filed with the Commission. Unlike Rule 255 of Regulation A, 
which permits issuers to use testing-the-waters materials both before 
and after the filing of the offering statement with the Commission, 
proposed Rule 206 would only permit testing the waters before the Form 
C is filed. Once the Form C is filed, any offering communications would 
be required to comply with the terms of Regulation Crowdfunding, 
including the Rule 204 advertising restrictions.
ii. Comments
    Commenters addressing the proposal generally supported permitting 
testing-the-waters communications in Regulation Crowdfunding 
offerings.\253\ Some of these commenters recommended permitting broad 
testing the waters with few limits,\254\ while others recommended only 
permitting testing the waters through the use of or after engaging an 
intermediary.\255\ Some of these commenters additionally suggested that 
permitting testing the waters in Regulation Crowdfunding will improve 
the offering process for issuers \256\ and be a benefit to potential 
investors.\257\ In contrast, one commenter expressed concern that 
relaxing the restrictions on testing-the-waters communications in the 
crowdfunding market could put investors at risk.\258\
---------------------------------------------------------------------------

    \253\ See, e.g., Letter from Andrew A. Schwartz dated May 21, 
2020 (``A. Schwartz Letter''); Letter from Wefunder dated May 28, 
2020 (``Wefunder Letter''); SEC SBCFAC Letter; J. Clarke Letter; 
Silicon Prairie Letter; Republic Letter; NextSeed Letter; 
S[omacr].Capital Letter; W. Hubbard Letter; SAF Letter; Letter from 
Engine Advocacy dated June 1, 2020 (``Engine Letter''); D. Burton 
Letter; Letter from InnaMed, Inc., et al. dated June 1, 2020 
(``InnaMed, et al. Letter''); Letter from SeedInvest dated June 4, 
2020 (``SeedInvest Letter''); Crowdwise Letter; CrowdCheck Letter; 
Letter from Honeycomb Credit Inc. dated June 17, 2020 (``Honeycomb 
Letter''); R. Campbell Letter; and Ketsal Letter. See also Letter 
from Association of Online Investment Platforms, dated September 1, 
2020 (``AOIP Letter'') (suggesting the Commission immediately allow 
Regulation Crowdfunding issuers to test the waters prior to the 
filing of a Form C in response to the COVID-19 pandemic).
    \254\ See, e.g., A. Schwartz Letter (recommending permitting 
advertising and general solicitations); and InnaMed, et al. Letter. 
See also D. Burton Letter; and W. Hubbard Letter (each suggesting 
that additional restrictions on the manner of communication are 
unnecessary).
    \255\ See, e.g., NextSeed Letter; and CrowdCheck Letter. See 
also CFA Letter (expressing opposition to the proposal and 
supporting restricting crowdfunding communications to communications 
through intermediary platforms, both before and after a Form C is 
filed with the Commission).
    \256\ See, e.g., SeedInvest Letter; and Honeycomb Letter.
    \257\ See, e.g., Wefunder Letter (suggesting investors may be 
able to set more reasonable terms); and Engine Letter (suggesting 
investors will be able to avoid committing equity to campaigns not 
likely to be successful).
    \258\ See CFA Letter (expressing concern about the proposal due 
to the poor record of issuer compliance with Regulation Crowdfunding 
rules).
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iii. Final Amendments
    We are adopting the amendments as proposed to permit Regulation 
Crowdfunding issuers to test the waters orally or in writing prior to 
filing a Form

[[Page 3524]]

C with the Commission under Rule 206, which is based on existing Rule 
255 of Regulation A.\259\ For the reasons discussed below, we believe 
that permitting Regulation Crowdfunding issuers to engage in such 
communications will further the public interest while being consistent 
with the protection of investors.
---------------------------------------------------------------------------

    \259\ We are amending 17 CFR 227.203(a)(1) (``Rule 203(a)(1)'') 
to clarify that a Regulation Crowdfunding issuer may rely on new 
Rule 206 to offer securities prior to filing a Form C with the 
Commission. We are also amending Rule 204, as proposed, to permit 
issuers to engage in communications under new Rule 206.
---------------------------------------------------------------------------

    As adopted, new Rule 206 permits issuers to test the waters with 
all potential investors. Like Rule 255, Rule 206 requires issuers to 
include legends in the testing-the-waters materials. Specifically, Rule 
206 requires issuers to state that: (1) No money or other consideration 
is being solicited, and if sent, will not be accepted; (2) no offer to 
buy the securities can be accepted and no part of the purchase price 
can be received until the offering statement is filed and only through 
an intermediary's platform; \260\ and (3) a prospective purchaser's 
indication of interest is non-binding. These testing-the-waters 
materials would be considered offers that are subject to the antifraud 
provisions of the Federal securities laws. We are additionally amending 
17 CFR 227.201(z) (``Rule 201(z)'') as proposed to require issuers to 
include any Rule 206 solicitation materials with the Form C that is 
filed with the Commission. We believe that making the solicitation 
materials publicly available will promote accountability for the 
content of those materials and help to ensure that they are consistent 
with the information contained in the Regulation Crowdfunding offering 
materials.
---------------------------------------------------------------------------

    \260\ The Proposing Release discussed, but the proposed text of 
Rule 206 did not include, the phrase ``and only through an 
intermediary's platform.'' Rule 206 as adopted includes this 
language, which is consistent with 17 CFR 227.100(a)(3).
---------------------------------------------------------------------------

    Unlike Rule 255 of Regulation A, which permits issuers to use 
testing-the-waters materials both before and after the filing of the 
offering statement with the Commission, Rule 206 will only permit 
issuers to use testing-the-waters materials before the Form C is filed. 
Once the Form C is filed, any offering communications are required to 
comply with the terms of Regulation Crowdfunding, including the Rule 
204 advertising restrictions. We believe this is appropriate because, 
while sales under Regulation A may not occur until after the offering 
statement is qualified, a Regulation Crowdfunding intermediary may 
accept investment commitments from the time of filing the Form C.
    Although some commenters suggested that we require testing the 
waters to be conducted only through intermediary platforms, we believe 
that such a requirement would unnecessarily limit the flexibility 
provided by the new rule by effectively requiring an issuer to enter 
into a formal relationship with an intermediary prior to determining 
whether it will proceed with an offering under Regulation Crowdfunding. 
Nevertheless, we believe issuers may choose to engage an intermediary 
before testing the waters so that they have a readily available means 
to receive feedback and questions from prospective investors.
    We acknowledge the concern raised by some commenters about the 
increased communications permitted by new Rule 206--and other proposed 
changes to the requirements of Regulation Crowdfunding \261\--in light 
of questions about the extent of issuer compliance with existing 
Regulation Crowdfunding requirements. We remind issuers of their 
obligation to comply with the terms, conditions, and requirements of 
Regulation Crowdfunding and the serious consequences that may result 
from a failure to do so, such as the potential loss of the exemption 
and ensuing potential private rights of action for rescission for 
violations of Section 5 of the Securities Act and loss of preemption 
for State securities law registration requirements.\262\ We also remind 
intermediaries of their obligation under 17 CFR 227.301(a) (``Rule 
301(a)'') to have a reasonable basis for believing that an issuer 
seeking to offer and sell securities in reliance on Section 4(a)(6) 
through the intermediary's platform complies with the requirements in 
Securities Act Section 4A(b) and the related requirements in Regulation 
Crowdfunding.\263\ Commission staff will continue to work with FINRA to 
assess issuer and intermediary compliance with the requirements of 
Regulation Crowdfunding.
---------------------------------------------------------------------------

    \261\ See infra note 428.
    \262\ While 17 CFR 227.502(a) sets forth a safe harbor for 
insignificant deviations, 17 CFR 227.502(b) makes it clear that such 
safe harbor does not preclude the Commission from bringing an 
enforcement action seeking appropriate relief for an issuer's 
failure to comply with all applicable terms, conditions, and 
requirements of Regulation Crowdfunding.
    \263\ Rule 301(a) also permits intermediaries to reasonably rely 
on representations of the issuer, unless the intermediary has reason 
to question the reliability of those representations. As discussed 
in the Crowdfunding Adopting Release, in satisfying the requirements 
of Rule 301(a), an intermediary has a responsibility to assess 
whether it may reasonably rely on an issuer's representation of 
compliance through the course of its interactions with potential 
issuers. See Crowdfunding Adopting Release, at Section II.C.3.a.(3).
---------------------------------------------------------------------------

    In light of the foregoing, we believe that permitting issuers to 
test the waters orally or in writing prior to incurring the expense of 
filing a Form C with the Commission may greatly facilitate the use of 
the Regulation Crowdfunding exemption, as well as limit the costs 
incurred by those issuers. We further believe that the flexibility 
afforded by the amendment will benefit investors, who will be able to 
have input into the structuring of the offering and convey to the 
issuer the types of information about which they are most 
interested.\264\
---------------------------------------------------------------------------

    \264\ See, e.g., Transcript of SEC Small Business Capital 
Formation Advisory Committee (May 8, 2020), available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, at 72-
73 (noting that when investors are involved earlier in the process, 
it allows more time for them to ``garner more information to make a 
well informed decision'' when it is time to make an investment).
---------------------------------------------------------------------------

3. Other Regulation Crowdfunding Offering Communications
    An issuer may not advertise the terms of a Regulation Crowdfunding 
offering \265\ outside of the intermediary's platform except in a 
notice that directs investors to the intermediary's platform and is 
limited to the information enumerated in Rule 204 of Regulation 
Crowdfunding.\266\ An issuer may communicate with investors and 
potential investors about the terms of the offering through 
communication channels provided on the intermediary's platform.\267\
---------------------------------------------------------------------------

    \265\ For purposes of Rule 204, the ``terms of [a Regulation 
Crowdfunding] offering'' currently means the amount of securities 
offered, the nature of the securities, the price of the securities 
and the closing date of the offering period.
    \266\ Rule 204 limits the information to: A statement that the 
issuer is conducting an offering pursuant to Section 4(a)(6) of the 
Securities Act, the name of the intermediary through which the 
offering is being conducted, and a link directing the potential 
investor to the intermediary's platform; the terms of the offering; 
and specified factual information about the legal identity and 
business location of the issuer.
    \267\ See 17 CFR 227.204(c).
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to amend Rule 204 to permit oral 
communications with prospective investors once the Form C is filed, so 
long as the communications comply with the requirements of Rule 
204.\268\ The proposed changes would align the Regulation Crowdfunding

[[Page 3525]]

communication rules more closely with Rule 255 of Regulation A.
---------------------------------------------------------------------------

    \268\ For a discussion of the proposals regarding communications 
prior to the filing of a Form C, see supra Section II.B.2.
---------------------------------------------------------------------------

b. Comments
    Most commenters that addressed permitting oral communications about 
the offering outside of the funding portal's platform channels 
supported the proposal,\269\ while some commenters opposed allowing 
such communications.\270\ Some of the commenters supporting the 
proposal recommended that the Commission go further and expand the 
information that issuers are permitted to provide, such as allowing 
disclosure of the planned use of proceeds and progress towards meeting 
the issuer's funding goals.\271\
---------------------------------------------------------------------------

    \269\ See, e.g., CfPA Letter; R. Campbell Letter; J. Clarke 
Letter (noting the importance of outside oral communications 
directing investors to the platform for completion of the offering); 
Netcapital Letter; Republic Letter; NextSeed Letter; W. Hubbard 
Letter; Raise Green & New Haven Comm. Solar Letter; CrowdCheck 
Letter; and Honeycomb Letter (recommending eliminating Rule 204). 
Some of these commenters supported permitting information related to 
concurrent offerings to be disclosed in those offering materials. 
See J. Clarke Letter; and CrowdCheck Letter.
    \270\ See, e.g., CFA Institute Letter.
    \271\ See, e.g., CfPA Letter (recommending permitting both oral 
and written communications); J. Clarke Letter (recommending 
permitting disclosure of the use of proceeds as well as how the 
offering is progressing); Netcapital Letter; Republic Letter 
(recommending unrestricted communications); and W. Hubbard Letter.
---------------------------------------------------------------------------

    We requested comment in the Proposing Release as to whether we 
should consider revisions to Regulation Crowdfunding that relate to 
intermediaries involved in concurrent exempt offerings or provide 
guidance regarding issues that may arise when an intermediary seeks to 
host concurrent offerings. A few commenters supported permitting 
Regulation Crowdfunding portals to be used to sell Rule 506(c) 
offerings.\272\ One of these commenters also expressed support for 
providing Commission guidance.\273\ Another commenter questioned the 
need for guidance and stated its view that it is ``standard market 
practice'' for concurrent Rule 506(c) offerings to be offered and sold 
alongside Regulation Crowdfunding offerings on the same online 
platform.\274\
---------------------------------------------------------------------------

    \272\ See Letter from Fred Pea dated Apr. 25, 2020; J. Clarke 
Letter; and W. Hubbard Letter.
    \273\ See W. Hubbard Letter.
    \274\ See CrowdCheck Letter (``Where the platform is not a 
registered broker-dealer, the Regulation [Crowdfunding] offering is 
intermediated by a registered funding portal, and the Rule 506(c) 
offering is not intermediated by the funding portal but hosted by 
the same technology and no commission is charged.'').
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the amendments substantially as proposed to permit 
oral communications with prospective investors once the Form C is 
filed, so long as the communications comply with the requirements of 
Rule 204. In connection with this amendment to 17 CFR 227.204(a), we 
have revised 17 CFR 227.204(b)(1) (``Rule 204(b)(1)''), as proposed, to 
indicate that a link to the intermediary's platform is only required to 
be provided when the communications are in writing. In response to 
comment, we are also expanding the information that an issuer may 
provide in accordance with Rule 204 to include:
     A brief description of the planned use of proceeds of the 
offering; and
     Information on the issuer's progress toward meeting its 
funding goals.
    We believe that investors will find this information useful in 
making an investment decision and that the incremental increase in the 
limited information permitted to be provided under the amendments is 
unlikely to affect investor protection, particularly because the 
investors receiving the information will continue to be directed to the 
intermediary's platform where they can access the disclosures necessary 
for them to make informed investment decisions. We also believe that 
these amendments to Rule 204 will improve the information available to 
investors and provide issuers with certainty as to the acceptable form 
and content of communications with potential investors.
    In a further change from the proposal, in response to 
comments,\275\ we are adding a new 17 CFR 227.204(d) to specify that an 
issuer may provide information about the terms of an offering under 
Regulation Crowdfunding in the offering materials for a concurrent 
offering, such as in an offering statement on Form 1-A for a concurrent 
Regulation A offering or a Securities Act registration statement filed 
with the Commission, without violating Rule 204. To do so, the 
information provided about the Regulation Crowdfunding offering must be 
in compliance with Rule 204, including the requirement to include a 
link directing the potential investor to the intermediary's platform as 
required by Rule 204(b)(1). However, in accordance with the 
Commission's rules with respect to the use of hyperlinks in electronic 
filings, such link may not be a live hyperlink.\276\ We believe the 
change to Rule 204 will allow issuers to conduct concurrent offerings 
more easily under different exemptions, without sacrificing investor 
protection.
---------------------------------------------------------------------------

    \275\ See CrowdCheck Letter.
    \276\ See 17 CFR 232.105(b). We note that the information 
contained in the linked material will not be considered part of the 
document for determining compliance with reporting obligations, but 
the inclusion of the link will cause the filer to be subject to the 
civil liability and antifraud provisions of the Federal securities 
laws with reference to the information contained in the linked 
material. See 17 CFR 232.105(c).
---------------------------------------------------------------------------

    Further, in response to commenters who requested clarification on 
whether funding portals can host concurrent offerings, we note that 
under 17 CFR 227.401 (``Rule 401'' of Regulation Crowdfunding), a 
funding portal is exempt from the broker registration requirements of 
Section 15(a) of the Exchange Act only in connection with its 
activities as an intermediary in a transaction involving the offer or 
sale of securities for the account of others, pursuant to Section 
4(a)(6) of the Securities Act. To the extent a funding portal seeks to 
host a concurrent offering pursuant to another offering exemption, it 
would need to consider whether these additional activities could cause 
it to lose the exemption provided by Rule 401,\277\ or otherwise become 
subject to broker registration requirements.\278\
---------------------------------------------------------------------------

    \277\ Among other things, the funding portal should consider 
whether it is clear that the offerings are being conducted under 
different exemptions from registration, including whether the 
funding portal has provided appropriate disclosures to avoid 
investor confusion.
    \278\ The question of whether a person is a broker within the 
meaning of Section 3(a)(4) turns on the facts and circumstances of 
the matter. Because the Exchange Act does not define what it means 
to be ``engaged in the business'' or ``effecting transactions,'' the 
Commission has looked to an array of factors in determining whether 
a person is a broker within the meaning of the statute. See, e.g., 
SEC v. Helms, No. 13-cv-01036, 2015 WL 5010298, at *17 (W.D. Tex. 
Aug. 21, 2015) (``In determining whether a person `effected 
transactions [within the meaning of Section 3(a)(4)],' courts 
consider several factors, such as whether the person: (1) Solicited 
investors to purchase securities, (2) was involved in negotiations 
between the issuer and the investor, and (3) received transaction-
related compensation.'') (citing cases initiated by the Commission).
---------------------------------------------------------------------------

C. Rule 506(c) Verification Requirements

    Rule 506(c) permits issuers to generally solicit and advertise an 
offering, provided that all purchasers in the offering are accredited 
investors, the issuer takes reasonable steps to verify that purchasers 
are accredited investors, and certain other conditions in Regulation D 
are satisfied.\279\ Rule 506(c) provides a principles-based method for 
verification of accredited investor status as well as a non-exclusive 
list of verification methods. The principles-based method of 
verification requires an objective

[[Page 3526]]

determination by the issuer (or those acting on its behalf) as to 
whether the steps taken are ``reasonable'' in the context of the 
particular facts and circumstances of each purchaser and 
transaction.\280\ Rule 506(c) includes a non-exclusive list of 
verification methods that issuers may use, but are not required to use, 
when seeking to satisfy the verification requirement with respect to 
natural person purchasers.\281\
---------------------------------------------------------------------------

    \279\ See 17 CFR 230.501 (Definitions and terms used in 
Regulation D); Rule 502(a) (Integration); and 17 CFR 230.502(d) 
(Limitations on Resales).
    \280\ See Rule 506(c) Adopting Release, at Section II.B.1.
    \281\ The rule does not set forth a non-exclusive list of 
methods for the verification of investors that are not natural 
persons. In the adopting release, the Commission expressed the view 
that the potential for uncertainty and the risk of participation by 
non-accredited investors is highest in offerings involving natural 
persons as investors. See Rule 506(c) Adopting Release, at Section 
II.B.3.
---------------------------------------------------------------------------

1. Proposed Amendments
    The Commission proposed to add a new item to the non-exclusive list 
in Rule 506(c) that would allow an issuer to establish that an investor 
that the issuer previously took reasonable steps to verify as an 
accredited investor remains an accredited investor as of the time of a 
subsequent sale if the investor provides a written representation that 
the investor continues to qualify as an accredited investor and the 
issuer is not aware of information to the contrary. In the Proposing 
Release, the Commission expressed the view that this new method would 
reduce the cost and burden of verification for issuers while 
alleviating privacy concerns associated with investors having to 
repeatedly provide financially sensitive information to the issuer and 
noted that the risk of investor harm would be mitigated by the pre-
existing relationship between the issuer and such investor.\282\ The 
Commission additionally reaffirmed its prior guidance that the 
principles-based method in Rule 506(c) was intended to provide issuers 
with significant flexibility in deciding the steps needed to verify a 
person's accredited investor status and to avoid requiring them to 
follow uniform verification methods that may be ill-suited or 
unnecessary to a particular offering or purchaser in light of the facts 
and circumstances.\283\
---------------------------------------------------------------------------

    \282\ See Proposing Release, at Section II.C.
    \283\ See id. See also Rule 506(c) Adopting Release, at Section 
II.B.1.
---------------------------------------------------------------------------

2. Comments
    Commenters that addressed verification generally supported the 
proposal to allow an issuer to establish that an investor that the 
issuer previously took reasonable steps to verify as an accredited 
investor remains an accredited investor as of the time of a subsequent 
sale if the investor provides a written representation that the 
investor continues to qualify as an accredited investor and the issuer 
is not aware of information to the contrary.\284\ A number of these 
commenters expressed concern that the requirement to take reasonable 
steps to verify accredited investor status has generally affected 
issuers' willingness to use Rule 506(c).\285\ One commenter supported 
eliminating the verification requirement entirely,\286\ while another 
commenter expressed support for the existing standard.\287\
---------------------------------------------------------------------------

    \284\ See, e.g., ABA Letter; Geraci Law Letter; Netcapital 
Letter; Md. St. Bar Assoc. Letter; NextSeed Letter; Letter from 
Shaver Law Group, LLC dated June 1, 2020; W. Hubbard Letter; Letter 
from Mark Schonberger dated June 1, 2020 (``M. Schonberger 
Letter''); IAA Letter; Letter from TIAA dated June 1, 2020 (``TIAA 
Letter''); Invesco Letter; D. Burton Letter; and IPA Letter.
    \285\ See, e.g., Geraci Law Letter; J. Clarke Letter; NextSeed 
Letter; W. Hubbard Letter; TIAA Letter; and D. Burton Letter 
(suggesting that the income verification requirements are the 
primary concern); and IPA Letter. In contrast, one commenter 
suggested that the principal reason more issuers do not use Rule 
506(c) is that they do not need it. See CrowdCheck Letter.
    \286\ See W. Hubbard Letter.
    \287\ See ABA Letter (supporting the existing principles-based 
method and clear objective standards in the accredited investor 
definition).
---------------------------------------------------------------------------

    Some commenters, on the other hand, opposed the additional 
verification method.\288\ These commenters expressed concern that 
permitting reliance on previous verification would not account for 
changes in investor financial circumstances over time and could 
therefore result in issuers raising money from investors that may have 
lost their accredited investor status.\289\ Some commenters that 
supported permitting reliance on previous verification also supported 
imposing time limits on such reliance in order to alleviate this 
concern.\290\
---------------------------------------------------------------------------

    \288\ See, e.g., CFA Letter (noting that an investor's ability 
to meet the financial thresholds that determine whether they are 
accredited can and does change over time and suggesting that 
permitting issuers to rely on previous verification will result in 
purchasers that are not accredited investors in contravention of the 
condition in Rule 506(c) that all purchasers must be accredited 
investors); Better Markets Letter (expressing concern that 
permitting reliance on the prior verification could lead to issuers, 
especially issuers of risky investments, to design mechanisms that 
maximize self-certification); and R. Rutkowski Letter. See also 
CrowdCheck Letter (questioning whether additional verification 
procedures would be helpful to increase utilization of Rule 506(c)).
    \289\ See, e.g., CFA Letter; and Better Markets Letter.
    \290\ See, e.g., Md. St. Bar Assoc. Letter (suggesting that an 
unlimited time period could call into question the appropriateness 
of the method and supporting a ``reasonable time limit''); NextSeed 
Letter (acknowledging limits to reliance after an extended period of 
time has passed, such as five years); W. Hubbard Letter (supporting 
a three- to five-year time limit); Invesco Letter (supporting a two-
year lookback on verification which would tie the standard to the 
two-year income test in Rule 501(a)(6). In contrast, some commenters 
specifically opposed any time limit. See M. Schonberger Letter; and 
Netcapital Letter.
---------------------------------------------------------------------------

    A number of commenters expressed the need for additional guidance 
under the principles-based reasonable steps approach.\291\ Several 
commenters also supported additional or alternative verification 
methods,\292\ with some commenters offering specific alternatives, such 
as minimum investment amounts,\293\ self-certification,\294\ or 
reliance on a financial intermediary.\295\
---------------------------------------------------------------------------

    \291\ See, e.g., ABA Letter (recommending confirmation that the 
means of verification may be relied on in making determinations 
under Section 12(g)); IAA Letter (recommending that the Commission 
provide clear assurances to issuers that they may rely on the 
principles-based reasonable steps approach, including confirmation 
that it could be reasonable under the facts and circumstances for 
issuers to contract with a third party to conduct the required 
verification); TIAA Letter (recommending clear guidance that the 
non-exclusive list is not prescriptive); Fried Frank Letter 
(recommending guidance with respect to verification of the status of 
a trust); NextSeed Letter (recommending additional guidance with 
respect to what actions would constitute ``reasonable steps'' 
generally and in particular with respect to verification of trusts); 
and IPA Letter (recommending that the Commission reaffirm and 
provide clarity on the Commission's prior guidance that the non-
exclusive list is not prescriptive, and that a range of verification 
methods not enumerated in the rule may qualify as ``reasonable,'' 
and provide guidance with respect to verification by broker-dealers 
and registered investment advisers). In contrast, one commenter 
suggested that additional guidance is unnecessary. See CrowdCheck 
Letter.
    \292\ See, e.g., W. Hubbard Letter; Invesco Letter (recommending 
verification only apply to natural persons); and IPA Letter 
(recommending additional means to verify status including an annual 
net worth certification process). In addition, some commenters 
generally supported additional verification methods in light of the 
amendments to the accredited investor definition. See, e.g., Geraci 
Law Letter; W. Hubbard Letter; IAA Letter; and D. Burton Letter.
    \293\ See, e.g., CrowdCheck Letter; Invesco Letter; and NextSeed 
Letter.
    \294\ See, e.g., Sen. Toomey Letter; IPA Letter; and NextSeed 
Letter. See also D. Burton Letter; and J. Clarke Letter.
    \295\ See, e.g., Fried Frank Letter (recommending not requiring 
further verification for investors who have been verified as 
accredited investors by registered broker-dealers and registered 
investment advisers and that a representation from an investor to a 
registered broker-dealer or registered investment adviser with which 
the investor has a substantive pre-existing relationship is 
sufficient verification); Letter from Macquarie Investment 
Management dated June 29, 2020; and TIAA Letter (recommending not 
requiring verification for offerings involving a registered 
investment adviser, broker-dealer placement agent or other such 
intermediary).
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the amendments substantially as proposed with some 
changes in response to comments. In addition, we are re-affirming the 
guidance in the Proposing Release. As

[[Page 3527]]

proposed, we are permitting an issuer to establish that an investor 
that the issuer previously took reasonable steps to verify as an 
accredited investor in accordance with Rule 506(c)(2)(ii) remains an 
accredited investor as of the time of a subsequent sale if the investor 
provides a written representation that the investor continues to 
qualify as an accredited investor and the issuer is not aware of 
information to the contrary. In a change from the proposal, in response 
to commenter feedback, we are adding a time limit on the ability of an 
issuer to rely on the earlier verification.
    We believe that permitting an issuer to rely on a prior 
verification of accredited investor status will reduce the cost and 
burden of verification for issuers that engage in more than one Rule 
506(c) offering over time, and therefore may, to some extent, address 
commenters' concern that the requirement to take reasonable steps to 
verify accredited investor status has affected issuers' willingness to 
use Rule 506(c). We recognize, as some commenters expressed, that over 
an unlimited time period permitting reliance on a prior verification 
may not appropriately account for changes in investor financial 
circumstances and could result in issuers raising money from non-
accredited investors. Because such concerns could call into question 
the appropriateness of the verification method, we are adopting a five-
year time limit on the ability of issuers to rely on a prior 
verification. A five-year period is not so remote that the initial 
verification is no longer meaningful, but also provides issuers relying 
on the prior verification substantial cost savings. We believe the 
inclusion of a five-year time limit, together with the pre-existing 
relationship between the issuer and such investor, will appropriately 
balance reducing the cost and burden of verification for issuers with 
the mitigation of risk of investor harm caused by issuers selling to 
non-accredited investors.
    In addition, as indicated in the Proposing Release, we are 
reaffirming and updating the Commission's prior guidance with respect 
to the principles-based method for verification, and in particular what 
may be considered ``reasonable steps'' to verify an investor's 
accredited investor status, in order to reduce concerns that an 
issuer's method of verification may be second guessed by regulators or 
other market participants without regard to the analysis performed by 
the issuer in making the determination and to encourage more issuers to 
rely on additional verification methods tailored to their specific 
facts and circumstances.\296\ The principles-based method was intended 
to provide issuers with significant flexibility in deciding the steps 
needed to verify a person's accredited investor status and to avoid 
requiring them to follow uniform verification methods that may be ill-
suited or unnecessary to a particular offering or purchaser in light of 
the facts and circumstances.\297\ The Commission has previously 
indicated, and we continue to believe, that the following factors are 
among those an issuer should consider when using this principles-based 
method of verification:
---------------------------------------------------------------------------

    \296\ Commenters that addressed the issue of Commission guidance 
generally supported the Commission's updated guidance. See supra 
note 291.
    \297\ See Rule 506(c) Adopting Release, at Section II.B.1.
---------------------------------------------------------------------------

     The nature of the purchaser and the type of accredited 
investor that the purchaser claims to be;
     The amount and type of information that the issuer has 
about the purchaser; and
     The nature of the offering, such as the manner in which 
the purchaser was solicited to participate in the offering, and the 
terms of the offering, such as a minimum investment amount.\298\
---------------------------------------------------------------------------

    \298\ See id. at Section II.B.3.a.
---------------------------------------------------------------------------

    We are of the view that, in some circumstances, the reasonable 
steps determination may not be substantially different from an issuer's 
development of a ``reasonable belief'' for Rule 506(b) purposes. For 
example, an issuer's receipt of a representation from an investor as to 
his or her accredited status could meet the ``reasonable steps'' 
requirement if the issuer reasonably takes into consideration a prior 
substantive relationship with the investor or other facts that make 
apparent the accredited status of the investor. That same 
representation from an investor may not meet the ``reasonable steps'' 
requirement if the issuer has no other information about the investor 
or has information that does not support the view that the investor was 
an accredited investor.\299\
---------------------------------------------------------------------------

    \299\ We caution issuers that we continue to believe that an 
issuer will not be considered to have taken reasonable steps to 
verify accredited investor status if it, or those acting on its 
behalf, require only that a person check a box in a questionnaire or 
sign a form, absent other information about the purchaser indicating 
accredited investor status.
---------------------------------------------------------------------------

    We are not adopting additional amendments to the definition to 
expand the list of verification methods, as requested by some 
commenters. We appreciate that the addition of further verification 
methods to the non-exclusive list could provide greater certainty to 
issuers as to satisfaction of the rule's verification requirement, but 
are mindful that significant expansion of the list could further 
undermine the use of the principles-based method of verification. We 
believe that the methods suggested by commenters as possible additions 
to the list may be considered by an issuer under the principles-based 
method, depending on the particular facts and circumstances of its 
offering, and do not wish to limit that flexibility.
    We remind issuers that they are not required to use any of the 
methods set forth in the non-exclusive list and can apply the 
reasonableness standard directly to the specific facts and 
circumstances presented by the offering and the investors. We do not 
believe additional guidance is warranted at this time. We also do not 
believe it is appropriate to provide guidance, as suggested by a 
commenter, with respect to reliance on the specified verification 
methods in making determinations of accredited investor status under 
Section 12(g). We continue to believe that requiring issuers to 
consider their particular facts and circumstances in establishing a 
reasonable basis for their determination of accredited investor status 
for Section 12(g) purposes provides issuers with appropriate 
flexibility for making the determination.\300\
---------------------------------------------------------------------------

    \300\ See Changes to Exchange Act Registration Requirements to 
Implement Title V and Title VI of the JOBS Act, Release No. 33-10075 
(May 3, 2016) [81 FR 28689 (May 10, 2016)], at text accompanying 
note 71. The term ``accredited investor'' for purposes of Section 
12(g)(1) is as defined in 17 CFR 230.501(a), which provides that an 
accredited investor is any person who comes within one or more of 
the categories of investors specified therein, or whom the issuer 
reasonably believes comes within any such category. Whether the 
issuer has a reasonable belief depends on the particular facts and 
circumstances surrounding the determination. Under 17 CFR 240.12g-1, 
an issuer needs to determine, based on the facts and circumstances, 
whether prior information provides a basis for a reasonable belief 
that the security holder continues to be an accredited investor as 
of the last day of the fiscal year. See id. at Section II.B.3.
---------------------------------------------------------------------------

D. Harmonization of Disclosure Requirements

[[Page 3528]]

    Currently, the exempt offerings rules provide different financial 
statement information requirements for Regulation A and Regulation D. 
Additionally, in some areas compliance with Regulation A is more 
complex or difficult than for registered offerings, such as with 
respect to the rules regarding redaction of confidential information in 
material contracts and incorporation by reference. Finally, the Supreme 
Court's decision in Food Marketing Institute v. Argus Leader Media 
\301\ led the Commission to review its standard for allowing redaction 
of information from certain exhibits.
---------------------------------------------------------------------------

    \301\ 139 S.Ct. 2356 (2019) (``Food Marketing Institute'').
---------------------------------------------------------------------------

1. Rule 502(b) of Regulation D
    When non-accredited investors are participating in an offering 
under Rule 506(b), the issuer conducting the offering must furnish the 
information required by Rule 502(b),\302\ including specified financial 
statement and non-financial information, to such non-accredited 
investors a reasonable time prior to the sale of the securities and 
must provide these investors with the opportunity to ask questions and 
receive answers about the offering.\303\ This includes, if the issuer 
is not subject to the reporting requirements of Section 13 \304\ or 
15(d) \305\ of the Exchange Act, the following financial statement 
information:
---------------------------------------------------------------------------

    \302\ See 17 CFR 230.502(b)(2)(i) through (vii).
    \303\ See 17 CFR 230.502(b)(2)(v). Although not expressly 
required by Rule 502(b), issuers and funds conducting Rule 506(b) 
offerings exclusively to accredited investors often provide those 
accredited investors with information about the issuer in view of 
the antifraud provisions of the Federal securities laws. See Note to 
Rule 502(b).
    \304\ 15 U.S.C. 78m.
    \305\ 15 U.S.C. 78o(d).
---------------------------------------------------------------------------

     For offerings up to $2 million: The information required 
in 17 CFR 210.8-01 through 8-08 (``Article 8 of Regulation S-X''), 
except that only the issuer's balance sheet, which shall be dated 
within 120 days of the start of the offering, must be audited; \306\
---------------------------------------------------------------------------

    \306\ See 17 CFR 230.502(b)(2)(i)(B)(1) (``Rule 
502(b)(2)(i)(B)(1)'').
---------------------------------------------------------------------------

     For offerings up to $7.5 million: The financial statement 
information required in 17 CFR 239.11 (``Form S-1'') for smaller 
reporting companies.\307\
---------------------------------------------------------------------------

    \307\ See 17 CFR 230.502(b)(2)(i)(B)(2) (``Rule 
502(b)(2)(i)(B)(2)''). See also 17 CFR 240.12b-2 (defining smaller 
reporting company).
---------------------------------------------------------------------------

     For offerings over $7.5 million: The financial statement 
information as would be required in a registration statement filed 
under the Securities Act on the form that the issuer would be entitled 
to use; \308\ and
---------------------------------------------------------------------------

    \308\ See 17 CFR 230.502(b)(2)(i)(B)(3) (``Rule 
502(b)(2)(i)(B)(3)''). For offerings above $2 million, issuers that 
cannot obtain audited financial statements without unreasonable 
effort and expense, that are not limited partnerships, are only 
required to have the balance sheet, which must be dated within 120 
days of the start of the offering, audited. If the issuer is a 
limited partnership, and it cannot obtain audited financial 
statements without unreasonable effort and expense it may furnish 
financial statements that have been prepared on the basis of Federal 
income tax requirements and examined and reported on in accordance 
with generally accepted auditing standards by an independent public 
or certified accountant. See Rules 502(b)(2)(i)(B)(2) and (3).
---------------------------------------------------------------------------

     For offerings by foreign private issuers eligible to use 
17 CFR 249.220f (``Form 20-F''): The same kind of information required 
to be included in a registration statement filed under the Securities 
Act on the form that the issuer would be entitled to use.\309\
---------------------------------------------------------------------------

    \309\ See 17 CFR 230.502(b)(2)(i)(C). The financial statements 
provided by foreign private issuers eligible to use Form 20-F need 
be certified only to the extent required by paragraph Rules 
502(b)(2)(i)(B)(1), (2), or (3), as appropriate. See id.
---------------------------------------------------------------------------

    Similarly, issuers conducting offerings pursuant to Regulation A 
are required to provide certain financial statement and non-financial 
information to investors. Table 4 summarizes the financial information 
issuers conducting a Regulation A offering are required to provide 
under Part F/S of Form 1-A.

                         Table 4--Current Regulation A Financial Statement Requirements
----------------------------------------------------------------------------------------------------------------
                                         Financial statement        Age of financial
            Offering size                information required          statements             Audit required
----------------------------------------------------------------------------------------------------------------
Up to $20 million (Tier 1)...........  Consolidated balance     Not more than nine       No, unless issuer has
                                        sheets of the issuer     months before the date   already obtained an
                                        for the two previous     of non-public            audit for another
                                        fiscal year ends (or     submission, filing or    purpose.
                                        for such shorter time    qualification, with
                                        that the issuer has      the most recent annual
                                        been in existence);.     or interim balance
                                       Consolidated statements   sheet not older than
                                        of comprehensive         nine months.
                                        income, cash flows,
                                        and stockholders'
                                        equity of the issuer;
                                        and.
                                       Financial statements of
                                        guarantors and issuers
                                        of guaranteed
                                        securities, affiliates
                                        whose securities
                                        collateralize an
                                        issuance, significant
                                        acquired or to be
                                        acquired businesses
                                        and real estate
                                        operations, and pro
                                        forma information
                                        relating to
                                        significant business
                                        combinations.
Up to $50 million (Tier 2)...........  Financial statements in  Not more than nine       Yes (but see paragraph
                                        compliance with          months before the date   (c) in Part F/S of
                                        Article 8 of             of non-public            Form 1-A noting that
                                        Regulation S-X.          submission, filing or    interim financial
                                                                 qualification, with      statements need not be
                                                                 the most recent annual   audited).
                                                                 or interim balance
                                                                 sheet not older than
                                                                 nine months.
----------------------------------------------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to amend Rule 502(b)'s requirements 
governing the financial information that non-reporting companies must 
provide to non-accredited investors participating in Regulation D 
offerings to align with the financial information that issuers must 
provide investors in Regulation A

[[Page 3529]]

offerings. Specifically, for Regulation D offerings of $20 million or 
less, proposed Rule 502(b)(2)(i)(B)(1) would refer such issuers to 
paragraph (b) of part F/S of Form 1-A, which applies to Tier 1 
Regulation A offerings. For offerings of greater than $20 million, 
proposed Rule 502(b)(2)(i)(B)(2) would refer issuers to paragraph (c) 
of part F/S of Form 1-A, which applies to Tier 2 Regulation A 
offerings.\310\ This proposed amendment would eliminate the current 
Rule 502(b) provisions that permit an issuer, other than a limited 
partnership, that cannot obtain audited financial statements without 
unreasonable effort or expense, to provide only the issuer's audited 
balance sheet.\311\
---------------------------------------------------------------------------

    \310\ As proposed, issuers need not comply with the other 
ongoing non-financial statement disclosure requirements in Tier 2 
Regulation A offerings. Instead, the proposed requirement would be 
limited to harmonization of the financial statement disclosure 
requirements outlined in the offering circular.
    \311\ See Rules 502(b)(2)(i)(B)(2) and (3).
---------------------------------------------------------------------------

    In addition, under the proposed amendments, a foreign private 
issuer that is not an Exchange Act reporting company would be required 
to provide financial statement disclosure consistent with the 
Regulation A requirements.\312\ The foreign private issuer would be 
permitted to provide financial statements prepared in accordance with 
either U.S. GAAP or International Financial Reporting Standards as 
issued by the International Accounting Standards Board. For business 
combinations and exchange offers, an issuer that is not an Exchange Act 
reporting company would provide financial statements consistent with 
the Regulation A requirements.
---------------------------------------------------------------------------

    \312\ The term ``foreign private issuer'' means any foreign 
issuer, other than a foreign government, except an issuer meeting 
the following conditions as of the last business day of its most 
recently completed second fiscal quarter: (i) More than 50 percent 
of the outstanding voting securities of such issuer are directly or 
indirectly owned of record by residents of the United States; and 
(ii) any of the following: (a) The majority of the executive 
officers or directors are United States citizens or residents; (b) 
more than 50 percent of the assets of the issuer are located in the 
United States; or (c) the business of the issuer is administered 
principally in the United States. See 17 CFR 230.405.
---------------------------------------------------------------------------

b. Comments
    Commenters were divided on the proposal. Some commenters supported 
aligning the financial statement information requirements in Rule 
502(b) with the requirements of Regulation A,\313\ while others opposed 
the proposal.\314\ One commenter, who opposed the proposal, questioned 
whether the financial statement information requirements in Rule 502(b) 
are overly burdensome given the amounts raised under Rule 506(b) and 
whether the Regulation A disclosure requirements were appropriate for 
Regulation D, given that the Regulation A disclosures are reviewed by 
the Commission.\315\ Another commenter who opposed the proposal 
expressed concern that removing the audit requirement for financial 
statements in Rule 506(b) offerings under $20 million would deprive 
investors of critical information.\316\
---------------------------------------------------------------------------

    \313\ See ABA Letter (suggesting that the disclosure 
requirements of Regulation A provide adequate information upon which 
a non-accredited investor can make an informed investment decision); 
CfPA Letter; SEC SBCFAC Letter; Geraci Law Letter; Letter from 
Carta, Inc. dated June 1, 2020 (``Carta Letter''); W. Hubbard 
Letter; CrowdCheck Letter; and IPA Letter.
    \314\ See J. Clarke Letter; NASAA Letter (opposing harmonization 
of the financial statement requirements with Regulation A because of 
the difference in the terms of the two exemptions); Better Markets 
Letter (expressing concern about a loss of investor protection 
because the proposal would allow companies, including foreign 
companies, to raise capital without providing audited financial 
statements); CFA Letter (expressing concern that the proposal would 
reduce transparency and weaken investor protections); and CFA 
Institute Letter (stating that harmonization with the Regulation A 
requirement is not appropriate because Rule 506(b) lacks investor 
protections that Regulation A Tier 1 (and Regulation Crowdfunding) 
provide to non-accredited investors).
    \315\ See NASAA Letter.
    \316\ See CFA Institute Letter.
---------------------------------------------------------------------------

    Several commenters addressed further aspects of the proposed 
harmonization of financial disclosure requirements. One commenter 
recommended harmonizing the Rule 502(b) disclosures with Regulation 
Crowdfunding.\317\ Another commenter expressly opposed requiring 
issuers conducting Regulation D offerings above the Regulation A Tier 2 
offering limit to comply with the financial information requirements 
applicable to smaller reporting companies under Article 8 of Regulation 
S-X.\318\
---------------------------------------------------------------------------

    \317\ See J. Clarke Letter.
    \318\ See W. Hubbard Letter (stating that the current Reg A Tier 
2 approach to financial statement disclosure requirements is 
understandable and straightforward and adding financial disclosure 
requirements for offerings above $50 million will not provide a 
commensurate benefit or protection to investors however will likely 
discourage issuers from using the exemption).
---------------------------------------------------------------------------

    The 2020 Government-Business Forum on Small Business Capital 
Formation generally recommended that the Commission revise the 
disclosures required for non-accredited investors in offerings made 
under Rule 506(b).\319\
---------------------------------------------------------------------------

    \319\ See 2020 Forum Report.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the amendments as proposed. By aligning the 
disclosure requirements in Rule 502(b) with those in Regulation A, 
additional issuers may be willing to include non-accredited investors 
in their offerings pursuant to Rule 506(b), which would expand 
investment opportunities for those investors. In addition, we continue 
to believe, as stated in comments received on the Concept Release, that 
many issuers view the current financial statement requirements of Rule 
502(b) as overly burdensome.\320\ We believe revising the disclosure 
requirements will help address those concerns, while continuing to 
provide investors with material information about the issuer. We 
acknowledge that there are differences in the terms and conditions of 
Regulation A and Rule 506(b) offerings involving non-accredited 
investors, in particular the fact that the financial statements 
provided pursuant to Rule 502(b) are not subject to staff review and 
qualification. We also note that staff review and qualification is not 
a guarantee that the disclosure is complete and accurate. Nevertheless, 
we have determined that the financial statement requirements of 
Regulation A provide adequate information to non-accredited investors 
in such offerings, and we believe that the same is true for non-
accredited investors in the Rule 506(b) context.\321\ Further, as noted 
in the Proposing Release, the information disclosed to investors will 
continue to be subject to the anti-fraud provisions of the Federal and 
State securities laws.
---------------------------------------------------------------------------

    \320\ See Proposing Release, at text accompanying notes 195-198.
    \321\ Regulation A is available only to U.S. or Canadian 
issuers, and excludes, among others, blank check companies, 
registered investment companies, business development companies, and 
issuers of certain securities including asset-backed securities. 
These limitations do not apply to Regulation D; therefore, such 
issuers shall apply the Regulation A financial statement 
requirements as if they were eligible to do so under Regulation A. 
With respect to foreign private issuers, we are adopting as proposed 
a provision stating that a foreign private issuer that is not an 
Exchange Act reporting company would be permitted to provide 
financial statements prepared in accordance with U.S. GAAP or 
International Financial Reporting Standards as issued by the 
International Accounting Standards Board.
---------------------------------------------------------------------------

    We are not persuaded by commenters who suggested that we harmonize 
the disclosure requirements in Rule 502(b) with those in Regulation 
Crowdfunding. We also do not believe harmonizing the disclosure 
requirements in Rule 502(b) with Regulation Crowdfunding for offerings 
below $5 million and with Regulation A for offerings above $5 million 
would alleviate any additional burdens on issuers. Instead, such a 
requirement would create additional complexity for issuers with 
offerings that could cross from below to above $5 million, by requiring 
them to

[[Page 3530]]

simultaneously consider the disclosure requirements of Regulation A and 
Regulation Crowdfunding.
2. Proposed Amendments To Simplify Compliance With Regulation A
    In its review of the exempt offering framework, the Commission 
identified several areas where compliance with Regulation A is more 
complex or difficult than for registered offerings, including the rules 
regarding the redaction of confidential information in material 
contracts, making draft offering statements public on EDGAR, 
incorporation by reference, and the abandonment of a post-qualification 
amendment.
a. Redaction of Confidential Information in Certain Exhibits
    In March 2019, the Commission amended several rules to permit 
registrants to file redacted material contracts and plans of 
acquisition, reorganization, arrangement, liquidation, or succession 
without applying for confidential treatment.\322\ These rules require 
registrants to mark the exhibit index to indicate that portions of the 
exhibit or exhibits have been omitted, include a prominent statement on 
the first page of the redacted exhibit that certain identified 
information has been excluded from the exhibit because it is both not 
material and would be competitively harmful if publicly disclosed, and 
indicate with brackets where the information has been omitted from the 
filed version of the exhibit.\323\ This process for filing redacted 
exhibits was not extended to Regulation A offerings at that time. As a 
result, Regulation A issuers are still compelled to submit an 
application for confidential treatment in order to redact immaterial 
confidential information from material contracts and plans of 
acquisition, reorganization, arrangement, liquidation, or succession.
---------------------------------------------------------------------------

    \322\ See FAST Act Modernization and Simplification of 
Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674 
(Apr. 2, 2019)] (``FAST Act Modernization Release'') at text 
accompanying notes 45-73 (amending 17 CFR 229.601(b)(2)(ii) and 17 
CFR 229.601(b)(10)(iv)).
    \323\ See 17 CFR 229.601(b)(2) (``Item 601(b)(2)'' of Regulation 
S-K) and 17 CFR 229.601(b)(10)(iv) (``Item 601(b)(10)(iv)'' of 
Regulation S-K). Redacted exhibits are subject to compliance reviews 
by the staff.
---------------------------------------------------------------------------

i. Proposed Amendments
    The Commission proposed to amend Item 17 of Form 1-A to provide 
issuers with the option to file redacted material contracts \324\ and 
plans of acquisition, reorganization, arrangement, liquidation, or 
succession,\325\ consistent with the recent amendments to Regulation S-
K). Issuers would still have the option to file such exhibits pursuant 
to the existing confidential treatment application process, which would 
remain unchanged.
---------------------------------------------------------------------------

    \324\ See Item 17.6 of Form 1-A.
    \325\ See Item 17.7 of Form 1-A.
---------------------------------------------------------------------------

ii. Comments
    Commenters that addressed the proposed amendments supported the 
proposal to apply the simplified confidential treatment process to 
Regulation A filers.\326\
---------------------------------------------------------------------------

    \326\ See Republic Letter; W. Hubbard Letter; M. Schonberger 
Letter; and CrowdCheck Letter.
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments as proposed to add a new instruction 
to Item 17 of Form 1-A that applies to paragraphs 6 and 7 of that item 
and includes procedures similar to Items 601(b)(2) and (b)(10) of 
Regulation S-K for filing redacted material contracts or plans of 
acquisition, reorganization, arrangement, liquidation, or succession. 
We are making one change to the proposed instruction, to further 
harmonize the procedures for redacting information under Item 17 of 
Form 1-A with those in 17 CFR 229.601(a)(6) (``Item 601(a)(6)'' of 
Regulation S-K), by allowing issuers to redact information that ``would 
constitute a clearly unwarranted invasion of personal privacy'' in any 
of the exhibits listed in Item 17 of Form 1-A. As a matter of practice, 
the staff generally does not object where an issuer omits sensitive 
personally identifiable information, such as bank account numbers, 
social security numbers, home addresses, and similar information 
(``PII'') from exhibits without also submitting a confidential 
treatment request. As with the adoption of Item 601(a)(6) of Regulation 
S-K, codifying this staff practice in Item 17 of Form 1-A will 
alleviate the burden from issuers of having to provide an analysis in 
order to redact PII from exhibits, and will also better safeguard PII 
by limiting its dissemination.\327\
---------------------------------------------------------------------------

    \327\ See FAST Act Modernization Release, at Section 
II.B.5.b.ii. (adopting Item 601(a)(6) of Regulation S-K).
---------------------------------------------------------------------------

    Commission staff will continue to review Forms 1-A filed in 
connection with Regulation A offerings and selectively assess whether 
redactions from exhibits appear to be limited to information that meets 
the appropriate standard.\328\ Upon request, issuers will be expected 
to promptly provide supplemental materials to the staff similar to 
those currently required, including an unredacted copy of the exhibit 
and an analysis of why the redacted information is both not material 
and the type of information that the issuer both customarily and 
actually treats as private and confidential.\329\ If the issuer's 
supplemental materials do not support its redactions, the staff may 
request that the issuer file an amendment that includes some, or all, 
of the previously redacted information, similar to the process the 
staff currently follows for confidential treatment requests in 
connection with Regulation A offerings.\330\
---------------------------------------------------------------------------

    \328\ As discussed below, we are amending the standard for 
redaction of information under this streamlined process, which 
currently requires that the redactions from exhibits be limited to 
information that is not material and that would cause competitive 
harm if publicly disclosed. The amended standard is patterned on the 
Supreme Court's language set out in Food Marketing Institute. See 
supra note 301.
    \329\ Pursuant to 17 CFR 200.83, companies are permitted to 
request confidential treatment of this supplemental information 
while it is in the staff's possession.
    \330\ After completing its review of the supplemental materials, 
the Commission or its staff will return or destroy them at the 
request of the company, as applicable.
---------------------------------------------------------------------------

b. Amendment to Form 1-A Item 17.16(a) Requirement
    Issuers that are conducting Regulation A offerings are permitted to 
submit non-public draft offering statements and amendments for review 
by the Commission staff if they have not previously sold securities 
pursuant to (i) a qualified offering statement under Regulation A or 
(ii) an effective Securities Act registration statement.\331\ Such 
issuers also may submit related non-public correspondence to the 
Commission staff for review confidentially. Current rules require that 
these non-public offering statements, amendments and correspondence be 
filed as an exhibit to a publicly filed offering statement at least 
twenty-one calendar days prior to the qualification of the offering 
statement.\332\ Similarly, an emerging growth company may, prior to its 
initial public offering date, submit a draft registration statement and 
amendments to the Commission for non-public review by the staff.\333\ 
However, unlike issuers submitting Regulation A offering statements for 
non-public review, there is no corresponding Securities Act rule or 
item requiring registration statements and amendments confidentially 
submitted by emerging growth companies to be filed as an exhibit to a 
publicly filed registration statement.

[[Page 3531]]

Instead issuers satisfy their public filing requirement by logging into 
their EDGAR account, selecting materials previously submitted non-
publicly, and releasing them for public dissemination.\334\
---------------------------------------------------------------------------

    \331\ See 17 CFR 230.252(d).
    \332\ See Item 17, paragraph 16(a) of Form 1-A and 17 CFR 
230.252(d).
    \333\ See Section 6(e)(1) of the Securities Act.
    \334\ See Announcement by the Division of Corporation Finance, 
Draft Registration Statements to Be Submitted and Filed on EDGAR 
(Sep. 26, 2012), available at https://www.sec.gov/divisions/corpfin/cfannouncements/drsfilingprocedures.htm.
---------------------------------------------------------------------------

i. Proposed Amendments
    The Commission proposed to amend Item 17.16(a) of Form 1-A to 
harmonize the procedures for publicly filing draft Regulation A 
offering statements with those for draft Securities Act registration 
statements. Instead of requiring documents previously submitted for 
non-public review by the staff and related, non-public correspondence 
to be filed as exhibits to a publicly filed offering statement, issuers 
conducting offerings exempt from registration pursuant to Regulation A 
would be able to make such documents available to the public via EDGAR 
to comply with the requirements of 17 CFR 230.252(d).
ii. Comments
    Commenters that addressed the proposed amendment supported the 
proposal to amend Item 17.16(a) of Form 1-A to allow non-public draft 
offering statements, amendments and related non-public correspondence 
to be made publicly available through the use of the EDGAR system.\335\
---------------------------------------------------------------------------

    \335\ See J. Clarke Letter; Republic Letter; W. Hubbard Letter; 
M. Schonberger Letter; CrowdCheck Letter; and IPA Letter.
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments as proposed, with two changes to 
renumber the exhibit paragraphs for clarity. As adopted, we are 
renumbering paragraph 16 of Item 17 of Form 1-A so that it will be 
referred to as ``99. Additional Exhibits,'' and will be the last 
paragraph in Item 17, and former paragraph 16 will be designated as 
``reserved.'' In addition, as proposed, we are deleting sub-paragraph 
(a) of that paragraph so that issuers no longer will be required to 
file the non-public offering statements and related amendments and 
correspondence as exhibits. Instead, Regulation A issuers will be able 
to make previously non-public documents available to the public on 
EDGAR using the same process as issuers conducting a registered 
offering. We believe that this change simplifies the process of moving 
from a draft offering statement to a publicly filed document for 
issuers conducting Regulation A offerings, saving both time and money 
for such issuers. In addition, because all previously submitted 
offering statements and related amendments and correspondence will be 
available to the public on EDGAR, rather than attached as exhibits to a 
given offering statement, this change should make it easier for 
investors to learn about the issuer and the Regulation A offering 
itself, furthering their ability to make informed investment decisions.
c. Incorporation by Reference of Previously Filed Financial Statements 
in Form 1-A for Regulation A Offerings
    The ability to incorporate financial statements by reference to 
Exchange Act reports filed before the effective date of a registration 
statement is permitted on Form S-1, subject to certain conditions.\336\ 
Specifically, General Instruction VII of Form S-1 permits registrants 
that meet certain eligibility standards \337\ to incorporate by 
reference the information required by Item 11 of Form S-1, which 
includes information about the registrant, such as, among other things, 
financial statement information meeting the requirements of 17 CFR 
210.1-01 through 12-29.\338\ Regulation A issuers, however, are 
required to include the issuer's financial statements, prepared in 
accordance with the applicable requirements of Tier 1 or Tier 2 of 
Regulation A, in their Regulation A offering circular that is 
distributed to investors.\339\
---------------------------------------------------------------------------

    \336\ See General Instruction VII to Form S-1.
    \337\ These criteria include, but are not limited to, that the 
registrant: (i) Is subject to the reporting requirements of Section 
13 or Section 15(d) of the Exchange Act, (ii) has filed all reports 
and other materials required to be filed by Sections 13(a), 14, or 
15(d) of the Exchange Act during the preceding 12 months (or for 
such shorter period that the registrant was required to file such 
reports and materials), (iii) has filed an annual report required 
under Section 13(a) or Section 15(d) of the Exchange Act for its 
most recently completed fiscal year and (iv) is not, and during the 
past three years neither it nor any of its predecessors was: (a) A 
blank check company; (b) a shell company, other than a business 
combination related shell company; or (c) offering penny stock. The 
registrant must make its periodic and current reports filed pursuant 
to Section 13 or Section 15(d) of the Exchange Act that are 
incorporated by reference pursuant to Item 11A or Item 12 of Form S-
1 readily available and accessible on a website maintained by or for 
the registrant and containing information about the registrant.
    \338\ See Item 12 to Form S-1.
    \339\ See General Rule (a) to Part F/S of Form 1-A.
---------------------------------------------------------------------------

i. Proposed Amendments
    The Commission proposed to permit issuers to incorporate previously 
filed financial statements by reference into a Regulation A offering 
circular. The Commission proposed that an issuer must satisfy criteria 
similar to the requirement in connection with Form S-1. Specifically, 
issuers that have a reporting obligation under 17 CFR 230.257 (``Rule 
257'') or the Exchange Act must be current in their reporting 
obligations. Issuers would be required to make incorporated financial 
statements readily available and accessible on a website maintained by 
or for the issuer and to disclose in the offering statement that such 
financial statements will be provided upon request.\340\ Issuers 
conducting ongoing offerings would need to continue to file post-
qualification amendments to Form 1-A annually to include the financial 
statements that would be required to be included in a Form 1-A as of 
such date.\341\ These financial statements could be either filed with 
such post-qualification amendment or incorporated by reference to a 
previously filed periodic or current report. In addition, issuers would 
remain liable for such financial statements under Section 12(a)(2) of 
the Securities Act \342\ to the same extent as if they had been filed 
rather than incorporated by reference.
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    \340\ General Instruction III(b) of Form 1-A requires the 
inclusion of a hyperlink in the offering circular to material 
incorporated by reference, which would include an issuer's 
previously filed financial statements on EDGAR.
    \341\ See 17 CFR 230.252(f)(2)(i).
    \342\ 15 U.S.C. 77l(a)(2).
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ii. Comments
    Commenters generally supported the proposal to permit incorporation 
by reference of an issuer's previously filed financial statements.\343\ 
Some commenters additionally supported permitting forward incorporation 
by reference in Regulation A,\344\ with some of these commenters 
further supporting the elimination of the requirement to file annual 
post-qualification amendments.\345\
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    \343\ See J. Clarke Letter; Republic Letter; W. Hubbard Letter; 
M. Schonberger Letter; and CrowdCheck Letter.
    \344\ See W. Hubbard Letter; M. Schonberger Letter; and 
CrowdCheck Letter.
    \345\ See M. Schonberger Letter; and CrowdCheck Letter 
(supporting elimination of post-qualification amendments where the 
auditor's consent was included in the 17 CFR 239.91 (``Form 1-K'')). 
In contrast, one commenter supported continuing to require annual 
post-qualification amendments to ensure that filings remain subject 
to ongoing staff review. See W. Hubbard Letter.
---------------------------------------------------------------------------

iii. Final Amendments
    We are adopting the amendments as proposed. We believe that 
allowing incorporation by reference of previously filed financial 
statements should decrease existing filing burdens on Regulation A 
issuers. We are not expanding Regulation A to allow for

[[Page 3532]]

forward incorporation by reference as recommended by some commenters, 
as we believe doing so could increase investor search costs and would 
eliminate the benefit of staff review of post-qualification amendments 
prior to their qualification.
d. Amendment to Abandonment Provision of Regulation A
    Regulation A permits the Commission to declare an offering 
statement abandoned, but does not provide the same authority for post-
qualification amendments.
i. Proposed Amendments
    The Commission proposed to amend the abandonment provisions of Rule 
259(b) to permit the Commission to declare a post-qualification 
amendment to an offering statement abandoned, consistent with 17 CFR 
230.479, the rule applicable to registered offerings.
ii. Comments
    Commenters who addressed the proposed amendment to the abandonment 
provisions of Rule 259(b) supported the proposal.\346\
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    \346\ See Republic Letter; and CrowdCheck Letter.
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iii. Final Amendments
    We are adopting the amendments as proposed. We continue believe 
there are situations where it is appropriate for the Commission to be 
able to declare a specific post-qualification amendment abandoned, 
instead of the entire offering statement. For example, Commission staff 
has observed some issuers attempting to use post-qualification 
amendments for separate classes of securities that are not otherwise 
being offered under the offering statement. Under the final rules, if 
an issuer fails to qualify a post-qualification amendment for such a 
separate class, but otherwise is in compliance with all of its 
Regulation A obligations, the Commission will be able to declare that 
specific post-qualification amendment abandoned so as to avoid 
potential investor confusion arising from the presence of the 
unqualified post-qualification amendment on EDGAR.
3. Confidential Information Standard
    The current requirements for registrants to file material contracts 
as exhibits to their disclosure documents permit registrants to redact 
provisions or terms of exhibits required to be filed if those 
provisions or terms are both (i) not material and (ii) would likely 
cause competitive harm to the registrant if publicly disclosed.\347\ 
The ``competitive harm'' requirement was patterned on the standard then 
being used by the U.S. Circuit Court of Appeals for the District of 
Columbia \348\ to define what information is confidential under 
Exemption 4 of the Freedom of Information Act, which protects ``trade 
secrets and commercial or financial information obtained from a person 
[if they are] privileged or confidential.'' \349\ In June 2019, the 
Supreme Court rejected the Circuit Court's longstanding test for 
determining what information was confidential under Exemption 4 and 
adopted a new definition of ``confidential'' that does not include a 
competitive harm requirement.\350\ The Supreme Court stated that ``[a]t 
least where commercial or financial information is both customarily and 
actually treated as private by its owner and provided to the government 
under an assurance of privacy, the information is `confidential' within 
the meaning of Exemption 4.'' \351\
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    \347\ See, e.g., FAST Act Modernization Release, at text 
accompanying notes 45-73 (amending paragraphs (b)(2)(ii) and 
(b)(10)(iv) of Item 601 of Reg. S-K).
    \348\ See National Parks and Conservation Association v. Morton, 
498 F.2d 765 (D.C. Cir. 1974); and National Parks and Conservation 
Association v. Kleppe, 547 F.2d 673 (D.C. Cir. 1976).
    \349\ 5 U.S.C. 552(b)(4).
    \350\ See Food Marketing Institute.
    \351\ Id. at 2366.
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a. Proposed Amendments
    The Commission proposed to adjust the exhibit filing requirements 
by removing the competitive harm requirement and replacing it with a 
standard more closely aligned with the Supreme Court's definition of 
``confidential.'' Under the proposed amendments, information may be 
redacted from material contracts if it is the type of information that 
the issuer both customarily and actually treats as private and 
confidential and that is also not material.\352\
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    \352\ The Commission proposed changes to the following rules and 
forms to update the standard: Item 601(b)(2) and (b)(10) of 
Regulation S-K; Form S-6; Form N-14; Form 20-F; Form 8-K; Form N-1A; 
Form N-2; Form N-3; Form N-4; Form N-5; Form N-6; and Form N-8B-2.
---------------------------------------------------------------------------

b. Comments
    We received no comments on the proposed amendments to revise the 
confidential information standard, other than one comment expressing 
support for the proposed revisions in the context of variable product 
registration statement forms.\353\ This commenter also suggested that 
we revise Form N-6 to expand the types of exhibits to which the 
standard would apply to include participation agreements and 
administrative contracts.\354\ The commenter stated that this would 
provide greater consistency between Form N-4, which relates to variable 
annuities, and Form N-6, which relates to variable life insurance 
contracts.\355\
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    \353\ See Letter from the Committee of Annuity Insurers dated 
May 6, 2020 (``Comm. of Annuity Insurers Letter'').
    \354\ See id.
    \355\ See id.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the amendments as proposed to adjust the exhibit 
filing requirements by removing the competitive harm requirement and 
replacing it with a standard that permits information to be redacted 
from material contracts if it is the type of information that the 
issuer both customarily and actually treats as private and 
confidential, and which is also not material.\356\
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    \356\ We did not propose, and are not adopting, changes to 17 
CFR 229.402(b) (``Item 402(b)'' of Regulation S-K). Instruction 4 to 
Item 402(b) and Instruction 2 to 17 CFR 229.402(e) (``Item 
402(e)(1)''), which reference a competitive harm standard that is 
the same as would apply under the current rules when a registrant 
requests confidential treatment of confidential trade secrets or 
confidential commercial or financial information pursuant to 17 CFR 
230.406 and 17 CFR 240.24b-2. The changes we are adopting to the 
exhibit requirements do not alter the existing standard applicable 
to Items 402(b) and 402(e) of Regulation S-K.
---------------------------------------------------------------------------

    We did not propose to revise Form N-6 to modify the types of 
exhibits to which the confidential information standard applies and 
decline to do so here. Information contained in such exhibits is 
already disclosed to investors in other contexts and, in our staff's 
experience, these exhibits do not contain confidential or proprietary 
information. Further, as part of our adoption of updated disclosure 
requirements for variable annuity and variable life insurance 
products,\357\ among other changes, the instructions to exhibits in 
Form N-6 and Form N-4 will be revised to eliminate discrepancies 
related to the categories of exhibits eligible for redaction.\358\
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    \357\ See Updated Disclosure Requirements and Summary Prospectus 
for Variable Annuity and Variable Life Insurance Contracts, Release 
No. IC-33814 (May 1, 2020) [FR 24964 (May 1, 2020)] (``VASP 
Release''). For purposes of this release, we refer to the versions 
of the relevant forms adopted by the VASP Release as the ``VASP 
amended'' versions of Forms N-3, N-4, and N-6 (e.g., ``VASP amended 
Form N-3''). The changes to the exhibit filing requirements that we 
are adopting in this release, which replace the competitive harm 
standard, also apply to the parallel instruction in each of Item 32 
of VASP amended Form N-3, Item 27 of VASP amended Form N-4, and Item 
30 of VASP amended Form N-6.
    \358\ See Instruction 3 to Item 27 of VASP amended Form N-4 
(allowing for the redaction of reinsurance contracts and other 
material contracts); see also Instruction 3 to Item 30 of amended 
Form N-6 (allowing for the redaction of reinsurance contracts and 
other material contracts). Registrants must comply with these rule 
and form amendments by January 1, 2022. See VASP Release, at Section 
II.G.

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[[Page 3533]]

E. Offering and Investment Limits

    Regulation A, Regulation Crowdfunding, and Rule 504 of Regulation D 
contain a variety of requirements and investor protections, including 
limits on the amount of securities that may be offered and sold under 
the exemptions. Regulation A and Regulation Crowdfunding also include 
limits on how much an individual may invest. The Commission has 
estimated that approximately $2.7 trillion of new capital was raised 
through exempt offering channels in 2019, of which approximately $1.3 
billion (0.05 percent) was raised under Regulation A, Regulation 
Crowdfunding, and Rule 504 combined.\359\
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    \359\ See Concept Release, at Section II. Preliminary estimates 
from 2019 similarly reflect limited capital raising under the rules, 
with $1.042 billion raised under Regulation A, $228 million under 
Rule 504, and $62 million under Regulation Crowdfunding.
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1. Regulation A
    Regulation A establishes two tiers of offerings: Tier 1, for 
offerings that do not exceed $20 million in a 12-month period; and Tier 
2, for offerings that do not exceed $50 million in a 12-month period. 
The Commission is required by Section 3(b)(5) of the Securities Act to 
review the $50 million Tier 2 offering limit specified in Section 
3(b)(2) of the Securities Act every two years, and the statute 
authorizes the Commission to increase the annual offering limit if the 
Commission determines that it would be appropriate to do so.
    Earlier this year, the Divisions of Corporation Finance and 
Economic and Risk Analysis conducted a Regulation A Lookback Study and 
Offering Limit Review Analysis (``2020 Regulation A Review'') as 
required by the 2015 Regulation A Release.\360\ The 2020 Regulation A 
Review found that from June 2015 to December 2019, $2.4 billion was 
reported raised by 183 issuers in ongoing and closed Regulation A 
offerings, including $230 million in Tier 1 and $2.2 billion in Tier 2 
offerings.\361\
---------------------------------------------------------------------------

    \360\ See Staff of the U.S. Securities and Exchange Commission, 
Report to the Commission, Regulation A Lookback Study and Offering 
Limit Review Analysis, 2020 (Mar. 4, 2020), available at https://www.sec.gov/smallbusiness/exemptofferings/rega/2020Report. The 
report includes a review of: The amount of capital raised under the 
amendments; the number of issuances and amount raised by both Tier 1 
and Tier 2 offerings; the number of placement agents and brokers 
facilitating the Regulation A offerings; the number of Federal, 
State, or any other actions taken against issuers, placement agents, 
or brokers with respect to both Tier 1 and Tier 2 offerings; and 
whether any additional investor protections appear necessary for 
either Tier 1 or Tier 2.
    \361\ Over this time period issuers sought $11.2 billion across 
487 Regulation A offerings, of which 382 were qualified offering 
statements seeking up to $9.1 billion. See 2020 Regulation A Review.
---------------------------------------------------------------------------

a. Proposed Amendments
    Since adoption of the 2015 amendments, the Commission has continued 
to receive feedback on, and has considered further enhancements to, 
Regulation A.\362\ This feedback and consideration informed our 
proposal to increase the maximum offering amount under Tier 2 of 
Regulation A from $50 million to $75 million. Consistent with the 
Commission's approach to limitations on secondary sales when adopting 
the Regulation A amendments, the Commission also proposed to increase 
the maximum offering amount for secondary sales under Tier 2 of 
Regulation A from $15 million to $22.5 million.
---------------------------------------------------------------------------

    \362\ While the Commission has received feedback from market 
participants and commenters seeking an increase in the Tier 2 
offering limit, these commenters did not seek an increase in the 
Tier 1 limit. See 2017 Forum Report; 2018 Forum Report; and A 
Financial System That Creates Economic Opportunities--Capital 
Markets (Oct. 2017), available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf (``2017 Treasury Report'').
---------------------------------------------------------------------------

b. Comments
    While most commenters that addressed the proposal supported raising 
the Tier 2 offering limits,\363\ some opposed the increase.\364\ 
Commenters supporting the increase suggested that an increase could 
encourage development of the smaller initial public offering market, 
encouraging more issuers to conduct offerings and providing more 
investment opportunities for investors.\365\ Some of these commenters 
additionally suggested that the higher offering limits would improve 
the economics for issuers and broker dealers to participate in the 
Regulation A market.\366\ A number of commenters supported raising the 
limit further to $100 million.\367\ Several commenters also 
specifically supported raising the limit for secondary sales.\368\ We 
additionally received many letters urging the Commission to provide 
Federal preemption for secondary sales of a Tier 2 Regulation A 
offering.\369\
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    \363\ See, e.g., ABA Letter; Letter from Bruce D. Wertz, Sr. 
dated Mar. 10, 2020; B. Andrews, et al. Letter; SEC SBCFAC Letter; 
Geraci Law Letter (suggesting the increased offering limits will 
attract a more seasoned pool of investors as well as institutional 
investors); Carta Letter; SAF Letter; M. Schonberger Letter; D. 
Burton Letter; InnaMed, et al. Letter; CrowdCheck Letter; IPA 
Letter; Republic Letter; and Sen. Toomey Letter. Some of these 
commenters further supported indexing additional increases for 
inflation. See, e.g., Carta Letter; IPA Letter; and Sen. Toomey 
Letter. Other commenters offered further suggestions to improve the 
offering process and raise effective offering limits. See, e.g., M. 
Schonberger Letter (recommending Regulation A be amended to apply 
the 180-day selling extension for continuous offerings to certain 
post-qualification amendment filings). See also Annual Report for 
Fiscal Year 2019: Office of the Advocate for Small Business Capital 
Formation (``2019 OASB Annual Report''), available at https://www.sec.gov/files/2019_OASB_Annual%20Report.pdf, at 41 (recommending 
that the Commission tie offering limits to expressed marketplace 
needs for capital and provide flexibility for future review and 
adjustment).
    \364\ See, e.g., CII Letter; NASAA Letter; Md. St. Bar Assoc. 
Letter; AFREF Letter; Better Markets Letter; CFA Letter; R. 
Rutkowski Letter; and CFA Institute Letter.
    \365\ See, e.g., Letter from Chamber of Digital Commerce dated 
June 1, 2020 (``Chamber of Digital Commerce Letter''); J. Clarke 
Letter; W. Hubbard Letter; CrowdCheck Letter; and Ketsal Letter.
    \366\ See, e.g., Chamber of Digital Commerce Letter, IPA Letter; 
and Hubbard Letter.
    \367\ See, e.g., J. Clarke Letter; Chamber of Digital Commerce 
Letter; Ketsal Letter; IPA Letter; Sen. Toomey Letter; Letter from 
Biotechnology Innovation Organization dated July 21, 2020; M. 
Schonberger Letter (suggesting higher offering limits reduce the 
burden on issuers by permitting them to raise more capital before 
having to file post qualification amendments or new offering 
statements); and CrowdCheck Letter. See also Carta Letter; and Sen. 
Toomey (additionally recommending indexing the limit for inflation). 
But see ABA Letter (supporting the Commission's proposed incremental 
approach and suggesting that precedent, prestige of the public 
offering process and customary use of investment bankers likely will 
mean that registered offerings will be more frequently used for 
relatively larger offerings).
    \368\ See, e.g., Carta Letter; and IPA Letter.
    \369\ See Form Letter Type A; and Carta Letter.
---------------------------------------------------------------------------

    Commenters opposed to the increase suggested that there is not 
compelling evidence supporting a need to raise the offering limit \370\ 
and stated that issuers raising such large amounts of capital should be 
subject to the full disclosure and protections provided in the 
Securities Act.\371\ One commenter expressed concern over the negative 
effects of increasing the use of Regulation A for unsophisticated non-
accredited retail investors due to what it perceived as the lower 
quality of Regulation A issuers and increased risks

[[Page 3534]]

of investor losses.\372\ Another commenter suggested that the reason 
Regulation A Tier 2 is underutilized is not that the offering limits 
are too low, but rather that the issuers and investments involve 
greater risk.\373\ Additionally, one commenter opposed to the increase 
and one commenter supporting the increase expressed concern relating to 
the Commission's use of its general exemptive authority under Section 
28 of the Securities Act to increase the limit.\374\
---------------------------------------------------------------------------

    \370\ See, e.g., CII Letter; CFA Letter; CFA Institute Letter 
(noting that issuers that have exhausted the Tier II offering limits 
have been almost exclusively real estate industry issuers, and that 
the real estate industry is one marked by significant volatility and 
risk); and Md. St. Bar Assoc. Letter (noting that the 2020 
Regulation A Review found that only approximately 10% of issuers 
conducting Regulation A Tier 2 offerings have reached the $50 
million offering limit).
    \371\ See, e.g., Md. St. Bar Assoc. Letter; CFA Institute Letter 
(suggesting the expansion of exempt offerings undermines the 
traditional trade-off between the burdens of public disclosure and 
the benefits of the right to raise capital from the general public); 
and NASAA Letter. See also R. Rutkowski Letter (suggesting that the 
proposal would weaken private offering rules in way that would 
discourage public market offerings and the associated disclosure and 
governance protections).
    \372\ See CFA Letter. See also CFA Institute Letter (expressing 
concerns with compliance by issuers in the exempt markets and its 
perception of the lower quality of issuers offering in the 
Regulation A market).
    \373\ See, e.g., NASAA Letter (recommending strengthening 
corporate governance and disclosure obligations and rescinding 
preemption of State securities regulation to increase the regulatory 
oversight of these companies making them more attractive to and 
safer for investors).
    \374\ See Better Markets Letter (opposing the increase); and 
CrowdCheck Letter (supporting the increase).
---------------------------------------------------------------------------

    Although many commenters were supportive of raising the Tier 2 
offering limits, only one commenter recommended increasing the Tier 1 
offering limit.\375\ This commenter also recommended that the 
Commission reconsider whether ``covered securities'' status under 
Section 18 of the Securities Act should be extended to Tier 1 of 
Regulation A.\376\ Other commenters that addressed Tier 1 offering 
limits, however, were generally opposed to increasing those 
limits.\377\
---------------------------------------------------------------------------

    \375\ See Chamber of Digital Commerce Letter.
    \376\ See id.
    \377\ See, e.g., CII Letter; NASAA Letter; and CrowdCheck 
Letter.
---------------------------------------------------------------------------

c. Final Amendments
    In order to facilitate use of Tier 2 Regulation A offerings and 
having considered the comments on the Proposing Release, the 2020 
Regulation A Review, feedback that the Commission received from the 
Small Business Forums \378\ and in response to the Concept Release, we 
are increasing the maximum offering amount under Tier 2 of Regulation A 
from $50 million to $75 million as proposed. Section 3(b)(5) of the 
Securities Act expressly authorizes the Commission to review and raise 
the offering limit as appropriate.\379\ Consistent with the 
Commission's approach to limitations on secondary sales when adopting 
the Regulation A amendments, we are also increasing the maximum 
offering amount for secondary sales under Tier 2 of Regulation A from 
$15 million to $22.5 million.\380\
---------------------------------------------------------------------------

    \378\ See 2017 Forum Report; and 2018 Forum Report.
    \379\ We also believe that the Commission has general exemptive 
authority under Securities Act Section 28 to raise the Regulation A 
offering limit if it finds that raising the limit is necessary or 
appropriate in the public interest and consistent with the 
protection of investors.
    \380\ The Commission observed in connection with the 2014 
amendments to Regulation A that selling security holder access to 
Regulation A has historically been an important part of the 
exemptive scheme. See Amendments for Small and Additional Issues 
Exemptions Under Section 3(b) of the Securities Act, Release No. 33-
9497 (Dec. 18, 2013) [79 FR 3925 (Jan. 23, 2014)], at Section 
II.B.3; and 2015 Regulation A Adopting Release, at Section II.B.3.c. 
Consistent with existing and historical provisions of Regulation A, 
we are continuing to permit secondary sales under Regulation A up to 
30 percent of the maximum offering amount permitted under the 
applicable tier.
---------------------------------------------------------------------------

    While the 2015 amendments have stimulated the Regulation A offering 
market, aggregate Regulation A financing levels remain modest relative 
to traditional IPOs and the Regulation D market.\381\ The 2020 
Regulation A Review noted that these financing levels are likely 
related to a combination of factors, including: The pool of issuers and 
investors drawn to the market under existing conditions; the 
availability to issuers of attractive private placement alternatives 
without an offering limit; the availability to investors of attractive 
investment alternatives outside of Regulation A with a more diversified 
pool of issuers; limited intermediary participation and a lack of 
traditional underwriting; and a lack of secondary market 
liquidity.\382\
---------------------------------------------------------------------------

    \381\ See 2020 Regulation A Review.
    \382\ See id.
---------------------------------------------------------------------------

    We are raising the Tier 2 offering limit in order to enhance the 
ability of Regulation A issuers that have exhausted existing offering 
limits to raise additional capital.\383\ Further, public commentary 
since the 2015 amendments indicates that a higher offering limit may 
help attract a larger and potentially more seasoned pool of issuers and 
intermediaries or institutional investors to the Regulation A 
market.\384\ In addition, a higher offering limit may make Regulation A 
offerings more attractive to more established Exchange Act reporting 
companies.\385\ Although some commenters suggested raising the offering 
limit to $100 million, we believe it is more appropriate to pursue an 
incremental approach to increasing the threshold,\386\ which will 
provide the Commission with a reasonable opportunity to assess the 
impact of the increased offering limit on the Regulation A market 
before considering further changes. In this regard, we note that the 
Commission is required by Section 3(b)(5) of the Securities Act to 
review and consider increasing the new $75 million Tier 2 offering 
limit every two years.\387\ In addition, we believe that the issuer 
eligibility requirements, content, and filing requirements for offering 
statements and ongoing reporting requirements for issuers in Tier 2 
Regulation A offerings continue to provide appropriate protections for 
investors at this higher offering limit. For these reasons, we believe 
that it is necessary and appropriate in the public interest and 
consistent with the protection of investors to raise the Tier 2 
offering limit as proposed.\388\
---------------------------------------------------------------------------

    \383\ The 2020 Regulation A Review estimates that approximately 
10 percent of issuers in Tier 2 offerings have reached the $50 
million offering limit across completed and ongoing offerings. See 
id. at Table 4. As discussed in the 2020 Regulation A Review and 
noted by one commenter, these issuers have primarily been from the 
real estate industry. See CFA Institute Letter. While raising the 
offering limit will permit all issuers to raise additional capital, 
we believe that the disclosure requirements of Regulation A will 
help investors to evaluate the risk of such investments.
    \384\ See, e.g., letter in response to the Concept Release from 
Committee on Securities Regulation of the Business Law Section of 
the New York State Bar Association dated Oct. 16, 2019.
    \385\ See 2020 Regulation A Review, at Section F.1. However, as 
noted in the 2020 Regulation A Review, the staff lacks data that 
would allow it to assess how a specific offering limit increase 
would affect the size and composition of the pool of prospective 
issuers, intermediaries, and investors in the Regulation A market. 
See infra Section IV.C.5.a.i.
    \386\ We note that adjusting the existing offering limit for 
inflation from 2015 to present would increase the Tier 2 offering 
limit by only $5.845 million. See 2020 Regulation A Review, at Table 
7. Such a change likely would not attract additional institutional 
investors, intermediaries, or traditional underwriters to the 
Regulation A market.
    \387\ As noted above, because of the statutory obligation to 
review the limit every two years, we do not think it is necessary to 
index the offering limit for inflation, as some commenters 
suggested. See Carta Letter; and Sen. Toomey Letter.
    \388\ We did not propose and are not increasing the Tier 1 
offering limit. While one commenter recommended an increase, we do 
not believe it is likely to result in the kinds of benefits 
discussed above that we expect may result from the increased Tier 2 
offering limit, such as attracting a larger and more seasoned pool 
of issuers and intermediaries or institutional investors to the 
Regulation A market. As discussed in the 2020 Regulation A Review, 
while an increase in the Tier 1 offering limit could draw more 
issuers to Tier 1, Tier 2 may remain more attractive to issuers due 
to, for example, preemption of state review, an easier path to 
quotation on the upper tiers of the OTC market in the presence of 
periodic reports required by Tier 2, and the flexibility to raise 
more capital without having to undergo a re-qualification. See 2020 
Regulation A Review at Section F.2. While we do not believe an 
increase is warranted at this time, we will continue to consider the 
Tier 1 offering limitation and the appropriate investor protections 
under Tier 1 when we conduct the Tier 2 offering limit review 
required by Section 3(b)(5) of the Securities Act.
---------------------------------------------------------------------------

    We note that under the final amendments, Tier 2 offerings will 
continue to be preempted from State law registration and qualification 
requirements.\389\ We believe this is

[[Page 3535]]

appropriate because we expect that Tier 2 offerings will continue to be 
more national in nature. While issuers in Tier 2 offerings are required 
to qualify offerings with the Commission before sales can be made 
pursuant to Regulation A, they are not required to register or qualify 
their offerings with State securities regulators. Section 18 of the 
Securities Act generally provides for preemption of State law 
registration and qualification requirements for ``covered securities.'' 
\390\ Section 18(b)(4)(D) of the Securities Act further provides that 
securities issued pursuant to Section 3(b)(2) of the Securities Act are 
covered securities if they are listed, or will be listed, on a national 
securities exchange or if they are offered or sold to a ``qualified 
purchaser,'' \391\ which the Commission has defined to include any 
person to whom securities are offered or sold in a Tier 2 
offering.\392\ We are not extending ``covered securities'' status under 
Section 18 of the Securities Act to Tier 1, as suggested by one 
commenter. We continue to believe that, in light of concerns raised by 
state regulators and the generally more local nature of Tier 1 
offerings, it is appropriate for the States to retain oversight over 
Tier 1 offerings.\393\
---------------------------------------------------------------------------

    \389\ Many commenters recommended preempting State securities 
law regulation of secondary trading of Regulation A securities 
issued in Tier 2 offerings. While such preemption could further 
advance the development of a national securities market by easing 
the compliance obligations of investors that trade in the secondary 
markets, we believe this recommendation merits careful consideration 
and an opportunity for market participants to receive notice and 
comment on a specific proposal. Accordingly, we are not adopting any 
changes to preemption of State securities laws for secondary trading 
at this time.
    \390\ See 15 U.S.C. 77r(c).
    \391\ See 15 U.S.C. 77r(b)(4)(D).
    \392\ See 17 CFR 230.256.
    \393\ See 2015 Regulation A Release, at Section II.H.3.
---------------------------------------------------------------------------

2. Rule 504
    Rule 504 of Regulation D provides an exemption for eligible issuers 
\394\ from registration under the Securities Act for the offer and sale 
of up to $5 million of securities in a 12-month period. In 2016, the 
Commission amended Rule 504 to raise the aggregate amount of securities 
an issuer may offer and sell in any 12-month period from $1 million to 
$5 million.\395\ From 2009 through 2019, for issuers other than pooled 
investment funds, two percent of the capital raised in Regulation D 
offerings under $5 million was offered under Rule 504 (and under Rule 
505, prior to its repeal), and 98 percent of the capital raised was 
offered under Rule 506.\396\
---------------------------------------------------------------------------

    \394\ Issuers that are required to file reports under Exchange 
Act Section 13(a) or 15(d), investment companies, blank check 
companies, and issuers that are disqualified under Rule 504's ``bad 
actor'' disqualification provisions are not eligible to use Rule 
504.
    \395\ Five million dollars is the maximum amount statutorily 
allowed under Securities Act Section 3(b)(1). See Intrastate and 
Regional Offerings Release. In light of the increased offering 
threshold under Rule 504, the Commission repealed Rule 505. Most 
issuers previously using Rule 505 are able to conduct an offering up 
to $5 million under Rule 504.
    \396\ See Proposing Release, at note 263 and accompanying text.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to use its general exemptive authority 
under Section 28 of the Securities Act to raise the maximum offering 
amount under Rule 504 from $5 million to $10 million.
b. Comments
    We received mixed comments on the proposal to raise the Rule 504 
maximum offering amount to $10 million with some commenters supporting 
\397\ and others opposing \398\ the proposal. Commenters who supported 
increasing the maximum offering amount stated that it would allow 
issuers to more easily raise capital,\399\ make offerings more cost 
effective,\400\ and encourage greater use of the exemption.\401\ One of 
these commenters additionally suggested that because Rule 504 offerings 
will remain subject to applicable federal and state securities law 
requirements, including antifraud provisions, it is reasonable to 
expect that the increase ``will not meaningfully decrease investor 
protection or incentivize bad actors to enter the marketplace.'' \402\ 
Commenters opposed to the increase stated that issuers do not use the 
full capacity under the existing limit and that an increase may not 
drive more regional multistate offerings.\403\ Commenters also 
expressed concern that the Commission's analysis of the impact of 
raising the Rule 504 limit was insufficient,\404\ and that increasing 
the limits may be detrimental to the public markets.\405\ Other 
commenters questioned the Commission's statutory authority to increase 
the limit.\406\
---------------------------------------------------------------------------

    \397\ See, e.g., ABA Letter; B. Andrews, et al. Letter; SEC 
SBCFAC Letter; Geraci Law Letter (further recommending that 
securities sold pursuant to Rule 504 be considered ``covered 
securities''); SAF Letter; Carta Letter; and Ketsal Letter. See also 
2019 OASB Annual Report, at 41 (suggesting that the Commission 
ensure that dollar amount caps used in exemptions are ``tied to 
expressed marketplace needs for capital and provide flexibility for 
future review and adjustment'').
    \398\ See, e.g., CII Letter; NASAA Letter; AFREF Letter; Better 
Markets Letter; CFA Letter; R. Rutkowski Letter; and CFA Institute 
Letter. Some of these commenters suggested that increased offering 
limits increase investor risk by creating more opportunities for 
high risk issuers to sell to unsophisticated investors. See, e.g., 
CFA Letter and CFA Institute Letter.
    \399\ See ABA Letter.
    \400\ See Carta Letter.
    \401\ See Ketsal Letter. See also Carta Letter (stating that the 
increase would make the exemption more attractive to a broader group 
of issuers).
    \402\ See ABA Letter.
    \403\ See, e.g., NASAA Letter (stating its belief that raising 
the threshold above $5 million would require issuers to comply with 
Securities Act Section 3(b)(2), which carries with it obligations 
including mandatory filing of audited financial statements with the 
Commission.); CFA Letter; and CrowdCheck Letter.
    \404\ See, e.g., CFA Letter (stating that the Commission's 
analysis lacks data or a methodological approach to determine the 
impacts of raising the offering limit); CII Letter (stating that the 
Commission's analysis fails to adequately consider the potential 
impact on long-term investors and the capital markets from expanding 
the exempt offering framework); AFREF Letter (stating that the 
Commission's analysis does not adequately analyze the negative 
effects of the amendments); and R. Rutkowski Letter.
    \405\ See, e.g., AFREF Letter; CFA Letter; R. Rutkowski Letter; 
and CFA Institute Letter.
    \406\ See, e.g., Better Markets Letter; CFA Letter; and Public 
Interest Comment Letter from Andrew N. Vollmer and Brian R. Knight, 
Mercatus Center at George Mason University dated Oct. 30, 2020 
(``Mercatus Center Letter''). See infra note 429.
---------------------------------------------------------------------------

c. Final Amendments
    Based on our consideration of the available data and the feedback 
that we received on the Concept Release, on the Proposing Release, and 
from the Small Business Capital Formation Advisory Committee, and in 
order to facilitate use of Rule 504 for capital raising, we are 
amending the rules as proposed to raise the offering limit from $5 
million to $10 million. We believe that increasing the offering limit 
in reliance on our general exemptive authority under Securities Act 
Section 28 \407\ is appropriate in the public interest because 
permitting larger offerings under Rule 504 may encourage more issuers 
to use the exemption, could encourage more issuers to conduct regional 
multistate offerings and make use of State coordinated review programs, 
and could make the exemption a more efficient capital raising option 
for smaller issuers by lowering the offering costs per dollar raised. 
At the same time, we do not believe that raising the offering limit 
would expand the private markets at the expense of the public 
markets.\408\

[[Page 3536]]

Furthermore, we believe that increasing the offering limit is 
consistent with the protection of investors because the amendments 
would not alter the significant protections applicable under Rule 504, 
such as potential State review and prohibitions on ``bad actor'' 
participation.
---------------------------------------------------------------------------

    \407\ Securities Act Section 3(b)(1) currently sets the maximum 
offering amount for small issues exempted under that section at $5 
million. See 15 U.S.C. 77c(b)(1). As explained above, we are relying 
on our general exemptive authority to raise the threshold in Rule 
504 to $10 million. We therefore do not agree with the commenter who 
stated that raising the threshold above $5 million would require 
compliance with Securities Act Section 3(b)(2).
    \408\ As discussed in Section IV.A below, Rule 504, like 
Regulation Crowdfunding, currently represents a small segment of the 
private offering market, and issuers that raise capital pursuant to 
the exemption tend to be at a much earlier stage of development than 
those that conduct a traditional initial public offering.
---------------------------------------------------------------------------

3. Regulation Crowdfunding
    Regulation Crowdfunding provides an exemption from registration for 
certain crowdfunding transactions including limits on the amount an 
issuer may raise; limits on the amount an individual may invest; and a 
requirement that the transactions be conducted through an intermediary 
that is registered as either a broker-dealer or a ``funding portal.''
    The exemption from registration provided by Section 4(a)(6) is 
available provided that ``the aggregate amount sold to all investors by 
the issuer, including any amount sold in reliance on the exemption 
provided under [Section 4(a)(6)] during the 12-month period preceding 
the date of such transaction, is not more than $1,000,000.'' Under 
Securities Act Section 4A(h), the Commission is required to adjust the 
dollar amounts in Section 4(a)(6) ``not less frequently than once every 
five years, by notice published in the Federal Register, to reflect any 
change in the Consumer Price Index for All Urban Consumers published by 
the Bureau of Labor Statistics.'' \409\ The Commission adjusted the 
maximum offering limit to $1.07 million ($1.0 million adjusted to 
reflect changes in the Consumer Price Index (``CPI'')) in 2017.\410\
---------------------------------------------------------------------------

    \409\ See 15 U.S.C. 77d(a)(6) and 15 U.S.C. 77d-1(h). See also 
17 CFR 227.100(a)(1) (``Rule 100(a)(1)'' of Regulation 
Crowdfunding).
    \410\ See Inflation Adjustments and Other Technical Amendments 
under Titles I and III of the JOBS Act (Technical Amendments; 
Interpretation), Rel. No. 33-10332 (Mar. 31, 2017) [82 FR 17545 
(Apr. 12, 2017)].
---------------------------------------------------------------------------

    In addition, Regulation Crowdfunding also limits the amount 
individual investors are allowed to invest across all Regulation 
Crowdfunding offerings over the course of a 12-month period. The 
limitation on how much an individual can invest during that period 
depends on his or her net worth and annual income and may not exceed 
$107,000. Individual investors are limited to:
     The greater of $2,200 or five percent of the lesser of the 
investor's annual income or net worth, if either of an investor's 
annual income or net worth is less than $107,000; or
     Ten percent of the lesser of his or her annual income or 
net worth, if both annual income and net worth are equal to or more 
than $107,000.\411\
---------------------------------------------------------------------------

    \411\ See 17 CFR 227.100(a)(2) (``Rule 100(a)(2)'' of Regulation 
Crowdfunding). Rule 100(a)(2) is based on the requirement in Section 
4(a)(6).
---------------------------------------------------------------------------

    Further, the offering statement for a Regulation Crowdfunding 
offering must include specified information, including a discussion of 
the issuer's financial condition and financial statements. Regulation 
Crowdfunding's financial statement requirements are based on the amount 
offered and sold in reliance on the exemption within the preceding 
twelve-month period, with progressively increasing requirements and 
involvement of outside accountants as offering size increases.\412\ On 
May 4, 2020, the Commission adopted temporary final rules under 
Regulation Crowdfunding to facilitate capital formation for small 
businesses impacted by COVID-19, which include, among other things, an 
exemption from certain financial statement review requirements for 
issuers offering $250,000 or less of securities in reliance on 
Regulation Crowdfunding within a 12-month period.\413\ These temporary 
final rules were subsequently extended and apply to offerings initiated 
under Regulation Crowdfunding between May 4, 2020, and February 28, 
2021.\414\
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    \412\ See 17 CFR 230.201(t).
    \413\ See Temporary Amendments to Regulation Crowdfunding, 
Release No. 33-10781 (May 4, 2020) [85 FR 27116 (May 7, 2020)] 
(``Temporary Amendments Adopting Release''). The amendments adopted 
in this release do not affect the application of these temporary 
final rules.
    \414\ See Temporary Amendments to Regulation Crowdfunding; 
Extension, Release No. 33-10829 (Aug. 28, 2020) [85 FR 54483 (Sept. 
2, 2020)] (``Temporary Amendments Extension''). The temporary final 
rules expire on September 1, 2021.
---------------------------------------------------------------------------

    In 2019, the Commission staff undertook a study of the available 
information on the capital formation and investor protection impacts of 
Regulation Crowdfunding. The resulting report to the Commission 
summarized quantitative information, where it was available to the 
staff, as well as qualitative observations of Commission staff and 
FINRA staff and input from market participants regarding their 
experience with Regulation Crowdfunding.\415\ The study found that 
during the considered period, the number of offerings and the total 
amount of funding were relatively modest, with issuers raising $108 
million under Regulation Crowdfunding from May 16, 2016, through 
December 31, 2018.\416\ The study also found that the typical offering 
during the considered period was small and raised less than the 12-
month offering limit.\417\
---------------------------------------------------------------------------

    \415\ See Report to the Commission: Regulation Crowdfunding 
(June 18, 2019), available at https://www.sec.gov/files/regulation-crowdfunding-2019_0.pdf (``2019 Regulation Crowdfunding Report'').
    \416\ See id.
    \417\ See id., at Section I.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to use its general exemptive authority 
under Securities Act Section 28 to raise the offering limit in 
Regulation Crowdfunding from $1.07 million to $5 million. The 
Commission also proposed to increase the investment limits for 
investors in Regulation Crowdfunding offerings. First, the Commission 
proposed to no longer apply any investment limits to accredited 
investors. The proposed amendments would treat accredited investors 
under Regulation Crowdfunding in the same manner as other exempt 
offerings. Second, the Commission proposed to amend the Regulation 
Crowdfunding calculation method for the investment limits for non-
accredited investors to allow them to rely on the greater of their 
annual income or net worth. The proposed amendment would conform this 
aspect of Regulation Crowdfunding with Tier 2 of Regulation A and would 
apply a consistent approach to limiting the potential losses investors 
may incur in offerings conducted in reliance on the two 
exemptions.\418\ The Commission did not propose to adjust the financial 
statement requirements in Regulation Crowdfunding, although the 
economic analysis in the Proposing Release considered alternatives that 
would amend these disclosure requirements and solicited comment on 
them.
---------------------------------------------------------------------------

    \418\ Under Regulation A accredited investors are not limited in 
the amount of securities they may purchase and other investors are 
limited to purchasing in a Tier 2 offering no more than: (a) Ten 
percent of the greater of annual income or net worth (for natural 
persons); or (b) ten percent of the greater of annual revenue or net 
assets at fiscal year-end (for non-natural persons). See 17 CFR 
230.251(d)(2)(i)(C). This limit does not, however, apply to 
purchases of securities that will be listed on a national securities 
exchange upon qualification.
---------------------------------------------------------------------------

b. Comments
    Commenters were broadly supportive of raising the Regulation 
Crowdfunding offering limit to $5 million.\419\ Many

[[Page 3537]]

commenters recommended raising the limit in light of economic concerns 
raised by COVID-19.\420\ Some additionally supported raising the limit 
beyond $5 million.\421\ Some commenters supportive of an increased 
offering limit also supported further action by the Commission to 
enhance compliance with Regulation Crowdfunding.\422\ In particular, 
some commenters supported relaxing the disclosure and financial 
statement requirements for smaller Regulation Crowdfunding 
offerings.\423\ Others supported Federal preemption of State securities 
law registration and qualification requirements for secondary 
sales.\424\
---------------------------------------------------------------------------

    \419\ See, e.g., B. Andrews, et al. Letter; CfPA Letter; SEC 
SBCFAC Letter; Geraci Law Letter; Letter from Crowdfund Capital 
Advisors dated May 29, 2020 (``CCA Letter'') (suggesting that 
increasing the offering limit will reduce the cost of capital and 
permit larger, more stable and lower risk issuers to use the 
exemption); Silicon Prairie Letter; Letter from Social Enterprise 
Investments, Inc. dated May 31, 2020 (``SEI Letter''); Netcapital 
Letter; Carta Letter; Republic Letter; NextSeed Letter; Chamber of 
Digital Commerce Letter; SAF Letter; Engine Letter; Raise Green & 
New Haven Comm. Solar Letter; InnaMed, et al. Letter; SeedInvest 
Letter; Crowdwise Letter; Letter from Mark Roderick dated May 31, 
2020 (``M. Roderick Letter''); Letter from Representative Patrick 
McHenry dated June 8, 2020 (``Rep. McHenry Letter''); and Sen. 
Toomey Letter. See also 2019 OASB Annual Report, at 41 (suggesting 
that the Commission ensure that dollar amount caps used in 
exemptions are ``tied to expressed marketplace needs for capital and 
provide flexibility for future review and adjustment'') and 47 
(specifically supporting an increase offering cap for Regulation 
Crowdfunding offerings, stating an increase ``would allow companies 
to raise meaningful early-stage capital using crowdfunding rather 
than limiting companies' options to a narrower set of exemptions''); 
and AOIP Letter (suggesting the Commission immediately increase the 
Regulation Crowdfunding limit in response to the COVID-19 pandemic).
    \420\ See, e.g., B. Andrews, et al. Letter; Letter from Stuart 
Halperin dated Mar. 27, 2020; Letter from Kevin Wolf dated Mar. 27, 
2020; and AOIP Letter.
    \421\ See, e.g., CCA Letter; J. Clarke Letter; SEI Letter; 
Netcapital Letter; Republic Letter; Engine Letter; Raise Green & New 
Haven Comm. Solar Letter; InnaMed, et al. Letter; and Sen. Toomey 
Letter. Some commenters further suggested indexing these new higher 
amounts for inflation. See, e.g., Carta Letter; and Sen. Toomey 
Letter.
    \422\ See, e.g., CfPA Letter (recommending funding portals be 
required to certify that they have reviewed a campaign for 
compliance prior to posting it on their platform); and M. Roderick 
Letter (recommending additional disclosure regarding target offering 
amounts).
    \423\ See, e.g., Silicon Prairie Letter (recommending relaxing 
the financial information requirements for offerings under $1 
million); CrowdCheck Letter (supporting a micro-offering tier below 
$25,000); Nextseed Letter (recommending a micro-offering tier below 
$250,000); R. Campbell Letter (recommending eliminating the burden 
of ongoing reporting requirements for small crowdfunding offerings); 
Honeycomb Letter; Letter from MainVest, Inc. dated May 7, 2020 
(recommending the requirement for reviewed financials not apply for 
offerings under $500,000); Raise Green & New Haven Comm. Solar 
Letter; M. Roderick Letter (supporting raising the threshold for 
reviewed financial statements to at least $350,000); CfPA Letter 
(recommending financial disclosures are only be required to be 
provided to the extent that they are ``material to an understanding 
of the issuer, its business and the securities being offered'') and 
Sen. Toomey Letter (supporting tailored auditing requirements). See 
also 2019 OASB Annual Report, at 48 (recommending the Commission 
reevaluate Regulation Crowdfunding's disclosure obligations, and 
specifically suggesting that ``reporting requirements could be 
simplified for companies raising under $250,000''). But see Better 
Markets Letter (expressing concern about the temporary Regulation 
Crowdfunding relief).
    \424\ See Form Letter Type A.
---------------------------------------------------------------------------

    Some commenters expressed concern or opposition to increasing the 
offering limit.\425\ A number of these commenters suggested that there 
is not compelling evidence of the need for an increase or that more 
information is needed to determine whether such an increase is 
appropriate.\426\ Some of these commenters expressed concern that the 
proposals would expand the private markets at the expense of the public 
markets.\427\ Other commenters expressed concern with compliance by 
issuers under Regulation Crowdfunding \428\ and the Commission's 
authority to increase the limit.\429\ One commenter recommended that if 
the Commission raises the threshold above the statutory limit, it 
should make clear the basis of its authority and the status of 
securities issued under the increased offering limit under State 
securities laws, such as whether those securities are ``covered 
securities'' under Section 18 of the Securities Act.\430\
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    \425\ See, e.g., Letter from Bridget Richardson dated Mar. 31, 
2020 (``B. Richardson Letter''); Letter from Jeffrey Marks, Alliance 
Legal Partners, Inc. dated Apr. 17, 2020 (``J. Marks Letter''); CII 
Letter; Md. St. Bar Assoc. Letter; AFREF Letter; Morningstar Letter 
(noting a lack of investment advice such as from a broker or 
investment adviser that investors might have access to with regard 
to an investment in a public company); Better Markets Letter; CFA 
Letter; R. Rutkowski Letter; CrowdCheck Letter (noting compliance 
failures and recommending any increase be coupled with a robust 
enforcement program); and CFA Institute Letter.
    \426\ See, e.g., CII Letter; CFA Letter; CFA Institute Letter; 
B. Richardson Letter; and Md. St. Bar Assoc. Letter.
    \427\ See, e.g., Better Markets Letter; CFA Letter; CFA 
Institute Letter; and R. Rutkowski Letter. See also J. Marks Letter 
(suggesting that larger offerings are appropriately subject to 
additional Commission oversight); CFA Letter; and CFA Institute 
Letter (suggesting that the amendments will be detrimental to retail 
investors by providing them greater access to the least attractive 
private offerings).
    \428\ See, e.g., ABA Letter (suggesting that the Commission 
should be satisfied that the crowdfunding requirements are being 
complied with before increasing the limits); CFA Letter (contending 
that the Commission has a responsibility to examine non-compliance 
in crowdfunding markets and remedy those deficiencies before 
expanding the exemption); and CrowdCheck Letter.
    \429\ See, e.g., Better Markets Letter; and CFA Letter. See also 
Mercatus Center Letter. Although the Mercatus Center Letter in 
particular was received one business day before the publicly-noticed 
open meeting at which the Commission would consider these amendments 
[Pub. L. 94-409] and long after the expiration of the comment 
period, the issues regarding our use of exemptive authority, 
including the questions raised in that letter, have been carefully 
considered. As noted above, Section 28 of the Securities Act gives 
the Commission broad authority to ``conditionally or unconditionally 
exempt any person . . . or any class or classes of persons . . . 
from any provision or provisions of'' the Securities Act and rules 
or regulations issued thereunder ``to the extent that such exemption 
is necessary or appropriate in the public interest, and is 
consistent with the protection of investors.'' 15 U.S.C. 77z-3. We 
believe that exempting additional classes of transactions above the 
statutory threshold in Section 4(a)(6) is in the public interest and 
consistent with the protection of investors for the reasons 
discussed below, and is thus consistent with the plain language of 
Section 28. In reaching this determination, we have been informed by 
the staff's experience administering Regulation Crowdfunding since 
2015, the 2019 Regulation Crowdfunding Report, and the feedback of 
numerous market participants in recent years, including in response 
to the Concept Release. Section 28 was intended to provide 
flexibility to the Commission to respond to precisely these sorts of 
market developments. See Rule 701--Exempt Offerings Pursuant to 
Compensatory Arrangements, Release No. 33-7645 (Feb. 25, 1999) 
(noting that, in enacting the National Securities Markets 
Improvement Act of 1996, Congress expected the Commission to use its 
new authority under Section 28, among other things, to raise the 
offering limit for Rule 701 compensatory offerings beyond the 
statutorily prescribed limit of $5 million). We thus view these 
amendments as appropriate and well within our statutory authority.
    \430\ See ABA Letter.
---------------------------------------------------------------------------

    Commenters that addressed the issue generally supported amending 
the rules to remove the investment limits for accredited investors 
\431\ and to use the greater of annual income or net worth in 
calculating investment limits for non-accredited investors.\432\ Some 
commenters, however, opposed removing the investment limits for 
accredited investors,\433\ or increasing the investment limits for non-
accredited

[[Page 3538]]

investors.\434\ Some commenters supporting the amendment suggested 
requiring verification of accredited investor status,\435\ while others 
were against verification standards.\436\ One commenter supporting the 
amendments to the investment limits also expressly supported not 
adjusting or increasing Regulation Crowdfunding's financial statement 
requirements.\437\
---------------------------------------------------------------------------

    \431\ See, e.g., ABA Letter; B. Andrews, et al. Letter; SEC 
SBCFAC Letter; SEI Letter; Netcapital Letter; Carta Letter; Republic 
Letter; NextSeed Letter; Chamber of Digital Commerce Letter; Engine 
Letter; Raise Green & New Haven Comm. Solar Letter; Morningstar 
Letter; InnaMed, et al. Letter; Crowdwise Letter; Rep. McHenry 
Letter; Honeycomb Letter; M. Roderick Letter; and Ketsal Letter. See 
also CrowdCheck Letter (supporting removing the limits if the 
investor protections in Regulation A are replicated in Regulation 
Crowdfunding); and AOIP Letter (suggesting the Commission 
immediately remove the investment limits for accredited investor in 
response to the COVID-19 pandemic). See also 2019 OASB Annual 
Report, at 48.
    \432\ See, e.g., ABA Letter; Letter from Regulated Funding 
Portal Industry Association dated Mar. 6, 2020; B. Andrews, et al. 
Letter; SEC SBCFAC Letter; CCA Letter; Silicon Prairie Letter 
(recommending further simplification of the threshold and use of a 
``certified investor'' designation); SEI Letter; Netcapital Letter; 
Carta Letter; Republic Letter; NextSeed Letter; Chamber of Digital 
Commerce Letter; Engine Letter; Raise Green & New Haven Comm. Solar 
Letter (recommending increasing the limit); InnaMed, et al. Letter.; 
Crowdwise Letter; CrowdCheck Letter; CfPA Letter (recommending all 
investors be permitted to invest $2,200 per transaction); and Ketsal 
Letter. Some of these commenters recommended applying the limits on 
a per offering basis. See, e.g., Crowdwise Letter; InnaMed, et al. 
Letter; Silicon Prairie Letter; and Republic Letter. See also AOIP 
Letter (suggesting the Commission immediately use the greater of 
annual income or net worth in response to the COVID-19 pandemic, and 
also suggesting the limits be applicable on a per offering basis).
    \433\ See, e.g., Letter from Jason Pampena dated May 22, 2020 
(``J. Pampena Letter'') (expressing concern that removing the 
investment limits for accredited investors will reduce investment 
opportunities for non-accredited investors).
    \434\ See, e.g., CII Letter; and Morningstar Letter 
(recommending a cautious approach to changing the investment limit 
standards and expressing concern that there is limited investment 
advice for these investors). See also NASAA Letter; and CFA Letter 
(generally opposing the amendments).
    \435\ See, e.g., J. Clarke Letter; and Raise Green & New Haven 
Comm. Solar Letter.
    \436\ See, e.g., Honeycomb Letter (supporting self-
verifications).
    \437\ See ABA Letter.
---------------------------------------------------------------------------

c. Final Amendments
    Based on our consideration of the available data, the staff's 2019 
Regulation Crowdfunding Report, and the feedback that we received on 
the Concept Release, the Proposing Release and from Small Business 
Forums \438\ and the Small Business Capital Formation Advisory 
Committee, and in order to facilitate use of Regulation Crowdfunding 
for capital raising, we are amending the rules as proposed: (1) To 
raise the issuer offering limits in Regulation Crowdfunding; and (2) to 
remove or increase the investment limits by no longer applying those 
limits to accredited investors and allowing investors to rely on the 
greater of their income or net worth in calculating their investment 
limit.\439\ We are raising the offering limit in Regulation 
Crowdfunding from $1.07 million to $5 million and are adjusting the 
investment limits in reliance on the general exemptive authority under 
Securities Act Section 28.\440\ We believe that reliance on Section 28 
to raise the offering limit is an appropriate use of our exemptive 
authority because the amendments will extend the exemption under 
Section 4(a)(6) of the Securities Act to additional classes of 
transactions (i.e., those that would cause the aggregate amount sold to 
all investors by the issuer in the 12 months preceding the transaction 
to be greater than $1 million,\441\ but not more than $5 million, and 
those involving accredited investors who invest above the statutory 
investment limits).\442\ We are also extending certain temporary rules 
relating to the financial statement requirements for Regulation 
Crowdfunding.
---------------------------------------------------------------------------

    \438\ See 2017 Forum Report; 2018 Forum Report; 2019 Forum 
Report; and 2020 Forum Report.
    \439\ We are not, as some commenters recommended, preempting 
State securities law regulation of secondary trading of securities 
issued in Regulation Crowdfunding offerings. We believe this 
recommendation merits careful consideration and an opportunity for 
market participants to receive notice and comment on a specific 
proposal.
    \440\ Securities Act Section 4(a)(6) currently sets the maximum 
offering limit at $1.07 million ($1.0 million adjusted to reflect 
changes in the CPI). See 15 U.S.C. 77d(a)(6) and 15 U.S.C. 77d-1(h). 
See also Rule 100(a)(1) of Regulation Crowdfunding.
    \441\ As adjusted for inflation pursuant to Section 4A(h) of the 
Securities Act [15 U.S.C. 77d-1(h)].
    \442\ In contrast, the change to permit non-accredited investors 
to base their investment limit on the ``greater of'' rather than the 
``lesser of'' their income or net worth is a discretionary choice 
that we are making to carry out the statutory exemption. See Section 
302(c) of the JOBS Act; Section 19(a) of the Securities Act [15 
U.S.C. 77s(a)]. In the proposing and adopting releases for 
Regulation Crowdfunding, the Commission noted the statutory 
ambiguity in Section 4(a)(6)(B) of the Securities Act as to 
application of the investment limits. See Crowdfunding Adopting 
Release, at Section II.A.2. After considering the comments received, 
the Commission adopted a ``lesser of'' standard in Regulation 
Crowdfunding. In light of our experience with Regulation 
Crowdfunding since its adoption in 2015, and concerns raised that 
the existing limits may be hampering the utility of the exemption, 
however, the Commission proposed to apply a less restrictive 
approach by using the ``greater of'' standard instead of the 
``lesser of'' standard. As discussed below, we are adopting the 
``greater of'' standard.
---------------------------------------------------------------------------

    Currently, securities issued pursuant to the exemption under 
Section 4(a)(6) are deemed to be ``covered securities'' and thus the 
offer and sale of such securities by an issuer are not subject to State 
securities law registration and qualification requirements pursuant to 
Section 18 of the Securities Act. Nevertheless, in light of questions 
raised by commenters and in order to provide certainty with respect to 
the status of the exemption and the coverage of Section 18 of the 
Securities Act, we are adding new 17 CFR 227.504 to Regulation 
Crowdfunding to provide that for purposes of Section 18(b)(3) of the 
Securities Act, a ``qualified purchaser'' means any person to whom 
securities are offered or sold pursuant to an offering under Regulation 
Crowdfunding.\443\ As securities offered and sold to qualified 
purchasers also are ``covered securities'' under Section 18 of the 
Securities Act, this amendment should remove any doubt that State 
securities law registration and qualification requirements do not apply 
to securities offered and sold under Regulation Crowdfunding, as 
amended.
---------------------------------------------------------------------------

    \443\ We believe it is appropriate to define ``qualified 
purchaser'' to include any person to whom securities are offered and 
sold pursuant to an offering under Regulation Crowdfunding. Defining 
qualified purchaser in this manner is consistent with the public 
interest because it would provide certainty as to the application of 
State securities law registration and qualification requirements. We 
also believe that offerings conducted pursuant to Regulation 
Crowdfunding, similar to Tier 2 offerings under Regulation A, are 
likely to be more national in nature. Furthermore, significant and 
appropriate investor protections would continue to apply, including 
intermediary requirements and the eligibility, disclosure, and 
ongoing reporting requirements for issuers, as discussed below. For 
similar reasons, we are also amending 17 CFR 240.12g-6 (``Rule 12g-
6'') to provide clarity with respect to the continuing application 
of that rule's conditional exemption from Section 12(g) for 
securities issued pursuant to Regulation Crowdfunding.
---------------------------------------------------------------------------

    While approximately 2,000 offerings were initiated pursuant to 
Regulation Crowdfunding in the approximately three and a half years 
from the time the exemption first became available through December 31, 
2019, market participants have expressed concern that the vitality of 
the market and the number of offerings is being constrained by the 
$1.07 million offering limit.\444\ As we noted in the Proposing 
Release, the current offering limits may not reflect current capital 
raising trends.\445\ Commenters further suggested that start-ups and 
small businesses seeking to raise between $1 million and $5 million 
need to spend ``additional time and expense pursuing other exempt 
offering types'' in addition to Regulation Crowdfunding in order to 
meet their funding needs, as the existing offering limits in Regulation 
Crowdfunding are insufficient to meet those needs.\446\ We believe that 
permitting larger offerings under Regulation Crowdfunding may encourage 
more issuers to use the exemption and could lower the offering costs 
per dollar raised,\447\ which would make the exemption a more efficient 
capital raising option for smaller issuers. At the same time, we do not 
believe that raising the offering limit would expand the private market 
at the expense of the public market. As discussed in Section IV.A 
below, Regulation Crowdfunding represents a relatively small segment of 
the private offering market, and issuers that raise capital pursuant to 
the exemption tend to be at a much earlier stage of development than 
those that conduct a traditional initial public offering. Thus, we 
anticipate these offerings will have only a marginal impact on the 
number of registered offerings.
---------------------------------------------------------------------------

    \444\ See, e.g., InnaMed Letter; SeedInvest Letter; and Letter 
from J. Vinokur, dated May 1, 2020.
    \445\ See Proposing Release, at note 231 (citing to 2019 OASB 
Annual Report, which noted companies are seeking increased capital 
to fund early-stage operations finding that the average seed funding 
increased from $1.3 million in 2010 to $5.7 million in 2018).
    \446\ See, e.g., SeedInvest Letter; and InnaMed Letter.
    \447\ See, e.g., CCA Letter.
---------------------------------------------------------------------------

    We also believe that existing Regulation Crowdfunding requirements, 
including the intermediary requirements and the eligibility, 
disclosure, and ongoing reporting requirements for issuers will 
continue to

[[Page 3539]]

provide appropriate investor protections at this higher offering limit. 
We acknowledge the concerns raised by commenters about the increased 
offering limit in light of questions regarding issuer compliance with 
existing Regulation Crowdfunding requirements. As discussed in more 
detail in Section II.B.2 above, we remind issuers and intermediaries in 
Regulation Crowdfunding offerings of their obligation to comply with 
the terms of the exemption and the serious consequences that may result 
from a failure to do so. At this time, we do not believe additional 
disclosure or other requirements on issuers or intermediaries is 
appropriate, or would necessarily be effective in addressing these 
compliance concerns.\448\ Commission staff will continue to work with 
FINRA to assess issuer and intermediary compliance with the 
requirements of Regulation Crowdfunding.
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    \448\ We note, for example, that one commenter recommended we 
require a certification from an intermediary that it has reviewed a 
campaign for compliance prior to posting it on their platform. See 
CfPA Letter. However, intermediaries are already required to have a 
reasonable basis for believing that an issuer seeking to offer and 
sell securities through the intermediary's platform complies with 
requirements of Regulation Crowdfunding.
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    For these reasons, we continue to believe that it is necessary and 
appropriate in the public interest and consistent with the protection 
of investors to raise the Regulation Crowdfunding offering limit as 
proposed.
    In response to commenters who recommended that we adjust the 
financial statement requirements or permanently adopt the temporary 
relief with respect to the financial statement review 
requirements,\449\ we are extending certain provisions of the temporary 
final rules for an additional 18 months so that they will apply to 
offerings initiated under Regulation Crowdfunding between May 4, 2020, 
and August 28, 2022.\450\
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    \449\ See, e.g., Silicon Prairie Letter (recommending relaxing 
the financial information requirements for offerings under $1 
million); Nextseed Letter (highlighting the ability under the 
temporary relief to raise up to $250,000 without need for CPA-
reviewed financials and recommending the Commission make the 
temporary relief provisions permanent as a micro-offering tier below 
$250,000); Honeycomb Letter (noting that the current financial 
statement thresholds and disclosure requirements impose additional 
costs on issuers without providing material benefit to investors--
particularly for small businesses raising under $250,000.); Letter 
from MainVest, Inc. dated May 7, 2020 (recommending the requirement 
for reviewed financials not apply for offerings under $500,000); and 
Letter from Republic dated Aug. 22, 2020 (recommending that the 
Commission permanently adopt the temporary relief or extend the 
relief for at least 12 months). See also 2019 OASB Annual Report, at 
48 (recommending the Commission reevaluate Regulation Crowdfunding's 
disclosure obligations, and specifically suggesting that ``reporting 
requirements could be simplified for companies raising under 
$250,000'').
    \450\ These amendments will be effective upon publication in the 
Federal Register and will expire on March 1, 2023. We find that 
there is good cause for the amendments to be effective immediately 
upon publication because a delay in implementation would 
substantially undermine the relief provided by the temporary rules 
and could exacerbate the existing challenges faced by many small 
businesses in need of capital to continue their operations. We also 
note that these temporary amendments grant an exemption or relieve a 
restriction. See 5 U.S.C. 553(d)(1) and (3).
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    Specifically, we are adopting new temporary Rule 201(bb) to extend 
the relief provided by existing temporary 17 CFR 227.201(z)(3), which 
applies to an eligible issuer in an offering or offerings that, 
together with all other amounts sold in Regulation Crowdfunding 
offerings within the preceding 12-month period, have, in the aggregate, 
a target offering amount of more than $107,000, but not more than 
$250,000. Such an issuer may provide financial statements of the issuer 
and certain information from the issuer's Federal income tax returns, 
both certified by the principal executive officer, in accordance with 
17 CFR 227.201(t)(1) (``Rule 201(t)(1)''), instead of the financial 
statements reviewed by a public accountant that is independent of the 
issuer that would otherwise be required by 17 CFR 227.201(t)(2) (``Rule 
201(t)(2)''). This temporary relief will apply only if reviewed or 
audited financial statements of the issuer are not otherwise available. 
In connection with the extension of this provision, we are also 
extending the disclosure requirement currently required by existing 
temporary 17 CFR 227.201(z)(1)(iii),\451\ which requires an issuer 
relying on the temporary rule to provide prominent disclosure that 
financial information certified by the principal executive officer of 
the issuer has been provided instead of financial statements reviewed 
by a public accountant that is independent of the issuer.\452\ We are 
also extending the enhanced eligibility requirements of temporary 17 
CFR 227.100(b)(7)(i) and 17 CFR 227.100(b)(7)(ii).\453\
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    \451\ As part of these amendments, we have added a new provision 
to Rule 201 to be designated as Rule 201(z), therefore we are 
renumbering existing Rule 201(z) as Rule 201(aa). See Section 
II.B.2.b.
    \452\ We are temporarily amending the introductory paragraphs to 
the section of Form C entitled ``Optional Question & Answer Format 
for an Offering Statement'' to include a reminder to issuers relying 
on these temporary rules to review and tailor their responses to 
certain questions in the Form C appropriately.
    \453\ To rely on the temporary rules, issuers must meet the 
existing eligibility criteria and also cannot have been organized 
and cannot have been operating for less than six months prior to the 
commencement of the offering. In addition, an issuer that has sold 
securities in a Regulation Crowdfunding offering in the past must 
have complied with the requirements in 15 U.S.C. 77d-1(b) (``Section 
4A(b)'') of the Securities Act and the related rules. In connection 
with the amendment to extend the eligibility criteria, we are making 
a related amendment to Rule 301, consistent with current temporary 
Rule 301(d), to require that an intermediary involved in an offering 
by an issuer that is relying on the temporary relief must have a 
reasonable basis for believing that the issuer has complied with the 
requirements of Section 4A(b) and the related requirements of 
Regulation Crowdfunding in prior offerings. For this requirement, 
the intermediary may reasonably rely on the representations of the 
issuer concerning compliance with these requirements unless the 
intermediary has reason to question the reliability of those 
representations.
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    We believe that this extension of these portions of the temporary 
final rules is appropriate, particularly in light of the significant 
challenges for small businesses that COVID-19 continues to present. We 
continue to believe that a securities offering under Regulation 
Crowdfunding may be an attractive fundraising option for some small 
businesses at this time, particularly as a means of allowing an issuer 
to make use of the internet to reach out to its customers or members of 
its local community as potential investors as well as to existing 
investors. We understand that the temporary final rules have been well 
received to date and have proven effective for some issuers to raise 
capital under the current conditions, and we have received positive 
feedback from market participants with respect to the benefits of 
current temporary Rule 201(z)(3). The extension of these provisions of 
the temporary final rules also will provide us with the opportunity to 
analyze the use of the exemption and gather additional feedback from 
issuers, investors and other market participants as we consider its 
benefits and whether to adopt the provision on a permanent basis.
    We are not adjusting, on either a temporary or permanent basis the 
financial statement requirements for offerings over $535,000. We have 
seen no evidence to indicate that investors should receive less 
information in offerings under Regulation Crowdfunding at this level, 
and continue to believe that the current requirements provide important 
information to investors. Offerings of more than $535,000 up to the 
increased $5 million offering limit will be subject to the financial 
statement requirements of 17 CFR 230.201(t)(3). We believe that this 
standard, which (1) requires the provision of audited financial 
statements similar to the requirements for other exempt offerings with 
higher

[[Page 3540]]

offering limits, and (2) currently applies to issuers offering more 
than $535,000 of their securities, is sufficient for offerings subject 
to the increased $5 million offering limit.
    We are amending the rules as proposed to remove or increase the 
investment limits for investors in Regulation Crowdfunding 
offerings.\454\ First, we are amending the rules to no longer apply any 
investment limits to accredited investors. Commenters generally 
supported increasing the investment limits of accredited 
investors.\455\ In addition, the 2018 Small Business Forum recommended 
that the Commission increase the investment limits for all 
investors,\456\ and the 2017, 2018, and 2019 Small Business Forums, the 
SEC Small Business Capital Formation Advisory Committee, and the 2017 
Treasury Report all recommended that the investment limits not apply to 
accredited investors, who face no such limits under other 
exemptions.\457\
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    \454\ Consistent with the current approach to investment limits, 
an issuer may rely on efforts that an intermediary is required to 
undertake in order to determine that the investor is an accredited 
investor, or that the aggregate amount of securities purchased by an 
investor does not cause the investor to exceed the investment 
limits, provided that the issuer does not have knowledge that the 
investor has exceeded, or will exceed, the investment limits as a 
result of purchasing securities in the issuer's offering. See 
Instruction 3 to 17 CFR 270.100(a)(2) of Regulation Crowdfunding.
    \455\ See supra note 431. Only one commenter expressed a 
specific concern regarding increasing the investment limits of 
accredited investors. See J. Pampena Letter. We believe, however, 
that rather than decreasing investment opportunities for non-
accredited investors, permitting more investment by accredited 
investors may lead to a more robust market for offerings under 
Regulation Crowdfunding, which would provide more and better 
opportunities for non-accredited investors.
    \456\ See 2018 Forum Report.
    \457\ See, e.g., 2017 Treasury Report, at 41; 2018 Forum Report; 
2017 Forum Report, at 17; Recommendation of the SEC Small Business 
Capital Formation Advisory Committee regarding Regulation 
Crowdfunding (Dec. 13, 2019), available at https://www.sec.gov/spotlight/sbcfac/recommendation-regulation-crowdfunding.pdf. See 
also Final Report of the 2015 SEC Government-Business Forum on Small 
Business Capital Formation (Nov. 2015), available at https://www.sec.gov/info/smallbus/gbfor34.pdf (recommending increasing the 
investment limit for accredited investors). In conjunction with 
removing the investment limits for individual accredited investors, 
the 2018 Small Business Forum recommended verification of accredited 
investor status.
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    When the Commission considered investment limits for Tier 2 
Regulation A offerings, it determined that such limitations were 
unnecessary for accredited investors because these individuals satisfy 
certain criteria that suggest they are capable of protecting themselves 
in transactions that are exempt from registration under the Securities 
Act.\458\ For similar reasons, we believe that investment limits for 
accredited investors under Regulation Crowdfunding are 
unnecessary.\459\ Accordingly, we believe it is appropriate in the 
public interest and consistent with the protection of investors to 
treat accredited investors under Regulation Crowdfunding in the same 
manner as other exempt offerings.
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    \458\ See 2015 Regulation A Release, at note 145 and 
accompanying text.
    \459\ While a few commenters suggested that we add an accredited 
investor verification requirement, we believe that a verification 
requirement is unnecessary. See, e.g., J. Clarke Letter; and Raise 
Green & New Haven Comm. Solar Letter. In making this determination, 
we note that there is no accredited investor verification 
requirement with respect to investors participating in Regulation A 
or other exempt offerings outside of offerings seeking to rely on 
Rule 506(c) and that Regulation Crowdfunding, like Regulation A, 
layers in additional protections for investors, such as required 
reporting and the use of intermediaries, that are not provided to 
investors in offerings relying on Rule 506(c).
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    Second, we are amending the Regulation Crowdfunding calculation 
method for the investment limits for non-accredited investors to allow 
them to rely on the greater of their annual income or net worth. 
Currently, Regulation Crowdfunding imposes a limit that is the lesser 
of a percentage of the investor's annual income or net worth subject to 
an absolute maximum of $107,000.\460\ Some market participants 
recommended basing the limits on the greater of the investor's net 
worth or income, noting that the accredited investor definition only 
requires the investor to meet either the net worth or the income 
standard.\461\ Commenters on the proposal also generally supported 
increasing these investment limits.\462\
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    \460\ Rule 100(a)(2) of Regulation Crowdfunding is based on the 
requirement in Section 4(a)(6) that provides an exemption where the 
aggregate amount sold to an investor by an issuer does not exceed a 
given percentage of the annual income or net worth of such investor. 
The statutory language does not expressly provide that the investor 
use the lesser of annual income or net worth.
    \461\ See supra note 457.
    \462\ See supra note 432. While one commenter expressed concern 
about raising the investment limits for non-accredited investors and 
recommended that the Commission undertake any such changes 
cautiously, we believe that making this incremental change 
appropriately allows investors greater flexibility in making choices 
relating to their investments and risk tolerance choices, while 
still retaining substantial loss limitation standards through a 
consistent approach to investment limits across Regulation A and 
Regulation Crowdfunding. See Morningstar Letter.
---------------------------------------------------------------------------

    When adopting Regulation Crowdfunding, the Commission considered 
whether to use a ``greater of'' or ``lesser of'' standard for the 
exemption's investment limits and determined to use the ``lesser of'' 
standard at that time due to concerns about investors incurring 
unaffordable losses.\463\ By contrast, when the Commission considered 
investment limits for Tier 2 Regulation A offerings, it determined to 
permit investors to look to a percentage of the greater of their annual 
income or net worth.\464\ At that time, the Commission indicated that 
limiting the amount of securities that a non-accredited investor can 
purchase in a particular Tier 2 offering should help to mitigate 
concerns that such investors may not be able to absorb the potential 
loss of the investment and that a limitation based on a percentage of 
the greater of such investor's net worth/net assets and annual income/
revenue is generally consistent with similar maximum investment 
limitations placed on investors in Title III of the JOBS Act and would 
help set a loss limitation standard in such offerings.\465\ The 
amendment conforms Regulation Crowdfunding with Tier 2 of Regulation A 
and applies a consistent approach to limiting potential losses 
investors may incur in offerings conducted in reliance on the two 
exemptions. In light of our experience with Regulation Crowdfunding 
since its adoption and the concerns that the existing investment limits 
may be hampering the utility of the exemption, we believe it is 
appropriate to use this less restrictive approach. Additionally, this 
change provides investors with more flexibility in making their 
investment decisions. Moreover, we are not aware of evidence since 
Regulation Crowdfunding's adoption to indicate this market requires a 
more stringent approach to investment limits than other exemptive 
regimes.\466\
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    \463\ See Crowdfunding Adopting Release, at Section II.A.2.c.
    \464\ See 17 CFR 230.251(d)(2)(i)(C)(2); and 2015 Regulation A 
Release, at Section II.B.4.
    \465\ See Section 301 of the JOBS Act; and 2015 Regulation A 
Release, at notes 161 and 162 and accompanying text.
    \466\ See 2019 Regulation Crowdfunding Report, at Section 
III.C.3.
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F. Regulation Crowdfunding and Regulation A Eligibility

    The Commission's exempt offering framework includes specific 
eligibility restrictions excluding certain types of entities or 
activities by issuers that apply to both Regulation A \467\ and

[[Page 3541]]

Regulation Crowdfunding.\468\ While Regulation Crowdfunding does not 
restrict the types of securities eligible to be sold under the 
exemption, the types of securities eligible for sale under Regulation A 
are limited to equity securities, debt securities, and securities 
convertible or exchangeable to equity interests, including any 
guarantees of such securities.\469\ The Commission proposed to amend 
Regulation Crowdfunding:
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    \467\ See 17 CFR 230.251(b). Regulation A is not available to: 
Issuers that are organized in or have their principal place of 
business outside of the United States or Canada; investment 
companies registered or required to be registered under the 
Investment Company Act or business development companies; blank 
check companies; issuers of fractional undivided interests in oil or 
gas rights, or similar interests in other mineral rights; issuers 
that are required to, but that have not, filed with the Commission 
the ongoing reports required by the rules under Regulation A during 
the two years immediately preceding the filing of a new offering 
statement (or for such shorter period that the issuer was required 
to file such reports); issuers that are or have been subject to an 
order by the Commission denying, suspending, or revoking the 
registration of a class of securities pursuant to Section 12(j) of 
the Exchange Act that was entered within five years before the 
filing of the offering statement; or issuers subject to ``bad 
actor'' disqualification under 15 CFR 230.262.
    \468\ Section 4A specifically excludes: Non-U.S. issuers; 
issuers that are required to file reports under Exchange Act Section 
13(a) or 15(d); certain investment companies; and other issuers that 
the Commission, by rule or regulation, determines appropriate. See 
15 U.S.C. 77d-1. Regulation Crowdfunding further excludes: Issuers 
disqualified under disqualification provisions that are 
substantially similar to those in 17 CFR 230.506(d) (``Rule 
506(d)''); issuers that have failed to comply with the annual 
reporting requirements under Regulation Crowdfunding during the two 
years immediately preceding the filing of the offering statement; 
and blank check companies. See 17 CFR 227.100(b).
    \469\ See 17 CFR 230.261 (``Rule 261''). Regulation A also 
specifically excludes asset-backed securities. See Rule 251 
(providing that only ``eligible securities'' can be offered or sold 
under Regulation A); and Rule 261 (defining ``eligible 
securities''). An asset-backed security generally means a security 
that is primarily serviced by the cash flows of a discrete pool of 
receivables or other financial assets, either fixed or revolving, 
that by their terms convert into cash within a finite time period, 
plus any rights or other assets designed to assure the servicing or 
timely distributions of proceeds to the security holders. See 17 CFR 
229.1101(c).
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     To permit the use of certain special purpose vehicles to 
facilitate investing in Regulation Crowdfunding issuers; and
     To limit the securities eligible to be sold under 
Regulation Crowdfunding.
    The Commission additionally proposed to amend Regulation A to 
exclude Exchange Act registrants that are delinquent in their Exchange 
Act reporting obligations from relying on the exemption.
1. Regulation Crowdfunding Eligible Issuers
    Section 4A(f)(3) of the Securities Act prohibits investment 
companies, as defined in the Investment Company Act (or companies that 
are excluded from the definition of an investment company under section 
3(b) or 3(c) of the Investment Company Act), from using the Regulation 
Crowdfunding exemption. When adopting Regulation Crowdfunding, the 
Commission did not create, as suggested by some commenters, an 
exception to this statutory prohibition that would have allowed a 
single purpose fund organized to invest in, or lend money to, a single 
company, to use Regulation Crowdfunding.\470\ As a result, issuers may 
not use special purpose vehicles that invest in a single company 
(``SPVs'') that are investment companies (or companies that are 
excluded from the definition of an investment company under section 
3(b) or 3(c) of the Investment Company Act) to conduct Regulation 
Crowdfunding offerings. Investors purchasing securities in an offering 
under Regulation Crowdfunding thus must hold the securities in their 
own name, which can create certain practical impediments to issuers' 
use of Regulation Crowdfunding. For example, we understand that a large 
number of investors on an issuer's capitalization table can be 
unwieldy, creating administrative complexities and potentially impeding 
future financing.\471\
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    \470\ See Crowdfunding Adopting Release, at 71397. In explaining 
its decision, the Commission stated that the primary purpose of 
Section 4(a)(6) is to facilitate capital formation by early stage 
companies that might not otherwise have access to capital, and 
expressed its belief that investment companies did not constitute 
the type of issuer that Section 4(a)(6) and Regulation Crowdfunding 
were intended to benefit. Id.
    \471\ See Concept Release, at Section II.F.1.a. See also 
Proposing Release, at note 323 and accompanying text (noting that 
commenters on the Concept Release stated that it can be difficult to 
obtain consent or approval from hundreds of investors as it relates 
to governance issues, strategic decisions, and later financing 
rounds).
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a. Proposed Amendments
    The Commission proposed to add a new exclusion under the Investment 
Company Act for limited-purpose crowdfunding vehicles (``crowdfunding 
vehicles''). Proposed Rule 3a-9 under the Investment Company Act would 
exclude from the definition of ``investment company'' under that Act a 
crowdfunding vehicle that meets certain conditions designed to require 
that it function as a conduit for investors to invest in a business 
that seeks to raise capital through a crowdfunding vehicle.\472\ As a 
result, Section 4A(f)(3) of the Securities Act would not preclude an 
SPV that meets this definition of a crowdfunding vehicle from relying 
on Regulation Crowdfunding.
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    \472\ See proposed Rule 3a-9(a). A crowdfunding vehicle 
complying with the proposed rule would not be an investment company 
as defined in the Investment Company Act or an entity that is 
excluded from the definition of investment company by section 3(b) 
or section 3(c) of that Act, and would therefore not be precluded 
from relying on Regulation Crowdfunding by Section 4A(f)(3) of the 
Securities Act. See 17 CFR 227.100(b)(3).
---------------------------------------------------------------------------

    In proposing this exclusion, the Commission expressed its belief 
that proposed Rule 3a-9 would be consistent with the intent of Section 
4(a)(6) because it would not be aimed at allowing investment companies 
or similar issuers to raise capital, but rather, solely at facilitating 
crowdfunding offerings by eligible issuers, and under the proposed 
rule, a crowdfunding vehicle would serve merely as a conduit for 
investors to invest in a single underlying issuer and would not have a 
separate business purpose. The proposed crowdfunding vehicle was 
intended to allow investors in the vehicle to achieve the same economic 
exposure, voting power, and ability to assert State and Federal law 
rights, and receive the same disclosures under Regulation Crowdfunding, 
as if they had invested directly in the underlying issuer in an 
offering made under Regulation Crowdfunding. The proposed approach also 
would allow an eligible issuer (``crowdfunding issuer'') to maintain a 
simplified capitalization table and, by reducing the administrative 
complexities associated with a large and diffuse shareholder base, may 
encourage crowdfunding issuers to offer voting rights, or other terms 
not currently offered as frequently to investors.\473\
---------------------------------------------------------------------------

    \473\ See Proposing Release, at note 328.
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    Proposed Rule 3a-9 defined a crowdfunding issuer as a company that 
seeks to raise capital as a co-issuer in an offering with a 
crowdfunding vehicle that complies with all of the requirements under 
Section 4(a)(6) of the Securities Act and Regulation Crowdfunding.\474\ 
The Commission also proposed to define a crowdfunding vehicle as an 
issuer \475\ formed by or on behalf of a crowdfunding issuer for the 
purpose of conducting an offering under Section 4(a)(6) of the 
Securities Act as a co-issuer with the crowdfunding issuer, which 
offering would be controlled by the crowdfunding issuer. The proposed 
limitations on the nature and scope of the crowdfunding vehicle's 
activities were designed to ensure that

[[Page 3542]]

the crowdfunding vehicle would function as a means for the crowdfunding 
issuer to raise capital rather than as an independent investment 
vehicle that would be subject to regulation under the Investment 
Company Act.
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    \474\ As co-issuers, the crowdfunding issuer and crowdfunding 
vehicle would be jointly relying on Regulation Crowdfunding for the 
combined offering of the crowdfunding issuer's securities and the 
crowdfunding vehicle's securities to the investors. See, e.g., 17 
CFR 230.140. The crowdfunding issuer would also rely on Regulation 
Crowdfunding, and the Form C filed in connection with the offering 
of the crowdfunding vehicle's securities, for the offering of its 
securities to the crowdfunding vehicle.
    \475\ Under the Investment Company Act, an issuer means every 
person who issues or proposes to issue any security, or has 
outstanding any security which it has issued. See 15 U.S.C. 80-
2(a)(22).
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    The proposed rule included several conditions for crowdfunding 
vehicles intended to address specific investor protection concerns 
raised by a vehicle that acts as a conduit for investments in a 
crowdfunding issuer.\476\ Specifically, under the proposed rule, the 
crowdfunding vehicle:
---------------------------------------------------------------------------

    \476\ See generally proposed Rule 3a-9(a) for the proposed 
conditions.
---------------------------------------------------------------------------

     Must be organized and operated for the sole purpose of 
acquiring, holding, and disposing of securities issued by a single 
crowdfunding issuer and raising capital in one or more offerings made 
in compliance with Regulation Crowdfunding;
     Would not be permitted to borrow money and would be 
required to use the proceeds of the securities it sells solely to 
purchase a single class of securities of a single crowdfunding issuer;
     Would be permitted to issue only one class of securities 
in one or more offerings under Regulation Crowdfunding in which the 
crowdfunding vehicle and the crowdfunding issuer are deemed to be co-
issuers under the Securities Act;
     Would be required to obtain a written undertaking from the 
crowdfunding issuer to fund or reimburse the expenses associated with 
the crowdfunding vehicle's formation, operation, or winding up, and the 
crowdfunding vehicle would not be permitted to receive other 
compensation, and any compensation paid to any person operating the 
vehicle would be required to be paid solely by the crowdfunding issuer;
     Would be required to maintain the same fiscal year end as 
the crowdfunding issuer, and maintain a one-to-one relationship between 
the number, denomination, type and rights of crowdfunding issuer 
securities it owns and the number, denomination, type and rights of its 
securities outstanding;
     Would be required to vote the crowdfunding issuer 
securities, and participate in tender or exchange offers or similar 
transactions, only in accordance with instructions from the investors 
in the crowdfunding vehicle;
     Would receive all of the disclosures and other information 
required under Regulation Crowdfunding from the crowdfunding issuer and 
would then be required promptly to provide such disclosures and 
information to the investors and potential investors in the 
crowdfunding vehicle's securities and to the relevant intermediary; and
     Would be required to provide to each investor the right to 
direct the crowdfunding vehicle to assert the rights under State and 
Federal law that the investor would have if he or she had invested 
directly in the crowdfunding issuer and provide each investor any 
information that it receives from the crowdfunding issuer as a 
shareholder of record of the crowdfunding issuer.
    Under the proposal, the crowdfunding issuer and the crowdfunding 
vehicle would be co-issuers under the Securities Act, meaning each 
would be deemed to be the maker of any statements by the crowdfunding 
vehicle and any material misstatements or omissions with respect to the 
offering.\477\ As co-issuers, the crowdfunding issuer and the 
crowdfunding vehicle would be required to jointly file a Form C, 
providing all of the required Form C disclosure with respect to (i) the 
offer and sale of the crowdfunding issuer's securities to the 
crowdfunding vehicle and (ii) the offer and sale of the crowdfunding 
vehicle's securities to investors.\478\
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    \477\ See, e.g., 17 CFR 230.140. The crowdfunding vehicle's 
business would consist only of the purchase of securities of the 
crowdfunding issuer, and it would use the sale of its own securities 
to make such purchases of securities of the crowdfunding issuer.
    \478\ The Commission proposed to amend Rule 201 of Regulation 
Crowdfunding and Form C to require disclosure about the co-issuer in 
the offering statement. Because the crowdfunding vehicle would only 
be acting as a conduit for the crowdfunding issuer, we did not 
believe that the individual investment limitations under Regulation 
Crowdfunding should apply to transfer of the securities from the 
crowdfunding issuer to the crowdfunding vehicle. In addition, the 
amount of securities issued by the crowdfunding issuer to the 
crowdfunding vehicle would not reduce the amount of securities that 
could be offered and sold to the investors in the crowdfunding 
vehicle for purposes of the offering limit in Rule 100(a) of 
Regulation Crowdfunding.
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    Finally, the Commission specifically considered, but did not 
propose, requiring that a registered investment adviser manage the 
crowdfunding vehicle. The Commission stated that it did not propose 
this requirement because of concerns that it could make the 
crowdfunding vehicle more than a conduit to hold the securities of the 
crowdfunding issuer and because of questions regarding economic 
feasibility.\479\
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    \479\ See Proposing Release, at Section II.F.1.
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b. Comments
    Commenters generally supported permitting crowdfunding issuers to 
use crowdfunding vehicles,\480\ while a few commenters were 
opposed.\481\ One commenter stated that crowdfunding vehicles would 
help issuers manage the large number of direct investors that can 
result from an offering under Regulation Crowdfunding and provide 
smaller investors with more leverage to negotiate better terms and 
protections.\482\ Another commenter stated that SPVs may make 
crowdfunding safer and more profitable for investors, which could 
attract more capital and thereby offer more opportunities for 
startups.\483\
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    \480\ See, e.g., Wefunder Letter; SEC SBCFAC Letter; CCA Letter; 
J. Clarke Letter; SEI Letter; NextSeed Letter; W. Hubbard Letter; 
Engine Letter; Raise Green & New Haven Comm. Solar Letter; D. Burton 
Letter; Rep. McHenry Letter; CrowdCheck Letter; and ABA Letter. See 
also 2019 OASB Annual Report, at 48.
    \481\ See CII Letter; and CFA Letter (stating that allowing the 
use of SPVs ``would further undermine transparency of private 
offerings and further erode incentives private companies have to 
become public companies once they have acquired a large and widely 
dispersed shareholder base.'').
    \482\ See ABA Letter. See also J. Clarke Letter (stating that 
the proposal would encourage issuers to offer voting rights to 
investors).
    \483\ See Engine Letter.
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SPV Structure
    Several commenters, while supportive of allowing crowdfunding 
issuers to use SPVs, questioned whether the proposed crowdfunding 
vehicle was structured appropriately.\484\ Some commenters stated that 
the proposed structure was too prescriptive and costly, with little 
benefit to either investors or issuers.\485\ For example, one commenter 
stated that investing through an SPV may have tax implications for 
certain investments and administrative burdens related to how the SPV 
is structured.\486\
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    \484\ See e.g., Wefunder Letter; CrowdCheck Letter; Crowdwise 
Letter; and D. Burton Letter.
    \485\ See Wefunder Letter; D. Burton Letter; and CrowdCheck 
Letter.
    \486\ See Crowdwise Letter (stating that the proposed approach 
would create a Schedule K-1 burden for issuers with respect to SPVs 
organized as limited liability companies, and disadvantage investors 
by disqualifying them from certain preferential tax treatment).
---------------------------------------------------------------------------

    Several commenters proposed alternative structures. One commenter 
suggested that an exempt reporting adviser (``ERA'') should be able to 
form SPVs.\487\ This commenter also stated that an appropriately 
structured SPV should include a compensated lead investor associated 
with the ERA.\488\

[[Page 3543]]

Other commenters suggested that a crowdfunding vehicle should be 
managed by a registered investment adviser, ERA, or ``compensated 
administrator'' with a fiduciary duty to investors.\489\ Some 
commenters stated that the Commission would need to address certain 
issues before a registered investment adviser would be interested in 
participating in this market, such as compliance with the Custody 
Rule.\490\ Other commenters opposed requiring a registered investment 
adviser to manage the SPV,\491\ with one commenter stating that the 
associated costs might deter small-medium enterprises, community 
groups, or women- and minority-owned businesses from utilizing an 
SPV.\492\ One commenter suggested that a funding portal would be better 
situated to manage a crowdfunding vehicle due to the vehicle's small 
size.\493\ Another commenter stated that many small investors do not 
want to spend time reading legal documents to authorize corporate 
actions and would rather authorize a lead investor to make such 
decisions.\494\ Finally, one commenter suggested using an ``SEC-
registered transfer agent'' as a custodian, with the ``portal entity'' 
paying all associated costs.\495\
---------------------------------------------------------------------------

    \487\ See Wefunder Letter. The commenter also requested guidance 
from the Commission that, in the absence of an ERA-advised SPV 
structure, an SPV would be permitted to hire a registered investment 
adviser that does not custody securities and that is permitted to 
charge performance fees to Regulation Crowdfunding investors, 
provided that certain conditions are met.
    \488\ An ERA is an investment adviser that qualifies for the 
exemption from registration under Section 203(l) of the Advisers Act 
because it is an adviser solely to one or more venture capital 
funds, or under 17 CFR 275.203(m)-1 because it is an adviser solely 
to private funds and has assets under management in the United 
States of less than $150 million. See Exemptions for Advisers to 
Venture Capital Funds, Private Fund Advisers With Less Than $150 
Million in Assets Under Management, and Foreign Private Advisers, 
Release No. IA-3222 (June 22, 2011) [76 FR 39646 (July 6, 2011)]. 
This commenter stated that the Commission should create a ``new 
class'' of ERAs that are exempt from registration for an 
``investment adviser to one or more crowdfunding vehicles'' that 
would be able to receive incentive compensation (and share such 
compensation with a lead investor), and as such not be subject to 
the audit requirement under 17 CFR 275.206(4)-2 (the ``Custody 
Rule''), which would otherwise make the arrangement uneconomical. 
See Wefunder Letter.
    \489\ See CrowdCheck Letter; NextSeed Letter (stating that a 
registered investment adviser or ERA could ensure all legal, 
regulatory and tax requirements of operating the vehicle are 
fulfilled); and NASAA Letter (stating rule should require the SPV be 
managed by a registered investment adviser or another fiduciary 
manager).
    \490\ See CrowdCheck Letter; and Wefunder Letter.
    \491\ See J. Clarke Letter; W. Hubbard Letter; and Raise Green & 
New Haven Comm. Solar. Letter.
    \492\ See Raise Green & New Haven Comm. Solar Letter.
    \493\ See id.
    \494\ See Wefunder Letter.
    \495\ See id.
---------------------------------------------------------------------------

SPV Conditions
    Most commenters generally supported permitting crowdfunding issuers 
to use crowdfunding vehicles but suggested certain modifications to the 
proposed conditions.\496\ For example, two commenters stated that they 
supported the proposed conditions and restrictions designed to require 
the crowdfunding vehicle act as a conduit for investors to invest in a 
single crowdfunding issuer.\497\ One of these commenters also supported 
the required redemption of the crowdfunding vehicle's securities upon a 
liquidity event at the crowdfunding issuer level.\498\ However, another 
commenter stated that the rule should not limit the number of issuers 
in which a crowdfunding vehicle can invest.\499\ Similarly, several 
commenters stated that the rule should permit investment advisers to 
form funds for non-accredited investors that invest in multiple 
crowdfunding issuers.\500\ Additionally, commenters suggested allowing 
crowdfunding vehicles to issue more than one class of securities.\501\
---------------------------------------------------------------------------

    \496\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New 
Haven Comm. Solar Letter; CrowdCheck Letter; and SEI Letter.
    \497\ See J. Clarke Letter; and W. Hubbard Letter.
    \498\ See W. Hubbard Letter.
    \499\ See SEI Letter.
    \500\ See Hubbard Letter; Raise Green & New Haven Comm. Solar 
Letter (noting that this approach would decrease investors' risk by 
spreading their capital over multiple offerings and increase the 
ease with which an issuer could raise capital, as it would be 
``directed from one investment adviser and could be done in a 
recurrent fashion.''); and CrowdCheck Letter.
    \501\ See Raise Green & New Haven Comm. Solar Letter (also 
opposing requiring a crowdfunding vehicle to redeem or offer to 
repurchase its securities if there is a liquidity event at the 
crowdfunding issuer level and the requirement in the proposal that 
the crowdfunding issuer pay the costs of the crowdfunding vehicle); 
and W. Hubbard Letter. But see CrowdCheck Letter (stating that 
crowdfunding vehicles do not need to have multiple classes of 
securities since they are likely to be formed as series limited 
liability companies).
---------------------------------------------------------------------------

    Commenters were generally supportive of the proposed conditions 
intended to provide investors in the crowdfunding vehicle the same 
economic exposure, voting power, and Regulation Crowdfunding 
disclosures as if the investors had invested directly in the 
crowdfunding issuers, but some suggested certain modifications.\502\ 
Some commenters also supported deeming the crowdfunding vehicle and the 
crowdfunding issuer to be co-issuers for purposes of the Securities 
Act.\503\ One commenter also suggested that over time the Commission 
should lessen the rule's restrictions.\504\
---------------------------------------------------------------------------

    \502\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New 
Haven Comm. Solar Letter; and CrowdCheck Letter.
    \503\ See Raise Green & New Haven Comm. Solar Letter; and 
CrowdCheck Letter.
    \504\ See W. Hubbard Letter.
---------------------------------------------------------------------------

    One commenter supported requiring crowdfunding vehicles to maintain 
a one-to-one relationship between the crowdfunding issuer securities it 
owns and the crowdfunding vehicle securities outstanding to provide 
investors in the crowdfunding vehicle the same economic exposure as 
they had invested directly in the crowdfunding issuer.\505\ Other 
commenters opposed this one-to-one requirement.\506\
---------------------------------------------------------------------------

    \505\ See J. Clarke Letter.
    \506\ See CrowdCheck letter (stating that exact replication of 
rights is not possible since a crowdfunding issuer may be a 
corporation, an LLC or a limited partnership formed under the laws 
of any State or territory, while the crowdfunding vehicle will have 
to be a pass-through entity); and Raise Green & New Haven Comm. 
Solar Letter.
---------------------------------------------------------------------------

    Commenters generally supported the proposal's requirement that the 
crowdfunding vehicle be required to seek instructions from its 
investors to vote the crowdfunding issuer securities it holds, and to 
participate in tender or exchange offers or similar transactions 
conducted by the crowdfunding issuer.\507\ One commenter opposed this 
requirement, and asked the Commission to fully articulate what actions 
the SPV will take on behalf of its investors or, alternatively, to 
adopt a principles-based rule that would require the SPV to take all 
actions directed by its investors collectively.\508\ One commenter 
suggested that the crowdfunding vehicle should automatically vote with 
the majority to simplify the voting process.\509\ Other commenters 
stated that the rule should also address appraisal rights and allow for 
proxies.\510\
---------------------------------------------------------------------------

    \507\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New 
Haven Comm. Solar Letter; and CrowdCheck Letter.
    \508\ See NASAA Letter.
    \509\ See J Clarke Letter.
    \510\ See W. Hubbard Letter; and Raise Green & New Haven Comm. 
Solar Letter.
---------------------------------------------------------------------------

    Commenters generally supported the proposed rule's disclosure 
requirements.\511\ One commenter stated that the disclosures would 
improve compliance with ongoing reporting requirements under Regulation 
Crowdfunding by requiring the crowdfunding issuer to provide mandated 
information.\512\ Another commenter stated that the proposed 
requirements would provide shareholders with the necessary information 
to determine whether to direct the crowdfunding vehicle to assert 
Federal and State rights for shareholders and would adequately pass 
through such rights.\513\
---------------------------------------------------------------------------

    \511\ See J. Clarke Letter; W. Hubbard Letter; and CrowdCheck 
Letter.
    \512\ See CrowdCheck Letter.
    \513\ See Hubbard Letter. The commenter also stated that while 
disclosure in writing of the differences may suffice from a 
substantive standpoint, ``the mechanics and funding for vehicle 
operations will likely require, from an operational standpoint, a 
separate vehicle account with funds deemed sufficient for such 
purposes.'' See id.

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[[Page 3544]]

Form C Filings
    Commenters supported requiring crowdfunding issuers and 
crowdfunding vehicles to jointly file a Form C, and several commenters 
noted its simplicity and efficiency.\514\ One commenter also stated 
that having both parties file the same Form C and the same Form C-AR 
would reduce market confusion, help investors access information more 
easily, and assist the administrator of the crowdfunding vehicle in 
enforcing the crowdfunding issuer's ongoing reporting obligations.\515\
---------------------------------------------------------------------------

    \514\ See J. Clarke Letter; SEI Letter; W. Hubbard Letter; Raise 
Green & New Haven Comm. Solar Letter; and CrowdCheck Letter (noting 
that filing obligations of the crowdfunding issuer and the 
crowdfunding vehicle should be coterminous and coordinated).
    \515\ See CrowdCheck letter.
---------------------------------------------------------------------------

    Some commenters supported requiring a crowdfunding issuer to file 
its own Form C if it is separately offering securities through a 
crowdfunding vehicle and directly to investors.\516\ The commenters 
were concerned a joint filing in these circumstances could lead to 
investor confusion. Other commenters opposed this approach, stating 
that a joint form in these circumstances is necessary to focus the 
investment on the venture, instead of the crowdfunding vehicle.\517\
---------------------------------------------------------------------------

    \516\ See W. Hubbard Letter; Raise Green & New Haven Comm. Solar 
Letter; and CrowdCheck Letter.
    \517\ See J. Clarke Letter; and SEI Letter.
---------------------------------------------------------------------------

Treatment Under Other Sections of the Securities Laws
    The Commission stated in the Proposing Release that a crowdfunding 
vehicle may constitute a single record holder for purposes of Section 
12(g) of the Exchange Act, rather than treating each of the 
crowdfunding vehicle's investors as record holders, which would be the 
case if they had invested in the crowdfunding issuer directly, and 
solicited comment on the appropriate treatment.\518\ Commenters 
generally supported treating a crowdfunding vehicle as a single record 
holder for Section 12(g) purposes.\519\ Some of these commenters stated 
that treating crowdfunding vehicles as a single record-holder for 
Section 12(g) eases record-keeping, capital structures, and entity 
development \520\ and is consistent with what they believed to be the 
intent of Section 12(g).\521\ Commenters opposing this treatment stated 
that they were concerned that it would allow private companies to avoid 
going public and therefore reduce market transparency.\522\
---------------------------------------------------------------------------

    \518\ See Proposing Release, at Request for Comment 76 and text 
accompanying notes 420 and 421.
    \519\ See Wefunder Letter (also requesting clarification that it 
is permissible for a securities intermediary to hold securities in 
``street name,'' and that ``that those beneficial owners don't count 
towards the 12(g) threshold.''); J. Clarke Letter; Carta Letter 
(noting that securities issued pursuant to Regulation Crowdfunding 
are conditionally exempted from Section 12(g)'s holder of record 
limit, but commending the Commission for proposing that the SPV be 
treated as a single holder of record to minimize any concerns around 
this threshold for those issuers who may have concerns.); W. Hubbard 
Letter; Raise Green & New Haven Comm. Solar Letter; and CrowdCheck 
Letter. See also 2019 OASB Annual Report, at 48 (suggesting that 
allowing SPVs to be used in Regulation Crowdfunding offerings would 
mitigate concerns related to Section 12(g)).
    \520\ See W. Hubbard Letter.
    \521\ See Raise Green & New Haven Comm. Solar Letter.
    \522\ See CFA Letter; and AFREF letter.
---------------------------------------------------------------------------

    The Proposing Release requested comment on whether the Commission 
should further address the status of a crowdfunding vehicle and persons 
operating the vehicle for purposes of the definition of broker under 
Section 3(a)(4) of the Exchange Act or dealer under Section 3(a)(5) of 
the Exchange Act. Commenters addressing the issue agreed that further 
clarity would be helpful but suggested differing approaches.\523\
---------------------------------------------------------------------------

    \523\ See J. Clarke Letter (requesting the Commission clarify 
that the portal platform is acting as the broker, since the SPV is 
not taking dealer inventory risk); W. Hubbard Letter (suggesting 
``[a] regulatorily conclusive presumption at some point statutorily 
codified may be helpful.''); Raise Green & New Haven Comm. Solar 
Letter (stating a need for ``a safe harbor to assure a crowdfunded 
issuer and for the intermediary that neither would trigger 
registration as a broker under Section 15(a) of the Exchange 
Act.''); and CrowdCheck Letter (stating that ``a [registered 
investment adviser] operating a crowdfunding vehicle . . . would not 
be a broker-dealer and that it would be appropriate for the 
Commission to confirm that doing so would not result in the operator 
being required to register as either a broker or a dealer.'').
---------------------------------------------------------------------------

    Finally, with respect to the proposed definition of ``crowdfunding 
issuer,'' one commenter stated that it was unclear in the proposed rule 
whether the offering or the crowdfunding vehicle would be required to 
comply with all of the requirements of Section 4(a)(6) of the 
Securities Act and Regulation Crowdfunding.\524\
---------------------------------------------------------------------------

    \524\ See ABA Letter (suggesting that the rule text be revised 
to state ``a company that seeks to raise capital as a co-issuer with 
a crowdfunding vehicle in an offering that complies with all of the 
requirements under Section 4(a)(6) of the Securities Act and 
Regulation Crowdfunding'').
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting Rule 3a-9 under the Investment Company Act, 
substantially as proposed, to exclude from the definition of 
``investment company'' under that Act a crowdfunding vehicle that meets 
certain conditions designed to require that it function as a conduit 
for investors to invest in a business that seeks to raise capital 
through a crowdfunding vehicle. After considering the comments on the 
proposed structure and alternative structures commenters suggested, we 
believe that the ``conduit'' structure we proposed is consistent with 
the intent of Section 4(a)(6). We also continue to believe that this 
conduit structure would address concerns associated with managing the 
potentially large number of direct investors that could result from a 
crowdfunding offering.\525\
---------------------------------------------------------------------------

    \525\ In particular, the crowdfunding vehicle may be able to 
appear as a single entry on the crowdfunding issuer's capitalization 
table. Several commenters stated that the permitting crowdfunding 
vehicles would help solve the ``messy cap table'' issues. See 
CrowdCheck Letter; and W. Hubbard Letter.
---------------------------------------------------------------------------

    While some commenters suggested requiring a registered investment 
adviser or ERA to manage a crowdfunding vehicle, we do not believe this 
condition is necessary from an investor protection perspective given 
the conditions set forth in Rule 3a-9. For similar reasons, we do not 
believe it is necessary to create a new exemption from registration 
with the Commission for advisers to crowdfunding vehicles.\526\ 
Collectively, the conditions in the rule require the crowdfunding 
vehicle to act solely as a conduit by limiting the scope of the 
activities in which the crowdfunding vehicle can engage, and 
restricting the compensation it can receive. In particular, Rule 3a-9's 
conditions are designed to limit the crowdfunding vehicle's activities 
to that of acting solely as a conduit to directly hold the securities 
of the crowdfunding issuer without the ability for independent 
investment decisions to be made on behalf of the crowdfunding vehicle.
---------------------------------------------------------------------------

    \526\ See Wefunder Letter.
---------------------------------------------------------------------------

    Consistent with the concerns raised by commenters with respect to 
costs, we also continue to believe that it would not be economically 
feasible to require a registered investment adviser to manage the 
vehicle.\527\ For example, we believe that compliance with the Custody 
Rule, coupled with the small size of the typical crowdfunding offering 
\528\ and the fees and other expenses associated with operating a 
registered investment adviser, would

[[Page 3545]]

not make it economically feasible for a registered investment adviser 
to serve as the manager of a crowdfunding vehicle. As some commenters 
suggested, requiring an adviser to manage the crowdfunding vehicle, 
along with the associated costs, also could deter small to medium 
enterprises, or women- or minority-owned businesses, which may not have 
access to such investment advisory expertise, from using the 
crowdfunding vehicle.\529\ It is also unlikely that a registered 
investment adviser could receive performance-based compensation for 
managing a crowdfunding vehicle, since the typical crowdfunding 
investor may not meet the threshold to qualify as a qualified 
client.\530\ We similarly do not believe that it would be economically 
feasible to require an ERA to manage the vehicle. Given that one of our 
objectives is for an investor to achieve the same economic exposure as 
if he or she had invested directly in the crowdfunding issuer, we 
continue to believe that it is not appropriate for investors in the 
crowdfunding vehicle to bear directly the cost of any compensation paid 
to any person operating the vehicle, and we are not convinced that the 
issuer would be willing to bear the additional cost associated with 
hiring an investment adviser, whether registered or exempt from 
registration.
---------------------------------------------------------------------------

    \527\ See Proposing Release, at text accompanying note 349.
    \528\ Between May 16, 2016, and December 31, 2018, the average 
Regulation Crowdfunding offering had a maximum offering amount of 
approximately $577,385 and raised approximately $208,300 (see 2019 
Regulation Crowdfunding Report, at 4), with a maximum offering size 
of $1.07 million pursuant to Rule 100(a)(1) of Regulation 
Crowdfunding.
    \529\ See Raise Green & New Haven Comm. Solar Letter.
    \530\ 17 CFR 275.205-3 permits registered investment advisers to 
receive performance-based compensation only when the client is a 
qualified client. The rule's definition of ``qualified client'' 
includes a natural person who, or a company that, immediately after 
entering into the investment contract has at least $1,000,000 under 
the management of the investment adviser, and a natural person who, 
or a company that, the investment adviser entering into the 
investment contract (and any person acting on his behalf) reasonably 
believes, immediately prior to entering into the contract, has a net 
worth (together, in the case of a natural person, with assets held 
jointly with a spouse) of more than $2,100,000 (exclude the value of 
a person's primary residence and certain associated debt).
---------------------------------------------------------------------------

    We also do not believe that we should expand the scope of the 
activities in which the crowdfunding vehicle can engage and allow a 
compensated lead investor to make decisions on behalf of all investors. 
We believe this approach would be inconsistent with the ``conduit'' 
structure we are using to ensure that there is no material difference 
between an investment in the crowdfunding issuer and the crowdfunding 
vehicle. We also are concerned that a compensated lead investor may not 
serve as an advocate for the interests of other investors in the 
vehicle, given the potential conflicts of interest that could arise 
between the lead investor and other investors in the vehicle. For 
similar reasons, a ``SEC-registered transfer agent'' structure is 
inconsistent with the ``conduit'' structure we are adopting in this 
release.\531\
---------------------------------------------------------------------------

    \531\ The commenter also requested guidance from the Commission 
on two additional issues that we believe are outside the scope of 
this rulemaking. See supra notes 493 and 517.
---------------------------------------------------------------------------

    We recognize that there are costs associated with organizing and 
maintaining the crowdfunding vehicle under Rule 3a-9. However, we 
believe these costs and burdens are necessary to provide investors in 
the crowdfunding vehicle the same economic exposure, voting power, and 
ability to assert State and Federal law rights, and receive the same 
disclosures under Regulation Crowdfunding, as if they had invested 
directly in the crowdfunding issuer. As discussed in Section IV.C.6 
below, because the use of the crowdfunding vehicle structure will be 
voluntary, we expect issuers to use a crowdfunding vehicle only when an 
issuer determines that the benefits justify the costs. The balance of 
these tradeoffs is likely to vary depending on a number of factors, 
including the issuer's offering experience, potential for raising 
follow-on financing from a large investor, costs associated with the 
creation and administration of the crowdfunding vehicle, and the number 
of small investors participating in the crowdfunding offering.
    Some commenters recommended that we permit advisers to form funds 
for non-accredited investors to invest in multiple crowdfunding 
issuers, effectively creating a ``private fund'' like structure for 
non-accredited investors. This ``fund'' structure is inconsistent with 
the ``conduit'' nature of the crowdfunding vehicle structure in Rule 
3a-9, which underlies the limited exemption from Section 3(a) of the 
Investment Company Act that we are adopting. In addition, this conduit 
nature also protects investors by simply passing along the same 
exposures, rights and disclosures as if they had invested directly in 
the crowdfunding issuer in an offering made under Regulation 
Crowdfunding.\532\
---------------------------------------------------------------------------

    \532\ See Raise Green & New Haven Comm. Solar Letter.
---------------------------------------------------------------------------

    In response to the commenter who stated that it was unclear whether 
the offering or the crowdfunding vehicle would be required to comply 
with applicable requirements, we are slightly modifying the definition 
of ``crowdfunding issuer'' from the proposal to clarify that the 
crowdfunding issuer is acting as a co-issuer with the crowdfunding 
vehicle and the combined offering of the crowdfunding issuer's 
securities and the crowdfunding vehicle's securities must comply with 
of Section 4(a)(6) of the Securities Act and Regulation Crowdfunding.
    In order to clarify that we do not intend to permit a crowdfunding 
vehicle to invest in another crowdfunding vehicle, creating a multi-
tier structure to invest in one crowdfunding issuer, we are slightly 
modifying proposed Rule 3a-9(a)(1) to specify that crowdfunding 
vehicles must be organized and operated for the sole purpose of 
directly acquiring, holding, and disposing of securities issued by a 
single crowdfunding issuer and raising capital in one or more offerings 
made in compliance with Regulation Crowdfunding. As discussed below, we 
believe this is appropriate given our treatment of the crowdfunding 
vehicle under Section 12(g) of the Exchange Act in order to prevent a 
multi-tier crowdfunding vehicle from further excluding investors from 
the Section 12(g) calculation.
    In response to commenters who requested guidance on this point, we 
are clarifying that a crowdfunding vehicle and persons operating the 
vehicle will not implicate the broker-dealer registration requirements 
of Section 15(a) of the Exchange act so long as the crowdfunding 
vehicle and persons operating the vehicle limit their activities solely 
to those permitted by new Rule 3a-9. Under Rule 3a-9, the crowdfunding 
vehicle would be a co-issuer formed by or on behalf of the underlying 
crowdfunding issuer to serve merely as a conduit for investors to 
invest in the crowdfunding issuer and will not have a separate business 
purpose. Issuers generally are not considered to be ``brokers'' within 
the meaning of Section 3(a)(4) of the Exchange Act because they sell 
securities for their own accounts and not for the accounts of others; 
nor are issuers generally considered to be ``dealers'' within the 
meaning of Section 3(a)(5) of the Exchange Act because they do not buy 
and sell their securities for their own accounts as part of a regular 
business. Further, given the limited activities in which a crowdfunding 
vehicle may engage under Rule 3a-9 and, in particular, the limitations 
17 CFR 270.3a-9(a)(4) places on the receipt of compensation by and the 
payment of compensation to the crowdfunding vehicle, the Commission 
similarly does not believe that a person operating the crowdfunding 
vehicle in accordance with Rule 3a-9 would be in the business of 
effecting securities transactions for the account of others, or in the 
business

[[Page 3546]]

of buying and selling securities for the account of the crowdfunding 
vehicle.
    We are adopting the conditions, as proposed, to address specific 
investor protection concerns raised by a vehicle that acts as a conduit 
for investments in a crowdfunding issuer.\533\ While some commenters 
suggested modifications to these conditions to expand the crowdfunding 
vehicle's permissible investments, we believe these capabilities would 
make the crowdfunding vehicle more like a traditional investment fund, 
rather than merely a conduit entity for a single issuer consistent with 
its purpose. For the same reasons, we also do not believe that it is 
appropriate to permit the crowdfunding vehicle to issue different 
securities for different rounds of a Regulation Crowdfunding offering 
or to issue multiple classes of securities. Additionally, consistent 
with the crowdfunding vehicle's purpose as a conduit, the rule will 
require the crowdfunding vehicle to redeem or offer to repurchase its 
securities if there is a liquidity event at the crowdfunding issuer 
level since its reason for existence will cease on the occurrence of 
such liquidity event.
---------------------------------------------------------------------------

    \533\ See 17 CFR 270.3a-9(a) (``Rule 3a-9(a)'').
---------------------------------------------------------------------------

    We disagree with one commenter's suggestion that we eliminate the 
requirement that the crowdfunding issuer pay the costs of the 
crowdfunding vehicle.\534\ The crowdfunding vehicle provides direct 
benefits to the crowdfunding issuer, such as reducing capitalization 
table concerns and providing for greater efficiency for the 
administration of a large and diffuse investor base, and we believe 
that it is appropriate for the crowdfunding issuer itself to bear the 
direct costs of the crowdfunding vehicle. Additionally, requiring 
investors in the crowdfunding vehicle to bear directly the costs of the 
crowdfunding vehicle would be inconsistent with our goal of providing 
those investors with the same economic exposure as if they had invested 
directly in the crowdfunding issuer given the conduit nature of the SPV 
structure.
---------------------------------------------------------------------------

    \534\ See Raise Green & New Haven Comm. Solar Letter. A third-
party (e.g., a funding portal) could contribute to the issuer's 
coverage of these costs, as long as the crowdfunding issuer, and not 
the crowdfunding vehicle, ultimately bears the costs.
---------------------------------------------------------------------------

    As one commenter pointed out, because investors are investing in 
the crowdfunding vehicle, and not directly in the crowdfunding issuer, 
there may be slight differences in the rights in the crowdfunding 
vehicle that investors receive.\535\ However, we do not believe these 
slight differences in rights should in any way affect the ability of 
the crowdfunding vehicle to issue securities with rights that are 
materially indistinguishable from the rights a direct investor in the 
crowdfunding issuer would have. The rule as adopted will require a one-
to-one relationship between the number, denomination, type and rights 
of crowdfunding issuer securities the crowdfunding vehicle owns and the 
number, denomination, type, and rights of its securities outstanding to 
ensure that there is no material difference in rights between investing 
in the crowdfunding vehicle and investing directly in the crowdfunding 
issuer. This requirement is designed to ensure that the crowdfunding 
vehicle maintains its character as a conduit to the crowdfunding 
issuer.
---------------------------------------------------------------------------

    \535\ See CrowdCheck Letter (stating that the exact replication 
of the rights attached to the securities of the crowdfunding issuer 
is impossible because of, for example, possible differences in legal 
structure and state of incorporation).
---------------------------------------------------------------------------

    With respect to a commenter's concerns regarding voting, we do not 
believe that the rule is too narrow with respect to the specific 
actions the crowdfunding vehicle is required to take, nor do we think 
it is too ambiguous with respect to the assertion of investor 
rights.\536\ The rule's voting conditions were designed to provide 
flexibility, knowing that it is impossible to anticipate every possible 
action that a crowdfunding vehicle will need to take in its lifespan. 
Furthermore, in response to one commenter's suggestion that we address 
appraisal rights,\537\ we believe that the assertion of such rights is 
captured under the prong of the rule that provides each investor the 
right to direct the crowdfunding vehicle to assert the rights under 
State and Federal law that the investor would have if he or she had 
invested directly in the crowdfunding issuer.\538\
---------------------------------------------------------------------------

    \536\ See NASAA Letter.
    \537\ See W. Hubbard Letter.
    \538\ See 17 CFR 270.3a-9(a)(9).
---------------------------------------------------------------------------

    We recognize that permitting the crowdfunding vehicle to vote 
automatically with the majority or permitting the crowdfunding 
investors to otherwise delegate voting authority may simplify the 
voting process.\539\ However, we do not believe the rule should permit 
either approach to voting because both would be inconsistent with the 
vehicle's purpose, which is to act merely as a conduit and not an 
independent investment entity like a fund or other similar investment 
vehicle. Furthermore, we do not believe that a registered investment 
adviser is necessary to assert rights attendant to an investment in the 
issuer as the ability to assert such rights (and the flow through of 
information related to thereto) will pass directly to investors as if 
they were direct investors in the crowdfunding issuer.\540\
---------------------------------------------------------------------------

    \539\ See J. Clarke Letter; W. Hubbard Letter.
    \540\ See CrowdCheck Letter (suggesting this is an area where a 
pro-active registered investment adviser could better provide 
investor protection).
---------------------------------------------------------------------------

    We are adopting as proposed the requirement that crowdfunding 
vehicles jointly file a Form C with the crowdfunding issuer,\541\ as 
opposed to requiring that each file a separate Form C or only requiring 
the crowdfunding vehicle to file a Form C. We continue to believe that 
by jointly filing a Form C describing both transactions and providing 
disclosure about both co-issuers, investors will be provided all 
information necessary to analyze both their direct investment in the 
crowdfunding vehicle and the terms of the crowdfunding vehicle's 
investment in the crowdfunding issuer.\542\ This approach also will 
allow investors to review the entire business of the crowdfunding 
issuer and crowdfunding vehicle in one location (avoiding any confusion 
that could arise if the crowdfunding vehicle and crowdfunding issuer 
provided separate disclosure on the separate transactions, for example, 
on separate Forms C).
---------------------------------------------------------------------------

    \541\ See amended Rule 201 of Regulation Crowdfunding and Form 
C.
    \542\ See 17 CFR 227.201(m). See also J. Clarke Letter; SEI 
Letter; W. Hubbard Letter; Raise Green & New Haven Comm. Solar 
Letter; and CrowdCheck Letter.
---------------------------------------------------------------------------

    Additionally, we agree with commenters that supported requiring a 
crowdfunding issuer to file its own Form C if it is separately offering 
securities both through a crowdfunding vehicle and directly to 
investors, and are therefore clarifying this in Rule 203(a)(1). We 
believe that to do otherwise, as noted by commenters, would likely be 
confusing to investors and overcomplicate and unnecessarily burden the 
preparation, compliance, and related administrative responsibilities of 
both the crowdfunding issuer and the crowdfunding vehicle. We do not 
believe, as one opposing commenter suggested, that having two Form Cs 
in this context would only promote confusion, as each separate offering 
would have its own corresponding Form C.
    As stated in the Proposing Release, we continue to believe that, 
because the crowdfunding vehicle is only acting as a conduit for the 
crowdfunding issuer, the individual investment limitations under 
Regulation Crowdfunding should not apply to transfer of the securities 
from the crowdfunding issuer to the

[[Page 3547]]

crowdfunding vehicle.\543\ In addition, we do not believe that the 
amount of securities issued by the crowdfunding issuer to the 
crowdfunding vehicle should reduce the amount of securities that could 
be offered and sold to the investors in the crowdfunding vehicle for 
purposes of the offering limit in Rule 100(a) of Regulation 
Crowdfunding. To clarify this treatment of the transfer of securities 
from the crowdfunding issuer to the crowdfunding vehicle, we are 
amending 17 CFR 227.100(d) to state that a crowdfunding vehicle is not 
considered an investor for the purposes of Regulation Crowdfunding.
---------------------------------------------------------------------------

    \543\ See Proposing Release, at note 333.
---------------------------------------------------------------------------

    After considering comments, we have determined that a crowdfunding 
vehicle should constitute a single record holder in the crowdfunding 
issuer for purposes of Section 12(g) of the Exchange Act, but only to 
the extent that all investors in the crowdfunding vehicle are natural 
persons. As a result, we are adopting amendments to Exchange Act Rule 
12g5-1. New Rule 12g5-1(a)(9) will specify that, for purposes of 
determining whether a crowdfunding issuer is required to register a 
class of equity securities with the Commission pursuant to Section 
12(g)(1) of the Exchange Act, a crowdfunding issuer may exclude 
securities issued by a crowdfunding vehicle in accordance with Rule 3a-
9 that are held by natural persons, but must include securities issued 
by a crowdfunding vehicle that are held by investors that are not 
natural persons.\544\ The same provision will also apply to a 
crowdfunding vehicle, which is a separate legal entity from the 
crowdfunding issuer and itself is subject to Section 12(g). In 
connection with this new provision, we are also amending Rule 12g5-
1(a)(2) to clarify that a crowdfunding issuer that makes use of Rule 
3a-9 should look to new Rule 12g5-1(a)(9), even though the crowdfunding 
vehicle may otherwise have been considered a corporation, partnership, 
trust or other organization for purposes of Rule 12g5-1(a)(2). 
Regardless of the crowdfunding vehicle's Section 12(g) treatment, under 
the final rules, investors in the crowdfunding vehicle will have the 
same economic exposure, voting power, and ability to assert State and 
Federal law rights, and receive the same disclosures under Regulation 
Crowdfunding, as if they had invested directly in the crowdfunding 
issuer.
---------------------------------------------------------------------------

    \544\ For purposes of the crowdfunding vehicle's calculation of 
holders of record, such non-natural persons will be treated the same 
way they would be if they held the crowdfunding issuer's securities 
directly.
---------------------------------------------------------------------------

    We believe that this treatment of natural person and non-natural 
person investors is appropriate in light of the novel crowdfunding 
issuer-crowdfunding vehicle structure we are adopting and the types of 
offerings the Crowdfunding exemption was intended to facilitate.\545\ 
It recognizes that the crowdfunding vehicle is a separate organization, 
holding the crowdfunding issuer securities in its own name, but by 
counting non-natural persons differently reduces the risk that the 
structure is used by either the crowdfunding issuer or the crowdfunding 
vehicle to further exclude investors from the Section 12(g) 
calculation.
---------------------------------------------------------------------------

    \545\ See Crowdfunding Adopting Release, at note 2 and text 
accompanying note 2 (discussing the intent of the crowdfunding 
provisions of the JOBS Act to help provide startups and small 
businesses with capital by making relatively low dollar offerings of 
securities, featuring relatively low dollar investments by the 
``crowd,'' less costly).
---------------------------------------------------------------------------

    Although commenters expressed concern that treating the 
crowdfunding vehicle as a single entity for Section 12(g) purposes 
would allow crowdfunding issuers to delay having to register a class of 
equity securities under Section 12(g) and reduce transparency, we do 
not believe it is necessary to require a crowdfunding issuer to ``look 
through'' the crowdfunding vehicle to count all of the holders in the 
vehicle. While this may result in some crowdfunding issuers being able 
to delay Exchange Act registration, we note that, as is the case for 
any Regulation Crowdfunding issuer, if the crowdfunding issuer and 
crowdfunding vehicle both meet the terms of Rule 12g-6, they will be 
able to rely on that conditional exemption. As a result, only the 
largest issuers that sell securities under Regulation Crowdfunding are 
likely to trigger a Section 12(g) registration requirement at any time, 
regardless of the approach we are adopting. Further, we believe that 
concerns about transparency are mitigated by the existing ongoing 
reporting requirements of Regulation Crowdfunding, which are tailored 
to the types of issuers and offerings the exemption is intended to 
accommodate.\546\ Finally, not counting natural persons holding through 
the crowdfunding vehicle as holders for Section 12(g) purposes also has 
no impact on the requirement that investors in the crowdfunding vehicle 
receive the same disclosures as if they had invested directly in the 
crowdfunding issuer, ensuring that the investors have the full 
transparency into the crowdfunding issuer required by Regulation 
Crowdfunding.
---------------------------------------------------------------------------

    \546\ See, e.g., Crowdfunding Adopting Release, at Section 
II.B.1.a.(1)(b)(iii) (noting that issuers engaging in crowdfunding 
transactions may have businesses at various stages of development in 
different industries, and the need for flexibility for these issuers 
regarding what information they disclose about their businesses).
---------------------------------------------------------------------------

    We also do not agree with the commenter that suggested that the 
proposed crowdfunding vehicle is a complex and costly way to have one 
record holder for the purposes of Section 12(g) without benefits to the 
issuer that still needs to communicate with possibly thousands of 
strangers to make corporate decisions. Rule 3a-9 allows issuers to 
shift the administrative burden to the crowdfunding vehicle, meaning 
the crowdfunding vehicle could engage a third party (such as a funding 
portal) to handle the burden of communicating with investors regarding 
votes and for other administrative matters.
2. Regulation Crowdfunding Eligible Securities
    Unlike Regulation A, which limits the types of securities eligible 
for sale to equity securities, debt securities, and securities 
convertible or exchangeable to equity interests, including any 
guarantees of such securities,\547\ Regulation Crowdfunding does not 
restrict the type of security that may be offered and sold in reliance 
on the exemption. As a result, issuers using Regulation Crowdfunding 
have offered and sold a number of non-traditional securities, such as 
Simple Agreements for Future Equity (``SAFEs''), Simple Agreements for 
Future Tokens, and certain revenue sharing agreements.
---------------------------------------------------------------------------

    \547\ See 17 CFR 230.261.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to amend Regulation Crowdfunding to 
harmonize the rule with Regulation A and limit the types of securities 
that may be offered under the exemption to correspond with the eligible 
securities provision of Regulation A. As proposed, the types of 
securities eligible for sale in an offering under Regulation 
Crowdfunding would be limited to equity securities, debt securities, 
and securities convertible or exchangeable to equity interests, 
including any guarantees of such securities.
b. Comments
    Commenters were divided on whether to revise Regulation 
Crowdfunding to restrict the securities eligible under the exemption to 
those included in Regulation A's list of eligible securities. Some 
commenters generally supported harmonizing the eligible securities

[[Page 3548]]

under the two exemptions,\548\ while other commenters supported 
harmonizing the exemptions by citing concerns regarding the use of 
SAFEs.\549\ One of the commenters who supported harmonizing the 
eligible securities under the two exemptions specifically stated that 
``tokenized securities and other forms of digital assets should not be 
included as eligible securities under Regulation Crowdfunding'' as they 
pose particular risks to investors.\550\ A number of commenters 
specifically opposed revising Regulation Crowdfunding to track the 
securities eligible under Regulation A.\551\ Of these commenters, many 
recommended there be no restrictions on the types of securities that 
can be offered under Regulation Crowdfunding.\552\
---------------------------------------------------------------------------

    \548\ See, e.g., ABA Letter; SEI Letter; SEC SBCFAC Letter; 
Wefunder Letter; and Letter from Y Combinator dated May 29, 2020 
(``Y Combinator Letter''). Some of these commenters supported 
harmonization but indicated that SAFEs should be allowed under 
Regulation Crowdfunding. See Wefunder Letter; and Y Combinator 
Letter.
    \549\ See, e.g., CrowdCheck Letter; and CFA Letter.
    \550\ See ABA Letter (expressing concern that non-traditional 
securities can create confusion for retail investors and potentially 
jeopardize the reputation of the Regulation Crowdfunding market and 
further recommending that tokenized securities and other forms of 
digital assets should not be included as eligible securities under 
Regulation Crowdfunding due to the continued regulatory uncertainty 
and risks that they pose to investors and issuers).
    \551\ See, e.g., J. Clarke Letter; W. Hubbard Letter; Letter 
from Shane Hadden dated May 26, 2020 (``S. Hadden Letter''); Silicon 
Prairie Letter; Chamber of Digital Commerce Letter; Letter from 
Vezzit, Inc. dated July 13, 2020 (``Vezzit Letter''); Raise Green & 
New Haven Comm. Solar Letter; and Ketsal Letter.
    \552\ See, e.g., S. Hadden Letter; Silicon Prairie Letter; 
Chamber of Digital Commerce Letter; Vezzit Letter; Raise Green & New 
Haven Comm. Solar Letter; and Ketsal Letter.
---------------------------------------------------------------------------

    Commenters were similarly divided on whether to permit SAFEs under 
Regulation Crowdfunding. A number of commenters generally opposed 
revising the Regulation Crowdfunding eligible securities to 
specifically prohibit the offering and selling of SAFEs.\553\ These 
commenters suggested that prohibiting the use of SAFEs under Regulation 
Crowdfunding would limit the usefulness of the exemption for many 
issuers \554\ and indicated that there was not significant evidence 
that SAFEs pose undue risks for investors.\555\ Another commenter 
recommended the Commission require issuers and portals to disclose a 
list of ``potentially risky or problematic deal terms'' in lieu of 
prohibiting SAFEs.\556\ In contrast, a number of commenters supported 
explicitly prohibiting the offering and selling of SAFEs under 
Regulation Crowdfunding.\557\
---------------------------------------------------------------------------

    \553\ See, e.g., S. Hadden Letter; Wefunder Letter; Y Combinator 
Letter; Silicon Prairie Letter; Republic Letter; NextSeed Letter; 
Chamber of Digital Commerce Letter; Vezzit Letter; Raise Green & New 
Haven Comm. Solar Letter; InnaMed, et al. Letter; Crowdwise Letter; 
Ketsal Letter; and Letter from Marshall E. Uzzle and Ron Montana 
dated June 1, 2020. Some of these commenters also contended that 
harmonizing securities eligible under Regulation Crowdfunding with 
Regulation A would not prohibit the use of SAFEs, as SAFEs are 
``securities convertible into equity securities.'' See Letter from 
Joe Spivak dated Mar. 18, 2020; Y Combinator Letter; and Republic 
Letter.
    \554\ See, e.g., Wefunder Letter; and Republic Letter.
    \555\ See Vezzit Letter.
    \556\ See Crowdwise Letter.
    \557\ See, e.g., Letters from Miguel Costa dated Mar. 10, 2020, 
Mar. 14, 2020, and Mar. 22, 2020; J. Clarke Letter; SEI Letter; 
NASAA Letter; W. Hubbard Letter; CFA Letter; CrowdCheck Letter; and 
CFA Institute Letter.
---------------------------------------------------------------------------

c. Final Amendments
    We are not adopting the proposed amendments to harmonize the 
securities eligible under Regulation Crowdfunding with the securities 
eligible under Regulation A at this time in light of commenters' 
concerns that doing so would limit the utility of Regulation 
Crowdfunding. We are also not adopting rule changes that would 
specifically prohibit SAFEs under Regulation Crowdfunding. We recognize 
the concern that the offer and sale of non-traditional securities to 
retail investors in an exempt offering could result in harm to 
investors who may face challenges in analyzing and valuing such 
securities or who may be confused by the descriptions of such 
securities on the funding portals. However, we believe that many of 
these concerns can be addressed by providing adequate disclosure to 
investors. To this end, issuers assessing their compliance with 
Regulation Crowdfunding should carefully consider whether they are 
clearly describing the terms of the offered securities, especially in 
the case of non-traditional securities, such as SAFEs. 17 CFR 
227.201(m) requires issuers to disclose the terms of the securities 
being offered whether or not such securities have voting rights, any 
limitations on such voting rights, how the terms of the securities 
being offered may be modified and a summary of the differences between 
such securities and each other class of security of the issuer, and how 
the rights of the securities being offered may be materially limited, 
diluted or qualified by the rights of any other class of security of 
the issuer. We remind issuers of non-traditional securities of the need 
to carefully consider their obligations under this rule.
3. Regulation A Eligibility Restrictions for Delinquent Exchange Act 
Filers
    Regulation A includes an eligibility requirement that an issuer 
conducting a Regulation A offering must have filed with the Commission 
all reports required to be filed, if any, pursuant to Rule 257 during 
the two years before the filing of the offering statement (or for such 
shorter period that the issuer was required to file such reports).\558\ 
However, because Exchange Act registrants are not required to file 
reports pursuant to Rule 257, the existing eligibility provision does 
not expressly require those registrants to have filed their Exchange 
Act reports in order to rely on Regulation A.
---------------------------------------------------------------------------

    \558\ See 17 CFR 230.251(b)(7). Rule 257 requires issuers 
conducting Tier 2 offerings to comply with certain ongoing and 
periodic reporting requirements.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to amend Regulation A to require issuers 
that are subject to the reporting requirements of Section 13 or 15(d) 
of the Exchange Act to meet a similar eligibility requirement with 
respect to Exchange Act reports. As proposed, issuers that do not file 
all the reports required to have been filed by Sections 13 or 15(d) of 
the Exchange Act in the two-year period preceding the filing of an 
offering statement would be ineligible to conduct a Regulation A 
offering.\559\
---------------------------------------------------------------------------

    \559\ If an issuer is delayed in filing a report, it would need 
to become current in its reports over the last two years in order to 
become eligible again.
---------------------------------------------------------------------------

b. Comments
    Commenters that addressed the issue generally supported requiring 
Exchange Act reporting Regulation A issuers to be current in their 
Exchange Act reporting obligations.\560\ Only one commenter opposed 
requiring applicable issuers to be current in their Exchange Act 
reporting obligations, arguing that because non-reporting companies can 
rely on Regulation A, there should be no requirement for reporting 
companies to be current in their reporting obligations.\561\ Another 
commenter recommended that the Commission additionally make Regulation 
A available to business development companies as defined in Section 
2(a)(48) of the Investment Company Act.\562\
---------------------------------------------------------------------------

    \560\ See CII Letter; NASAA Letter; CrowdCheck Letter; and CFA 
Institute Letter.
    \561\ See J. Clarke Letter.
    \562\ See ABA Letter.
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting the amendment as proposed. The amendment holds 
Exchange Act reporting companies to

[[Page 3549]]

the same standard as repeat Regulation A issuers. This requirement will 
benefit investors by assuring that they have access to historical 
financial and non-financial statement disclosure about Exchange Act 
reporting companies that are conducting Regulation A offerings and may 
facilitate the development of an efficient secondary market for the 
securities they purchase in Regulation A offerings. Furthermore, 
because they are already required to file such reports, the requirement 
does not increase the burden of making a Regulation A offering for 
Exchange Act reporting companies or issuers that were Exchange Act 
reporting companies within the two years prior to making a Regulation A 
offering. We are not persuaded by the commenter that suggested that 
because non-reporting companies can use Regulation A, reporting 
companies should not be required to be current in their reporting 
obligations. We believe Regulation A investors should be able to look 
to the Exchange Act filings of reporting company issuers for 
information supplemental to the issuers' Regulation A disclosures.\563\
---------------------------------------------------------------------------

    \563\ See, e.g., 2020 Regulation A Review (stating that the 
requirement for Regulation A reporting company issuers to be current 
in their reporting requirements ``would benefit investors by 
ensuring that they have access to historical financial and non-
financial statement disclosure about Exchange Act reporting 
companies that are conducting Regulation A offerings and may 
facilitate the development of an efficient secondary market for the 
securities they purchase in Regulation A offerings''). See also 
NASAA Letter (``By helping to make clear that issuers are expected 
to behave as public companies once they enter the public markets, 
even through the means of exempt offerings, the Commission is at 
least partly addressing the concern that the current proposals will 
cause even substantial companies to remain in the private markets 
permanently.'')
---------------------------------------------------------------------------

    We are not amending Regulation A as recommended by a commenter to 
make the exemption available to business development companies at this 
time. While we acknowledge that business development companies serve an 
important function in facilitating capital formation for small, 
developing and financially troubled companies, there are important 
considerations with respect to the application of Regulation A's 
requirements to such entities that we believe we should assess before 
expanding the eligibility criteria.

G. Bad Actor Disqualification Provisions

    The Commission's exempt offering framework includes rules 
disqualifying certain covered persons, including felons and other ``bad 
actors,'' from relying on Regulation A, Regulation Crowdfunding, and 
Regulation D to offer and sell securities. While the disqualification 
provisions are substantially similar,\564\ the lookback period for 
determining whether a covered person is disqualified differs between 
Regulation D and the other exemptions. For Regulation D, the lookback 
period is measured from the time of the sale of securities in the 
relevant offering. For 17 CFR 230.262(a) (``Rule 262(a)'' of Regulation 
A) and 17 CFR 227.503(a) (``Rule 503(a)'' of Regulation Crowdfunding), 
the lookback period is measured from the time the issuer files an 
offering statement.\565\
---------------------------------------------------------------------------

    \564\ Section 3(b)(2)(G)(ii) of the Securities Act [15 U.S.C. 
77c(b)(2)(G)(ii)] provides the Commission with authority to issue 
bad actor disqualification rules under Regulation A that are 
``substantially similar'' to those adopted for securities offerings 
under Rule 506 of Regulation D pursuant to Section 926 of the Dodd-
Frank Act. See 2015 Regulation A Release; Disqualification of 
Felons, Other ``Bad Actors'' from Rule 506 Offerings, Release No. 
33-9414 (July 10, 2013) [78 FR 44729 (July 24, 2013)] (``Rule 506(d) 
Final Release''); and Crowdfunding Adopting Release.
    \565\ Rule 503(a) provides lookback language based on ``the 
filing of the offering statement'' or ``the filing of the 
information required by section 4A(b) of the Securities Act'' on 
Form C. See 17 CFR 227.503. While the disqualification events in 
Securities Act Rule 262 and Regulation Crowdfunding Rule 503 are 
generally tied to the filing of an offering statement, 17 CFR 
230.262(a)(6); and 17 CFR 227.503(a)(6) are not.
---------------------------------------------------------------------------

    Under Regulation A, if a covered person triggers one of the 
disqualifying events in Rule 262, the Commission may suspend reliance 
on the Regulation A exemption through 17 CFR 230.258 (``Rule 258''), 
which requires a notice and hearing opportunity for the issuer prior to 
the suspension becoming permanent. Furthermore, if a covered person 
triggers one of the disqualifying events, the issuer may need to 
consider whether it must suspend the offering until it files a post-
qualification amendment to reflect a fundamental change in the 
information set forth in the most recent offering statement or post-
qualification amendment.\566\ Regulation Crowdfunding, which similarly 
measures the lookback from the time of filing of the offering 
statement, does not have a suspension provision. Similar to Regulation 
A, it requires an issuer to amend the offering statement to disclose 
material changes, additions, or updates to information that it provides 
to investors for offerings that have not been completed or 
terminated.\567\ Nevertheless, in certain circumstances, periods of 
time may exist during Regulation A and Regulation Crowdfunding 
offerings between the filing of the offering statement and the next 
required filing where an offering could continue despite an event that 
would have constituted a disqualifying event at the time of filing.
---------------------------------------------------------------------------

    \566\ See 17 CFR 230.252(f)(2).
    \567\ See 17 CFR 230.203(a)(2).
---------------------------------------------------------------------------

1. Proposed Amendments
    The Commission proposed to harmonize the bad actor disqualification 
provisions in Rule 506(d) of Regulation D, Rule 262(a) of Regulation A 
and Rule 503(a) of Regulation Crowdfunding by adjusting the lookback 
requirements in Regulation A and Regulation Crowdfunding to include the 
time of sale in addition to the time of filing. Specifically, the 
Commission proposed to add ``or such sale'' to any lookback references 
that refer to the time of filing, such as the ``filing of the offerings 
statement,'' ``such filing,'' or ``the filing of the information 
required by Section 4A(b) of the Securities Act'' in Rule 262(a) and 
Rule 503(a).
    In order to reflect the offering statement filing requirement 
before the first Regulation Crowdfunding sale, and more closely track 
the requirement in Rule 262(a) of Regulation A, the Commission proposed 
including ``any promoter connected with the issuer in any capacity at 
the time of filing, any offer after filing, or such sale'' in Rule 
503(a).\568\ The proposed amendments would not alter the availability 
of the existing reasonable care exception, an issuer's ability to seek 
a waiver from disqualification from the Commission, or the exception 
applicable when a court or regulatory authority advises in writing that 
disqualification should not arise.\569\ Nonetheless, with respect to 
the latter provision, the Commission proposed to amend 17 CFR 
230.262(b)(3) (``Rule 262(b)(3)'') and 17 CFR 227.503(b)(3) (``Rule 
503(b)(3)''), which currently provide that a court's or regulatory 
authority's advice with respect to the disqualifying effect of an 
order, judgment or decree must occur before: (i) The time of ``the 
filing of the offering statement,'' in the case of Regulation A, or 
(ii) ``the filing of the information required by section 4A(b) of the 
Securities Act,'' in the case of Regulation Crowdfunding. The proposed 
amendments would conform the existing language in Rules 262(b)(3) and 
503(b)(3) with the parallel lookback language in 17 CFR 
230.506(d)(2)(iii) by adding the phrase ``before . . . [the relevant/
such] sale.''
---------------------------------------------------------------------------

    \568\ Rule 503(a) currently covers only promoters connected with 
the issuer in any capacity ``at the time of such sale,'' making it 
possible that a promoter that previously engaged in fraudulent 
activities or violated securities or other laws or regulations, 
could be involved in offering activities under Regulation 
Crowdfunding so long as such promoter is not connected with the 
issuer in any capacity at the time of sale.
    \569\ See 17 CFR 230.262(b)(3).

---------------------------------------------------------------------------

[[Page 3550]]

2. Comments
    Commenters generally supported revising the bad actor lookback 
provisions in Regulation A and Regulation Crowdfunding as 
proposed.\570\ One commenter recommended that the Commission provide 
guidance on how often bad actor checks should be performed, using the 
same timing for all bad actor lookback periods, and including 20% 
holders in the revised lookback provisions.\571\ Another commenter 
suggested establishing a consistent standard for bad actor 
determinations in conjunction with FINRA and providing a centralized 
bad actor database.\572\ Other commenters recommended permitting 
issuers to continue their offerings and provide investors with 
disclosure and an option to cancel their investment commitments after a 
disqualifying event first arises.\573\ Commenters also generally 
supported revising the bad actor language in Rule 503(a) of Regulation 
D to include ``any promoter connected with the issuer in any capacity 
at the time of filing, any offer after filing, or such sale,'' to more 
closely track Rule 262(a) of Regulation A.\574\
---------------------------------------------------------------------------

    \570\ See, e.g., J. Clarke Letter; Netcapital Letter; NASAA 
Letter; Md. St. Bar Assoc. Letter; W. Hubbard Letter; CrowdCheck 
Letter; and IPA Letter.
    \571\ See CrowdCheck Letter. In contrast, one commenter 
supported continuing to use the time of filing, rather than time of 
sale, for covered persons. See J. Clarke Letter.
    \572\ See IPA Letter.
    \573\ See Geraci Law Letter; J. Clarke Letter; NextSeed Letter; 
and W. Hubbard Letter. But see CrowdCheck Letter contending that 
permitting the offerings to continue would treat more recent 
disqualifying events as less serious than older ones.
    \574\ See, e.g., Geraci Law Letter; Netcapital Letter; NASAA 
Letter; Md. St. Bar Assoc. Letter; and CrowdCheck Letter.
---------------------------------------------------------------------------

    One commenter opposed the revisions, suggesting the additional 
monitoring cost will prevent issuers from relying on Regulation 
Crowdfunding.\575\ Another commenter, who was supportive of the 
revisions, also acknowledged the potential for significant monitoring 
costs, especially in Regulation Crowdfunding offerings.\576\
---------------------------------------------------------------------------

    \575\ See NextSeed Letter.
    \576\ See CrowdCheck Letter.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the amendments as proposed to further harmonize the 
disqualification provisions in Regulation A, Regulation Crowdfunding, 
and Regulation D by using the same disqualification lookback period. 
Although the amendments may, to some extent, increase the compliance 
costs associated with conducting an offering under Regulation A or 
Regulation Crowdfunding, for issuers that conduct offerings in reliance 
on more than one of these exemptions, using the same disqualification 
lookback period across exemptions may simplify compliance and due 
diligence for issuers.\577\ In addition, the revised lookback period, 
which looks to both the time of filing of the offering document and the 
time of sale, will improve investor protections by further limiting the 
role of ``bad actors'' in exempt offerings and reducing the chance that 
investors may unknowingly participate in securities offerings involving 
offering participants who have engaged in fraudulent activities or 
violated securities or other laws or regulations.\578\
---------------------------------------------------------------------------

    \577\ See 2015 Regulation A Release, at Section II.G. In 
adopting the 2015 Regulation A amendments, the Commission stated 
that a uniform set of bad actor triggering events would simplify due 
diligence, particularly for issuers that may engage in different 
types of exempt offerings.
    \578\ This may be particularly true for regulating the conduct 
of promoters connected with an issuer throughout an ongoing 
offering.
---------------------------------------------------------------------------

    The disqualification provisions in Regulation A and Regulation 
Crowdfunding were intended to be ``substantially similar'' to those in 
Regulation D.\579\ When the Commission adopted disqualification 
provisions under Regulation D, the Commission also adopted an exception 
from disqualification for offerings where the issuer establishes that 
it did not know and, in the exercise of reasonable care, could not have 
known that a disqualification existed. At that time, the Commission was 
cognizant of the monitoring costs associated with Rule 506(d)'s 
disqualification provisions, particularly the costs of monitoring 
beneficial owners of 20 percent or more of the issuer's outstanding 
voting securities.\580\
---------------------------------------------------------------------------

    \579\ See 2015 Regulation A Release and Crowdfunding Adopting 
Release. Section 302(d) of the JOBS Act requires the Commission to 
establish disqualification provisions under which an issuer would 
not be eligible to offer securities pursuant to Section 4(a)(6) and 
an intermediary would not be eligible to effect or participate in 
transactions pursuant to Section 4(a)(6). Section 302(d)(2) 
specifies that the disqualification provisions must be 
``substantially similar'' to the ``bad actor'' disqualification 
provisions contained in Rule 262 of Regulation A. As noted above, 
the disqualification provisions under Regulation A are required to 
be ``substantially similar'' to those adopted for securities 
offerings under Rule 506. See supra note 564.
    \580\ See Rule 506(d) Final Release, at Section II.B. The 
Commission clarified that, for ongoing offerings, the issuer's 
reasonable care duty to monitor covered persons generally ``includes 
updating the factual inquiry'' on a periodic basis. Id. at Section 
II.D.2.
---------------------------------------------------------------------------

    For Regulation A and Regulation Crowdfunding issuers, monitoring 
covered beneficial owners may pose different challenges than for 
issuers in Regulation D offerings because shares sold under Regulation 
A are potentially freely tradable immediately following an investor's 
initial purchase, and shares sold under Regulation Crowdfunding are 
generally freely tradable after a holding period. In recognition of the 
additional monitoring burdens associated with Regulation A and 
Regulation Crowdfunding offerings, and the potential for such burdens 
to discourage reliance on Regulation Crowdfunding, we are, as proposed, 
retaining the current lookback period applicable to covered beneficial 
owners in Regulation A and Regulation Crowdfunding rather than amending 
it to start at the time of sale. We do not believe that permitting 
issuers to continue their offerings and provide investors with 
disclosure and an option to cancel their investment commitments after a 
disqualifying event first arises would provide sufficient investor 
protections, as it would treat issuers with older disqualifying events 
differently from issuers with more recent disqualifying events, 
prohibiting the former from engaging in a Regulation A or Regulation 
Crowdfunding offering but permitting the latter to engage in the 
offering with only updated disclosure provided.\581\
---------------------------------------------------------------------------

    \581\ See CrowdCheck Letter.
---------------------------------------------------------------------------

III. Other Matters

    If any of the provisions of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provision or application.
    Pursuant to the Congressional Review Act,\582\ the Office of 
Information and Regulatory Affairs has designated these rules a ``major 
rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \582\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

IV. Economic Analysis

    We are mindful of the costs imposed by, and the benefits obtained 
from, our rules. Section 2(b) of the Securities Act,\583\ Section 3(f) 
of the Exchange Act,\584\ and Section 2(c) of the Investment Company 
Act \585\ require us, when engaging in rulemaking that requires us to 
consider or determine whether an action is necessary or appropriate in 
(or, with respect to the

[[Page 3551]]

Investment Company Act, consistent with) the public interest, to 
consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital formation. In 
addition, Section 23(a)(2) of the Exchange Act requires the Commission 
to consider the effects on competition of any rules the Commission 
adopts under the Exchange Act and prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the Exchange 
Act.\586\
---------------------------------------------------------------------------

    \583\ 15 U.S.C. 77b(b).
    \584\ 15 U.S.C. 78c(f).
    \585\ 15 U.S.C. 80a-2(c).
    \586\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    We have considered the economic effects of the final amendments, 
including their effects on competition, efficiency, and capital 
formation. Many of the effects discussed below cannot be 
quantified.\587\ Consequently, while we have, wherever possible, 
attempted to quantify the expected economic effects, much of the 
discussion remains qualitative in nature.
---------------------------------------------------------------------------

    \587\ For example, as discussed in the Proposing Release and 
noted by commenters (see, e.g., Better Markets Letter; CFA Letter; 
Letter from Healthy Markets Association dated March 16, 2020 (``HMA 
Letter''); and NASAA Letter), scaled disclosures and a lack of 
secondary trading complicate the gathering of performance data on 
all exempt offerings. Where available, such data is not necessarily 
directly comparable to public market returns. See Proposing Release, 
at note 372. The analysis of available evidence on the performance 
of exempt offerings can be found in Report to Congress on Regulation 
A/Regulation D Performance. See also CCA Letter (discussing evidence 
on the performance of crowdfunding offerings) and Letter on the 
Concept Release from AngelList Venture dated September 14, 2020 
(``AngelList Letter'') (discussing evidence on the performance of 
investments through their platform).
---------------------------------------------------------------------------

A. Broad Economic Considerations

    The final amendments will simplify, harmonize, and improve certain 
aspects of the Commission's exempt offering framework, including 
Regulation D, Regulation A, Regulation Crowdfunding, and other related 
rules. By providing a more streamlined and consistent exempt offering 
framework, these amendments are expected to incrementally facilitate 
capital formation through exempt offerings, expanding issuers' ability 
to pursue positive net present value (``NPV'') investment and growth 
opportunities. For example, the amendments to Regulation A and 
Regulation Crowdfunding that raise offering limits and incrementally 
facilitate compliance are expected to draw a larger and more 
diversified set of issuers, including issuers with high growth 
potential and associated high financing needs that might otherwise 
forgo these exemptions due to the costs of compliance combined with the 
existing, lower limits.\588\ The final amendments may also address 
current uncertainties in the ability to use exempt offerings prior to, 
or concurrent with, registered offerings, which could ease the path to 
a registered offering for some private issuers.
---------------------------------------------------------------------------

    \588\ The amended offering limits also may attract financial 
intermediaries that might presently opt out of this market segment 
because of fixed costs of due diligence and marketing or a small 
issuer pool.
---------------------------------------------------------------------------

    We recognize that many of the issuers that rely on the amended 
exemptions likely would have relied on an exemption from registration 
without the final amendments.\589\ For example, issuers using amended 
Regulation A, Regulation Crowdfunding, or Rule 504 might have relied on 
these exemptions in their current form, or, alternatively, relied on 
Rule 506 of Regulation D, which does not have an offering limit and 
does not require the filing of an offering statement or ongoing 
disclosures. The substitution between different offering methods is 
likely to limit the economic effects of the amendments. Nevertheless, 
the increased flexibility afforded by the amendments may enable some 
issuers to optimize their financing strategy and reduce their financing 
costs, helping them fund a broader range of investment projects and 
growth opportunities. Financing cost savings and enhanced ability to 
fund positive-NPV investment opportunities would in turn benefit 
shareholders through greater shareholder value.
---------------------------------------------------------------------------

    \589\ Aggregate conditions, such as a prolonged period of low 
interest rates, may also contribute to sustained reliance on exempt 
offerings. See, e.g., Elisabeth de Fontenay, The Deregulation of 
Private Capital and the Decline in the Public Company. 68 Hastings 
L. J. 445 (2017), at footnote 7; McKinsey, Private Markets Come of 
Age: McKinsey Global Private Markets Review (2019), https://
www.mckinsey.com/~/media/mckinsey/industries/
private%20equity%20and%20principal%20investors/our%20insights/
private%20markets%20come%20of%20age/private-markets-come-of-age-
mckinsey-global-private-markets-review-2019-vf.ashx (noting the role 
of low interest rates in investor pursuit of high-yield investments, 
including in private capital markets).
---------------------------------------------------------------------------

    The amendments may also provide incrementally greater choice of 
investment opportunities for investors. Importantly, the investor 
protections applicable to these exemptions will continue to provide 
significant safeguards against the risk of losses for non-accredited 
investors. The amendments we are adopting could expand non-accredited 
investor access to investment opportunities, such as through the 
following:
     Amendments to Regulation A, Regulation Crowdfunding, and 
Rule 504, which do not limit the number of non-accredited investors, 
may attract additional issuers or larger offerings.
     Amendments to Regulation Crowdfunding will increase 
investment limits for the subset of non-accredited investors whose 
annual income diverges from net worth, which may allow such investors 
to participate in more crowdfunding offerings.
     Amendments to Rule 506(b) may on the margin lead to 
additional offerings that permit non-accredited investors; however, the 
35-person cap on the number of non-accredited purchasers in any Rule 
506(b) offering in a 90-day period and the historically low proportion 
of Rule 506(b) offerings with non-accredited investors are expected to 
significantly limit this effect.
    Greater flexibility under the amendments may enable non-accredited 
investors to optimize their capital allocation through incrementally 
greater access to exempt offering investment opportunities. The 
magnitude of the effect would depend on several factors, including:
     Whether issuers switch between offering methods that allow 
non-accredited investors, in which case the set of investment 
opportunities for non-accredited investors may change very little.
     Whether issuers prefer accredited investors due to their 
industry connections and expertise or due to the potential costs of 
having multiple non-accredited investors (e.g., capitalization table 
concerns in light of subsequent financing plans \590\ or Section 12(g) 
registration thresholds, costs of investor relations, or risks of 
proprietary information disclosure).
---------------------------------------------------------------------------

    \590\ See, e.g., supra Section II.F.
---------------------------------------------------------------------------

     Whether non-accredited investors choose not to invest in 
exempt offerings (e.g., due to illiquidity; transaction, search, due 
diligence, and agency costs; or investment minimums).
     The efficiency of portfolio allocation of non-accredited 
investors. Such efficiency would depend on such investors' skill at 
obtaining and analyzing information about issuers that provide less 
disclosure compared to registered offerings.\591\ Non-accredited 
investors may in some cases benefit from monitoring and screening by 
accredited investors, although the effect may be limited if the 
securities held by accredited investors offer different terms or 
payoffs.\592\
---------------------------------------------------------------------------

    \591\ See also Proposing Release, at note 375.
    \592\ See also Proposing Release, at note 376. Differences in 
payoffs may be compensation for value added by the expertise, 
advice, governance, and network connections contributed by large 
investors.

---------------------------------------------------------------------------

[[Page 3552]]

    Today non-accredited investors may invest in a wide range of 
financial assets with high risk or due diligence costs, both as part of 
the securities market (e.g., leveraged investments in individual listed 
securities; short positions; holdings of registered securities of 
foreign, small-cap, and over-the-counter (OTC) issuers; and holdings of 
registered nontraded securities, including REITs and structured notes) 
and outside the securities market (e.g., futures, foreign exchange, 
real estate, individual small businesses, peer-to-peer lending, and 
financial transactions that entail high risk or leverage). Thus, the 
incremental effects on non-accredited investors of potential additional 
investment in exempt offerings under the amendments should be assessed 
relative to the existing market conditions.
    Some commenters expressed concerns that facilitating capital 
raising through exempt offerings may incrementally contribute to the 
ongoing decline in U.S. registered offerings, limiting the overall set 
of investment opportunities and information available to non-accredited 
investors.\593\ While the aggregate trend of the decline in U.S. 
registered offerings, which dates back to the aftermath of the 2000 
stock market crash, is an important element of the baseline, we expect 
the amendments being adopted in this release to have at most a marginal 
impact on this trend for the following reasons:
---------------------------------------------------------------------------

    \593\ See, e.g., Better Markets Letter; Letter from Center for 
American Progress, et al. dated May 26, 2020 (``CAP, et al. 
Letter''); CFA Letter; and HMA Letter.
---------------------------------------------------------------------------

     Amendments to individual exemptions that have the greatest 
potential to result in the growth in capital raising pursuant to those 
exemptions relative to the baseline affect the market segments that are 
relatively small in absolute terms today (Regulation A, Regulation 
Crowdfunding, and Rule 504). While individual issuers may realize 
significant gains in the form of greater availability or decreased cost 
of capital, the aggregate effects of the amendments on the market as a 
whole are likely to be modest in absolute terms. Moreover, issuers that 
rely on Regulation A, Regulation Crowdfunding, and Rule 504 tend to be 
at a much earlier stage of development than a traditional IPO 
issuer.\594\ While expanded offering limits may attract some additional 
issuers that are larger or more mature, the typical issuer relying on 
these exemptions--especially Regulation Crowdfunding--is unlikely to be 
able to conduct a traditional IPO at the issuer's present stage of 
development. This should mitigate concerns about increased substitution 
of traditional IPOs for Regulation Crowdfunding or Regulation A under 
the amendments.
---------------------------------------------------------------------------

    \594\ See infra note 596.
---------------------------------------------------------------------------

     While changes to the disclosure requirements for sales to 
non-accredited investors under Rule 506(b) will reduce the cost to 
issuers of sales to such investors and may draw additional issuers to 
allow non-accredited investors in Rule 506(b) offerings, Rule 506(b) 
offerings with non-accredited investors currently comprise a relatively 
small portion of the market. Almost all such offerings report only 
having accredited investors.\595\ Exempt offering integration 
amendments are most likely to affect issuers that rely on multiple 
exemptions, particularly ones involving non-accredited investors. We 
believe that the added flexibility and reduced cost of capital raising 
may be highly beneficial to the affected issuers--particularly for 
smaller issuers and issuers that lack an established network of angel 
investors or venture backing and thus rely on a combination of capital 
raising strategies to finance their growth. Nevertheless, for the 
majority of non-reporting issuers that raise financing from accredited 
investors without general solicitation (see Table 6 below), the 
integration amendments will likely have limited effects.
---------------------------------------------------------------------------

    \595\ See supra note 127.
---------------------------------------------------------------------------

     Further, the integration amendments we are adopting 
include provisions intended to facilitate exempt and registered 
offerings occurring close in time and, as such, may make it easier for 
some issuers to attempt registered offerings. For some issuers looking 
to do bridge financing right before an IPO, the additional certainty 
provided by the new integration rule may allow them to accelerate the 
process of initiating the IPO (or at least provide additional certainty 
that the prior offering will not be integrated with the IPO).
    To the extent that the amendments contribute to some substitution 
between registered and exempt offerings, it is important to consider 
any such substitution in the context of other economic channels through 
which the amendments affect capital allocation and the availability of 
investable opportunities:
     We do not expect the amendments to deter a significant 
proportion of the issuers that are large and mature enough to be on the 
cusp of going public from pursuing a public offering. Such issuers 
likely already have a developed network of angel investors and/or 
backing from venture capitalists on which they can rely to raise the 
necessary amount of financing today. Thus, such issuers' decision to go 
public is likely driven more by the benefits of being a reporting 
company (relative to the cost of a registered offering and being a 
reporting company).\596\
---------------------------------------------------------------------------

    \596\ One commenter stated that ``[w]hile we do not disagree 
with the statement that provisions of the Release would not be 
expected to `deter a significant portion' of issuers from pursing a 
public offering, we believe . . . that the provisions of the Release 
would be expected to contribute to a lower (rather than higher) 
number of SEC-registered companies.'' See CII Letter. However, the 
data on IPO issuer age and size over time appears to support our 
view. See, e.g., Jay R. Ritter, Initial Public Offerings: Median Age 
of IPOs Through 2019, (Jan. 14, 2020), available at https://site.warrington.ufl.edu/ritter/files/2020/02/IPOs2019Age.pdf (citing 
median IPO issuer age during 2001 through 2019 as ten years) and Jay 
R. Ritter, Initial Public Offerings: Sales Statistics Through 2019, 
(Mar. 10, 2020), available at https://site.warrington.ufl.edu/ritter/files/IPOs2019_Sales.pdf (citing in Table 12 median sales of 
IPO issuers, expressed in 2005 dollars, as approximately $47 million 
in 2019). By comparison, the age and size of Regulation A and 
Regulation Crowdfunding issuers is much smaller. The median 
Regulation Crowdfunding issuer had no revenues and had an age of 
approximately two years. See Table 9 below. The median Regulation A 
issuer had no revenues and had an age of approximately three years. 
See 2020 Regulation A Review, at Table 5. In Regulation D offerings, 
the median issuer age is two years; the median non-fund issuer size 
(revenues), where reported, is $1 million-$5 million; to the extent 
that the offering proceeds can serve as a proxy for issuer size and 
financing needs in offerings without an offering limit, the median 
Rule 506(b) reported proceeds were $1.5 million. See Table 7 below. 
Thus, we continue to believe that the amendments to offering limits 
and integration provisions will not result in significant 
substitution between new IPO activity and additional exempt 
offerings.
---------------------------------------------------------------------------

     Additional flexibility in access to capital can help 
existing issuers meet their financing needs at a lower cost and 
allocate capital to growth opportunities more efficiently, with the 
resulting benefits for economic growth, competition, and capital 
markets as a whole.
     The amendments might have the most significant effects on 
smaller growth issuers that presently lack sufficient access to 
financing that they require to develop their business model and gain 
scale. Such issuers may face significant financing constraints and lack 
an established network of angel investors or venture capital backing 
and may be too early in their lifecycle to be a candidate for a public 
offering. Thus, if the flexibility added by the amendments allows some 
of these small issuers to raise enough external financing to develop 
their business model and scale up to a point where they may become 
viable candidates for a public offering, the amendments might diversify 
the pool of prospective issuers that are able to conduct a registered

[[Page 3553]]

offering, which could result in a higher number of IPOs in the 
future.\597\
---------------------------------------------------------------------------

    \597\ Private capital can provide a critical lifeline to startup 
and other small private firms to proceed from a development stage to 
implementing their business model, generating revenue, and growing 
in size. Larger firms, firms past the development stage, and firms 
that have venture capital backing (although private capital may also 
take other, non-venture capital forms) are more likely to achieve a 
successful IPO exit (as opposed to, for instance, being acquired by 
a larger competitor). See, e.g., Annette B. Poulsen & Mike 
Stegemoller, Moving from Private to Public Ownership: Selling out to 
Public Firms versus Initial Public Offerings, 37 Fin. Mgmt. 81 
(2008), at Table 7; James C. Brau, Bill Francis & Ninon Kohers, The 
Choice of IPO versus Takeover: Empirical Evidence, 76 J. Bus. 583 
(2003), at 583; Onur Bayar & Thomas Chemmanur, What Drives the 
Valuation Premium in IPOs versus Acquisitions? An Empirical 
Analysis, 18 J. Corp. Fin. 451 (2012), at Table 3. See also supra 
note 596 (discussing the substantial size of a typical IPO issuer).
---------------------------------------------------------------------------

     Overall, expanded access to capital may draw new 
businesses to capital markets, which might have otherwise found a 
securities offering to be impractical or too costly. Without a 
securities offering, some of these businesses might not have been able 
to grow their operations (and in the process create value for their 
owners).
    Some of the amendments affect the same offerings and issuers or 
have mutually reinforcing or partly offsetting effects, which makes it 
more difficult to draw conclusions about the net effects of the final 
amendments package as a whole. For example, it is difficult to predict 
how the amendments that expand, simplify, and increase the uniformity 
of integration safe harbors will affect issuer reliance on individual 
exemptions. Nevertheless, we expect that these integration amendments 
will overall facilitate capital formation by harmonizing requirements, 
reducing legal costs, and providing additional flexibility to issuers 
seeking an exemption from registration or transitioning to a registered 
offering. The amendments to offering limits for individual exemptions 
may lead to increased substitution between exemptions. On the other 
hand, Regulation Crowdfunding amendments relaxing investment limits and 
raising offering limits may result in mutually reinforcing benefits for 
capital formation.
    Finally, we recognize that the amendments to exemptions that are 
relatively infrequently used today compared to Rule 506(b) of 
Regulation D (such as Regulation Crowdfunding, Regulation A, Rule 504, 
and Rule 506(c)) are likely to have limited aggregate economic effects 
on issuers and on investors in absolute terms, even if the percentage 
changes in the offering activity conducted under those exemptions are 
significant.
    Recently, the Commission amended the accredited investor 
definition.\598\ Those amendments may affect the economic effects of 
the amendments considered here. In particular, some of the economic 
effects of the amendments discussed here that facilitate exempt 
offerings to accredited investors (e.g., expanded integration safe 
harbors, exemption of accredited investors from Regulation Crowdfunding 
investment limits) will be amplified to the extent that issuers can 
offer securities to an expanded pool of accredited investors. In turn, 
some of the effects of the amendments discussed here that facilitate 
exempt offerings to non-accredited investors (e.g., expanded offering 
limits under Regulation A, Regulation Crowdfunding, and Rule 504, 
testing-the-waters and crowdfunding vehicle provisions of amended 
Regulation Crowdfunding, and amendments to non-accredited investor 
disclosure requirements under Rule 506(b)) may be smaller to the extent 
that issuers able to access an expanded accredited investor pool become 
less reliant on exempt offerings to non-accredited investors.
---------------------------------------------------------------------------

    \598\ See Amending the ``Accredited Investor'' Definition, Rel. 
No. 33-10824 (Aug. 26, 2020) [85 FR 63726 (Oct. 9, 2020)].
---------------------------------------------------------------------------

B. Baseline

    We examine the economic effects of the final amendments relative to 
the baseline, which comprises the existing regulatory requirements 
(described in detail in Section I above) and market practices related 
to exempt offerings (described below).
    Generally, the parties affected by the amendments include current 
and prospective issuers and investors in exempt offerings. To the 
extent that the amendments affect how issuers choose between registered 
and exempt offerings, the amendments also might affect issuers and 
investors in the registered offering market. In cases where 
intermediaries are involved in exempt offerings and either receive 
transaction-based compensation or perform some of the offering-related 
or compliance functions on behalf of issuers, intermediaries will also 
be affected by the amendments. In particular, Regulation Crowdfunding 
requires offerings to be conducted through an intermediary's online 
platform. Thus, to the extent that the amendments affect Regulation 
Crowdfunding offering activity, they are expected to have direct 
effects on all crowdfunding intermediaries. In other instances, the 
effects of the amendments on intermediaries might be more limited 
(e.g., intermediaries might verify investor status for issuers under 
Rule 506(c), be authorized by some issuers to test the waters with 
investors prior to an offering, or be drawn to the Regulation A market 
if they find that the increase in the offering limit makes underwriting 
more cost-effective).
    Below we present data on the recent state of the market affected by 
the amendments. In 2019, registered offerings accounted for $1.2 
trillion (30.8 percent) of new capital, compared to approximately $2.7 
trillion (69.2 percent) that we estimate was raised through exempt 
offerings.\599\ Of the approximately $2.7 trillion estimated as raised 
in exempt offerings in 2019, the following table shows the amounts that 
we estimate were raised under each of the identified exemptions.\600\
---------------------------------------------------------------------------

    \599\ Unless otherwise indicated, information in this release on 
Regulation D, Regulation A, and Regulation Crowdfunding offerings is 
based on analyses by staff in the Commission's Division of Economic 
Risk and Analysis of data collected from SEC filings.
    \600\ ``Other exempt offerings'' includes Section 4(a)(2), 
Regulation S, and Rule 144A offerings. The data used to estimate the 
amounts raised in 2019 for other exempt offerings includes: (1) 
Offerings under Section 4(a)(2) of the Securities Act that were 
collected from Thomson Financial's SDC Platinum, which uses 
information from underwriters, issuer websites, and issuer 
Commission filings to compile its Private Issues database; (2) 
offerings under Regulation S that were collected from Thomson 
Financial's SDC Platinum service; and (3) resale offerings under 
Rule 144A that were collected from Thomson Financial SDC New Issues 
database, Dealogic, the Mergent database, and the 
Asset[hyphen]Backed Alert and Commercial Mortgage Alert 
publications, to further estimate the exempt offerings under Section 
4(a)(2) and Regulation S. We include amounts sold in Rule 144A 
resale offerings because those securities are typically issued 
initially in a transaction under Section 4(a)(2) or Regulation S but 
generally are not included in the Section 4(a)(2) or Regulation S 
data identified above. These numbers are accurate only to the extent 
that these databases are able to collect such information and may 
understate the actual amount of capital raised under these offerings 
if issuers and underwriters do not make this data available. The 
data on Rule 144A debt offerings from Mergent is available only 
through the end of August 2019. We have extrapolated the data to 
obtain a full calendar year.

[[Page 3554]]

    Table 5--Overview of Amounts Raised in the Exempt Market in 2019
------------------------------------------------------------------------
                                                        Amounts reported
                                                         or estimated as
                       Exemption                         raised in 2019
                                                            (billion)
------------------------------------------------------------------------
Rule 506(b) of Regulation D...........................            $1,492
Rule 506(c) of Regulation D...........................                66
Regulation A: Tier 1..................................             0.044
Regulation A: Tier 2..................................             0.998
Rule 504 of Regulation D..............................             0.228
Regulation Crowdfunding...............................             0.062
Other exempt offerings................................             1,167
------------------------------------------------------------------------

    The following table \601\ summarizes recent data on the Regulation 
D market.
---------------------------------------------------------------------------

    \601\ This table includes offerings by pooled investment funds. 
Information on Regulation D offerings, including offerings under 
Rule 504 and Rule 506, is based on staff analysis of data from Form 
D filings on EDGAR. The amount raised is based on the amounts 
reported as ``Total amount sold'' in all Form D filings (new filings 
and amendments) on EDGAR. Subsequent amendments to a new filing were 
treated as incremental fundraising and recorded in the calendar year 
in which the amendment was filed. It is likely that the reported 
data on Regulation D offerings underestimates the actual amount 
raised through these offerings. First, Rule 503 of Regulation D 
requires issuers to file a Form D no later than 15 days after the 
first sale of securities, but a failure to file the notice does not 
invalidate the exemption. Accordingly, it is possible that some 
issuers do not file Form D for offerings relying on Regulation D. 
Second, underreporting could also occur because a Form D may be 
filed prior to completion of the offering, and our rules do not 
require issuers to amend a Form D to report the total amount sold on 
completion of the offering or to reflect additional amounts offered 
if the aggregate offering amount does not exceed the original 
offering size by more than 10 percent.

                                  Table 6--Offerings Under Regulation D in 2019
----------------------------------------------------------------------------------------------------------------
                                           Rule 504             Rule 506(b)                 Rule 506(c)
----------------------------------------------------------------------------------------------------------------
Number of New Offerings...........  476..................  24,636...............  2,269.
Amount Reported Raised............  $0.2 billion.........  $1,491.9 billion.....  $66.3 billion.
----------------------------------------------------------------------------------------------------------------

    As can be seen from Table 6, Rule 506(b) dominates the market for 
exempt securities offerings. Amounts raised under Rule 506(b) also 
exceeded the amounts raised in the registered market, estimated to be 
$1.2 trillion in 2019.\602\
---------------------------------------------------------------------------

    \602\ See also Concept Release; and Scott Bauguess, Rachita 
Gullapalli, & Vladimir Ivanov, Capital Raising in the U.S.: An 
Analysis of the Market for Unregistered Securities Offerings, 2009-
2017 (U.S. Sec. and Exch. Comm'n, Division of Economic and Risk 
Analysis White Paper, Aug. 1, 2018), available at https://www.sec.gov/dera/staff-papers/white-papers/dera_white_paper_regulation_d_082018.
---------------------------------------------------------------------------

    The table below presents summary statistics for Regulation D 
offering and issuer characteristics over 2009-2019.

  Table 7--Summary of Regulation D Issuer and Offering Characteristics,
                             2009-2019 \603\
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Number of issuers..........................  173,697.
Number of Offerings........................  242,070.
Amounts Reported Sold......................  $13,576 billion.
Mean Amount Sold (if reported).............  $58 million.
Median Amount Sold (if reported)...........  $1.50 million.
Mean Offer Size (if reported)..............  $71 million.
Median Offer Size (if reported)............  $2.25 million.
Median Years Since Incorporation...........  2.
Median Issuer Size (if reported):
    Private Funds (Net Asset Value)........  $25 million-$50 million.
    Non-Fund Issuers (Revenue).............  $1 million-$5 million.
Used Intermediary..........................  20%.
Total Investors:
    As reported in initial Form D filings..  3.4 million.
    All filings, including amendments......  5.9 million.
Average Investors/Offering (if reported)...  10.
------------------------------------------------------------------------

    The table below \604\ summarizes amounts sought and reported raised 
in offerings under Regulation Crowdfunding since its inception.\605\
---------------------------------------------------------------------------

    \603\ See also supra note 601. The number of issuers is based on 
a unique Central Index Key (CIK) identifier. Number of offerings 
represents all new offerings initiated during the period 2009 
through 2019, as represented by a Form D filing, and offerings 
initiated prior to 2009 but continuing into the period 2009 through 
2019 (as represented by an amendment filed). Amounts Reported Sold 
is calculated as described above and includes amounts sold reported 
in initial Form D filings and incremental amounts sold reported in 
amendment filings. Total number of investors, as reported in Form D 
and Form D/A filings, is calculated similarly. Issuers are not 
required to file a Form D at the close of offering. Not all 
offerings report amounts raised sold in their initial Form D filing.
    \604\ See supra note 599. Issuers that have not raised the 
target amount or not filed a report on Form C-U are not included in 
the estimate of proceeds.
    \605\ For a discussion of the Regulation Crowdfunding market, 
see also 2019 Regulation Crowdfunding Report.

[[Page 3555]]

     Table 8--Regulation Crowdfunding Offering Amounts and Reported Proceeds, May 16, 2016-December 31, 2019
----------------------------------------------------------------------------------------------------------------
                                                                                                     Aggregate
                                                      Number          Average         Median         (million)
----------------------------------------------------------------------------------------------------------------
Target amount sought in initiated offerings.....           2,003         $63,791         $25,000          $126.9
Maximum amount sought in initiated offerings....           2,003         599,835         535,000         1,174.2
Amounts reported as raised in completed                      795         213,678         106,900           169.9
 offerings......................................
----------------------------------------------------------------------------------------------------------------

    Given the offering limits, crowdfunding is used primarily by 
relatively small issuers. The table below \606\ presents data on the 
characteristics of issuers in crowdfunding offerings.
---------------------------------------------------------------------------

    \606\ See supra note 599. The estimates are based on data from 
Form C or the latest amendment to it, excluding withdrawals. See 
also 2019 Regulation Crowdfunding Report.

     Table 9--Characteristics of Issuers in Regulation Crowdfunding
                Offerings, May 16, 2016-December 31, 2019
------------------------------------------------------------------------
                                              Average         Median
------------------------------------------------------------------------
Age in years............................             2.9             1.8
Number of employees.....................             5.3             3.0
Total assets............................        $455,280         $29,982
Total revenues..........................        $325,481              $0
------------------------------------------------------------------------

    Based on information in new Form C filings, the median crowdfunding 
offering was by an issuer that was incorporated approximately two years 
prior to the offering and employed about three people. The median 
issuer had total assets of approximately $30,000 and no revenues (just 
over half of the offerings were by issuers with no revenues). 
Approximately ten percent of offerings were by issuers that had 
attained profitability in the most recent fiscal year prior to the 
offering.
    The following table \607\ summarizes amounts sought and reported 
raised in offerings under Regulation A since the effective date of the 
2015 Regulation A amendments.
---------------------------------------------------------------------------

    \607\ The estimates include post-qualification amendments and 
exclude abandoned or withdrawn offerings. See also 2020 Regulation A 
Review.

   Table 10--Regulation A Offering Amounts and Reported Proceeds in $ Million, June 19, 2015-December 31, 2019
----------------------------------------------------------------------------------------------------------------
                                             Tiers 1 & 2                 Tier 1                   Tier 2
----------------------------------------------------------------------------------------------------------------
All Filed Offerings:
    Aggregate dollar amount sought...  $11,170.2 million......  $1,101.5 million.......  $10,068.6 million.
    Number of offerings..............  487....................  145....................  342.
    Average dollar amount sought.....  $22.9 million..........  $7.6 million...........  $29.4 million.
Offerings Qualified by Commission
 Staff:
    Aggregate dollar amount sought...  $9,094.8 million.......  $759.0 million.........  $8,335.8 million.
    Number of offerings..............  382....................  105....................  277.
    Average dollar amount sought.....  $23.8 million..........  $7.2 million...........  $30.1 million.
Capital Reported Raised:
    Aggregate dollar amount reported   $2,445.9 million.......  $230.4 million.........  $2,215.6 million.
     raised.
    Number of issuers reporting        183....................  39.....................  144.
     proceeds.
    Average dollar amount reported     $13.4 million..........  $5.9 million...........  $15.4 million.
     raised.
----------------------------------------------------------------------------------------------------------------

    As can be seen, Tier 2 accounted for the majority of Regulation A 
offerings (70 percent of filed and 73 percent of qualified offerings), 
amounts sought (90 percent of amounts sought in filed offerings and 9 
percent of amounts sought in qualified offerings), and reported 
proceeds (91 percent) during this period.
    Because reliance on integration safe harbors is not required to be 
disclosed, we lack a way to reliably quantify the pool of issuers and 
offerings that would be affected by the amended approach to 
integration. Nevertheless, some indication of the scope of issuers 
affected by integration provisions may come from indirect sources: In 
2019, based on the analysis of Form D filings, we estimate that 
approximately 1,256 issuers other than pooled investment funds filed 
more than one Form D (excluding amendments) and an additional 258 
issuers filed one new Form D and either had a registration statement 
declared effective, had a Regulation A offering statement qualified, or 
filed a new or amended Form C. Many private placements, however, rely 
on Section 4(a)(2) rather than on the Regulation D safe harbor. We lack 
data on Section 4(a)(2) offerings due to the absence of filing or 
disclosure requirements associated with this statutory exemption. Also, 
for issuers filing forms for multiple offerings, in most cases we 
cannot reliably determine if, and when, proceeds were raised or the 
offering closed, or whether the specific offerings were eventually 
subject to integration or not. For instance, a closeout filing on Form 
D is

[[Page 3556]]

not required, making it difficult to know when the offering closed or 
how much was raised. Similarly, proceeds data for Regulation A and 
Regulation Crowdfunding can be lagged or incomplete.
    Except where specified otherwise, the analysis is based on 
available data through the most recently completed calendar year 
(2019). Subsequent to the end of the period analyzed here, as of 
September 2020, the U.S. market has experienced significant 
macroeconomic and market dislocations related to the global effects of 
COVID-19 and the related response.\608\ These factors are expected to 
have a negative market-wide impact on the levels of offering activity 
(including under Regulation A, Regulation D, and Regulation 
Crowdfunding).\609\ Offering activity data through the second quarter 
of 2020 is likely not reflective of the full-year effects of this shock 
due to significant lags in the completion of offerings and reporting of 
proceeds data: For the twelve months ending June 2020, approximately 
$1.50 trillion in proceeds was reported under Regulation D (including 
$0.2 billion under Rule 504, $1,430.8 billion under Rule 506(b), and 
$68.6 billion under Rule 506(c)); $1.3 billion under Regulation A; and 
$88 million under Regulation Crowdfunding (compared to approximately 
$1.56 trillion in proceeds under Regulation D; $1 billion under 
Regulation A and approximately $62 million under Regulation 
Crowdfunding during calendar year 2019).\610\ Irrespective of these 
short-term fluctuations, we believe that the economic analysis 
considerations discussed below generally continue to apply. Inherent 
cyclicality of offering activity, irrespective of the cause of the 
macroeconomic shock, is a part of the baseline and prior academic 
research.\611\ While macroeconomic shocks generally reduce capital 
formation levels (due to both supply and demand factors), which in the 
short run will negatively affect offering activity incremental to the 
rule in absolute terms, the effects of the economic considerations we 
discuss below are likely to remain applicable over the medium- to long-
run, which encompasses periods of sustained growth interspersed with 
market contractions.
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    \608\ See, e.g., Scott R. Baker, Nicholas Bloom, Steven J. 
Davis, Kyle J. Kost, Marco C. Sammon, & Tasaneeya Viratyosin, The 
Unprecedented Stock Market Impact of COVID-19, (NBER Working Paper 
26945, 2020). See also Maryam Haque, Startup Ecosystem Faces Capital 
Crunch over Coming Months--What We Expect & Why It Matters, (NVCA 
White Paper, 2020), https://nvca.org/wp-content/uploads/2020/04/Startup-Ecosystem-Faces-Capital-Crunch-over-Coming-Months-5.pdf.
    \609\ For a discussion of the effects of COVID-19 and temporary 
relief for Regulation Crowdfunding issuers, see Temporary Amendments 
Adopting Release and Temporary Amendments Extension.
    \610\ As an important caveat, Regulation A and Regulation 
Crowdfunding issuers were also provided temporary relief from 
certain periodic reporting requirements on March 26, 2020. Thus, 
proceeds information reported as of June 30, 2020, may be incomplete 
to the extent that issuers had offering proceeds but availed 
themselves of this relief. See SEC Rel. No. 33-10768 (Mar. 26, 2020) 
Relief for Form ID Filers and Regulation Crowdfunding and Regulation 
A Issuers Related to Coronavirus Disease 2019 (COVID-19) [85 FR 
17747 (Mar. 31, 2020)].
    \611\ See, e.g., Michelle Lowry, Why Does IPO Volume Fluctuate 
So Much? 67 J. Fin. ECON. 3 (2003); Chris Yung, Gonul Colak, & Wei 
Wang, Cycles in the IPO Market, 89 J. Fin. Econ. 192 (2008); Amy 
Dittmar & Robert Dittmar, The Timing of Financing Decisions: An 
Examination of the Correlation in Financing Waves, 90 J. Fin. Econ. 
59 (2008).
---------------------------------------------------------------------------

    Further, on May 4, 2020, the Commission adopted temporary final 
rules under Regulation Crowdfunding to facilitate capital formation for 
small businesses impacted by COVID-19, which include, among other 
things, an exemption from certain financial statement review 
requirements for issuers offering $250,000 or less of securities in 
reliance on Regulation Crowdfunding within a 12-month period.\612\ 
These temporary final rules were subsequently extended and apply to 
offerings initiated under Regulation Crowdfunding between May 4, 2020, 
and February 28, 2021.\613\
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    \612\ See Temporary Amendments Adopting Release.
    \613\ See Temporary Amendments Extension.
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C. Economic Effects of the Final Amendments

1. Integration
    The final amendments will revise the framework for integration 
analysis. As discussed in greater detail in Section II.A, the 
amendments update and expand existing integration provisions to provide 
greater uniformity and flexibility to issuers regarding integration of 
offerings. Considered together, the final amendments are expected to 
facilitate compliance and reduce issuer costs through greater 
consistency and uniformity across exemptions, and thus promote the use 
of exemptions by issuers that undertake multiple offerings.
a. Benefits
    The final amendments expand and simplify the integration framework, 
provide greater uniformity in integration tests applicable across 
offering types, and in many cases shorten the period of time that 
issuers must wait between offerings to rely on a safe harbor from 
integration. The amendments are expected to reduce the cost of 
compliance with the integration requirements for issuers, which was 
generally supported by commenters.\614\ In particular, the reduction in 
certain safe harbor periods from six months to 30 days is expected to 
facilitate compliance for issuers that might need to adjust their 
financing strategy as a result of evolving business circumstances, 
growing financing needs, or an inability to attract sufficient capital 
through a single offering method. A six-month waiting period between 
consecutive offerings, or the need to assess whether consecutive 
offerings can be treated as separate offerings or whether they must be 
integrated, can significantly limit such issuers' ability to raise 
sufficient capital or react to dynamic business conditions. Similarly, 
expanding the bright-line safe harbors from integration to a broader 
set of offering types generally reduces the need for an issuer to 
conduct an in-depth facts-and-circumstances analysis, as Rule 152(b) 
states that ``[n]o integration analysis under paragraph (a) of this 
section is required, if any of the following non-exclusive safe harbors 
apply.'' This is expected to reduce the costs for issuers seeking to 
raise capital through multiple offering exemptions. Overall, greater 
emphasis in the integration analysis on whether a particular offering 
satisfies the registration requirements or conditions of the specific 
exemption is expected to reduce integration-specific compliance 
efforts. The amendments are expected to reduce the costs of compliance 
with the provisions of the exemptions for issuers that conducted an 
offering before, or close in time with, another offering. The resulting 
decrease in compliance costs may encourage additional issuers to pursue 
one or more exempt offerings or to pursue a private placement and a 
registered offering.
---------------------------------------------------------------------------

    \614\ See supra notes 39-41 and accompanying text.
---------------------------------------------------------------------------

    The amendments are expected to be particularly beneficial to young, 
financially constrained, or high-growth issuers whose capital needs, 
and thus preferred capital raising methods, may change more frequently. 
The flexibility may be especially valuable in cases where one or more 
of the exempt offerings conducted by an issuer is subject to offering 
limits, as well as in cases where an issuer conducts multiple offerings 
that are subject to different solicitation, disclosure, offering size, 
or investor requirements. Overall, this flexibility may promote capital 
formation and enable issuers to optimize their financing strategy so as 
to attain a lower overall cost of capital

[[Page 3557]]

while raising the required amount of external financing. The described 
benefits also are expected to accrue to the shareholders of those 
issuers through enhanced shareholder value, particularly if the 
increased flexibility in accessing external financing enables issuers 
to more efficiently pursue high-growth investment opportunities.
    The described benefits may be limited in cases of amendments that 
codify existing guidance, to the extent that the market has already 
developed similar practices. Further, if issuers in certain exempt 
offerings, such as offerings under Rule 506(c), Regulation A, or 
Regulation Crowdfunding, account for most of the use of the integration 
safe harbor amendments, the aggregate effects of the integration 
amendments are expected to be limited, given the relatively small 
market share of these exemptions, compared to the far more prevalent 
Rule 506(b) and Section 4(a)(2) offerings.\615\ Because Rule 506(b) 
does not impose an offering limit, and most such offerings do not 
involve non-accredited investors,\616\ many issuers are likely able to 
meet their financing needs without having to conduct multiple 
offerings, which may further limit the effects of the integration 
amendments.
---------------------------------------------------------------------------

    \615\ We recognize that other amendments we are adopting in this 
release, such as increased offering limits under Regulation A and 
Regulation Crowdfunding, increased investment limits under 
Regulation Crowdfunding, and additional optional means of 
verification of accredited investor status under Rule 506(c), might 
increase the use of Regulation A, Regulation Crowdfunding, and Rule 
506(c).
    \616\ We recognize that the amendments to non-accredited 
investor disclosure requirements might increase the incidence of 
non-accredited investors in Rule 506(b) offerings.
---------------------------------------------------------------------------

b. Costs
    The amendments could on the margin result in additional financing 
being raised from non-accredited investors without registration 
requirements.\617\ The disclosure requirements of all of these 
exemptions are less extensive than the requirements associated with a 
registered offering, which could result in less public disclosure 
generally if companies that would have become reporting companies 
decide to remain non-reporting companies.
---------------------------------------------------------------------------

    \617\ For example, conducting a Rule 506(b) offering and a 
Regulation A or Regulation Crowdfunding offering may enable an 
issuer to reach a broader non-accredited investor base and/or raise 
a greater amount of non-accredited investor capital. Certain 
exemptions (Regulation Crowdfunding, Regulation A Tier 2) also 
conditionally exempt securities offered under the respective 
exemption from the number of shareholders of record for purposes of 
Section 12(g). See supra note 52 and accompanying text (discussing 
commenters that opposed the integration amendments because they 
would allow an issuer to do indirectly what it cannot do directly). 
For example, one commenter stated that the amendments would allow 
issuers to ``easily avoid registration requirements by dividing 
large financings into multiple smaller exempt offerings separated by 
only a brief period of time.'' See R. Rutkowski Letter. Another 
commenter stated that, under the proposed integration framework, 
``the original goal of preventing issuers from artificially 
separating related transactions into multiple offerings to avoid the 
registration requirement is gone under this approach.'' See CFA 
Letter. Requiring no integration so long as each individual offering 
satisfies a particular exemption, according to this commenter, 
``subverts the purpose of integration, which specifically looks at 
the totality of a financing scheme rather than different components 
in isolation.'' Id. This commenter stated that the proposal ``would 
enshrine a framework that effectively allows concurrent and serial 
offerings that are clearly part of a single plan of financing to 
avoid integration.'' Id.
---------------------------------------------------------------------------

    Another potential concern is that a decrease in the integration of 
multiple offerings might result in inadvertent overlaps in solicitation 
of investors for offerings with different communications provisions. 
For example, Rule 506(b) and Section 4(a)(2) offerings, which do not 
allow general solicitation, may be preceded by offerings relying on 
exemptions that allow general solicitation (such as Regulation 
Crowdfunding, Regulation A, or Rule 506(c)), which could condition the 
market for the subsequent private placement offering. This may 
marginally increase risks to non-accredited investors that may 
participate in the subsequent private placement offering to the extent 
such investors rely on the general solicitation, because private 
placement offerings incorporate fewer investor protections.\618\ 
Several factors are expected to largely alleviate these potential risks 
to investors. Importantly, the amendments do not alter the substantive 
requirements, including investor protections, associated with 
individual offering methods. The amendments more closely align issuer 
efforts to comply with integration provisions and requirements of the 
respective exemptions, including, importantly, the investor protection 
provisions of each respective exemption. Moreover, nothing in the 
amendments eliminates the requirements of the respective exemption or, 
in the context of registered offerings, the registration and gun 
jumping provisions of the Securities Act. New Rule 152 specifies that 
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. 
Further, issuers remain prohibited from using general solicitation in a 
Rule 506(b) offering, through any means, irrespective of the 
integration amendments.
---------------------------------------------------------------------------

    \618\ For instance, Regulation A and Regulation Crowdfunding 
offerings are subject to more extensive substantive disclosure 
requirements. Rule 506(c) offerings do not incorporate disclosure 
requirements but require verification of accredited investor status, 
reducing the likelihood of inadvertent non-accredited investor 
participation, compared to a Rule 506(b) offering.
---------------------------------------------------------------------------

    The amendments contain several other specific safeguards that are 
expected to minimize potential costs and risks to investors. Rule 
152(a)(1) requires that for an exempt offering prohibiting general 
solicitation, 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 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. This provision 
is expected to minimize the effect on investors of possible 
solicitation overlaps in cases of multiple offerings. This provision 
further bolsters existing solicitation restrictions in the individual 
exemptions and, crucially, focuses the integration analysis on the 
requirement that the issuer comply with solicitation restrictions 
intended to protect investors.
    Further, Rule 152(a)(2) provides that an issuer conducting two or 
more concurrent exempt offerings permitting general solicitation, in 
addition to satisfying the particular requirements of each 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. This requirement will 
strengthen investor protection by assuring that one exemption is not 
being improperly used to make offers under the second exemption, 
without being subject to the same offering restrictions. The legend 
requirement will provide notice to investors and thereby help minimize 
potential confusion about the offering methods, reducing the risk of 
uninformed investor decisions as a result of reliance on preliminary 
information contained in such solicitations.

[[Page 3558]]

    The amended non-exclusive safe harbors from integration are 
designed to minimize potential risks to investors. The 30-day period in 
the first safe harbor is expected to minimize inadvertent overlaps 
between offerings and investor solicitation for different offerings 
while providing issuers greater flexibility to adjust their financing 
strategy as a result of evolving circumstances. 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,\619\ which is expected to 
further mitigate such concerns. In addition, if 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 may not exceed 35. This requirement is expected to address 
concerns that failure to integrate multiple Rule 506(b) offerings could 
result in sales to a large number of non-accredited investors.
---------------------------------------------------------------------------

    \619\ The provision requires that 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.
---------------------------------------------------------------------------

    The second safe harbor involves offerings under Rule 701 or 
Regulation S. As discussed above, offers and sales pursuant to Rule 701 
and employee benefit plans are limited to employees, consultants and 
advisors, with whom the issuer has written compensation plans or 
agreements. Given the relationship between these investors and the 
issuer, excluding such offerings from integration is not likely to 
raise meaningful investor protection concerns. The amendments also 
codify a long-standing Commission position with respect to integration 
of offshore transactions made in compliance with Regulation S with 
registered domestic offerings or domestic offerings that satisfy the 
requirements for an exemption from registration under the Securities 
Act.\620\ When determining the availability of this safe harbor, it 
will still be necessary to assess each transaction separately for 
compliance with Regulation S or the other exemption. After considering 
commenter input, to avoid disruption to the existing Regulation S 
market practices, we are not adopting the proposed amendment to 
Regulation S that would have changed the definition of ``directed 
selling efforts'' in Rule 902 nor the proposed requirement that a 
Regulation S issuer that engages in general solicitation activity 
prohibit resales to U.S. persons of the Regulation S securities for a 
period of six months from the date of sale except to QIBs or IAIs. We 
recognize that general solicitation activity undertaken in connection 
with offers and sales under an exemption from registration concurrent 
with a Regulation S offering may raise concerns about flowback of the 
Regulation S securities to the United States. However, the Commission 
has previously addressed the risks related to abuse of Regulation S by 
imposing enhanced restrictions applicable to offshore sales of equity 
securities of domestic issuers \621\ and we are of the view that these 
existing requirements will continue to be effective in addressing such 
concerns.
---------------------------------------------------------------------------

    \620\ See Offshore Offers and Sales (Regulation S), Release No. 
33-7505 (Feb. 17, 1998) [63 FR 9632 (Feb. 25, 1998)] (``Offshore 
Offers and Sales Release''), at Section III.C.1.
    \621\ See Offshore Offers and Sales Release.
---------------------------------------------------------------------------

    The third safe harbor concerns offerings for which a Securities Act 
registration statement has been filed following a completed or 
terminated offering. The third safe harbor provides that an offering 
for which a Securities Act registration statement has been filed will 
not be integrated if it is made subsequent to a terminated or completed 
offering for which general solicitation is not permitted. Because 
private placements would continue to restrict general solicitation, the 
impact on investors in the private placement, most of which are deemed 
to have the financial sophistication and ability to sustain the risk of 
loss of investment or fend for themselves, is likely to be minimal. In 
turn, because private placements do not permit general solicitation, 
and because the extensive registration requirements apply to the 
registered offering, it is unlikely to have any impact on investors in 
the registered offering. The third safe harbor also provides that a 
registered offering will not be integrated if made subsequent to a 
completed or terminated exempt offering for which general solicitation 
is permitted but that was either limited to QIBs and IAIs, or was 
terminated or completed more than 30 calendar days prior to 
commencement of the registered offering. This is similar to current 
Rule 147(h), Rule 147A(h), and Rule 255(e) of Regulation A. Because of 
the extensive protections built into the registration requirements and 
the 30-day waiting period that would apply if a solicitation involved 
investors other than QIBs or IAIs, this safe harbor is unlikely to have 
adverse impacts on investors in the registered offering. In cases where 
solicitation was limited to QIBs and IAIs, due to the sophistication of 
those investors, we do not believe that the lack of a 30-day waiting 
period in the integration safe harbor meaningfully affects investor 
protection. The amendment is also consistent with Securities Act 
Section 5(d) and Rule 163B, which allow solicitation of QIBs and IAIs 
at any time prior to a registered offering.
    The fourth safe harbor extends the approach in Regulation A and 
Rules 147 and 147A and in the guidance regarding Regulation 
Crowdfunding to provide that offers and sales made in reliance on an 
exemption for which general solicitation is permitted will not be 
integrated if made subsequent to any prior terminated or completed 
offering. The disclosure and substantive requirements of these 
exemptions should minimize potential costs to investors from not 
integrating these offerings with prior offers and sales.
    We believe these amendments appropriately calibrate the effort 
required on the part of issuers to address potential overlaps between 
multiple offerings by the same issuer that may raise investor 
protection concerns. Overall, because the amendments contain anti-
evasion language and issuers must continue to meet the conditions of 
each exemption they are relying on, and because investor protection 
provisions of each exemption as well as general antifraud provisions 
continue to apply, the amendments are not expected to have significant 
adverse effects on investor protection.
    We recognize that issuers seeking to rely on one or more of the 
integration provisions will incur costs of analyzing the facts and 
circumstances of the contemplated offerings and/or the respective 
integration safe harbors. While we believe that the amendments 
substantially simplify and streamline the integration safe harbors, we 
recognize that some issuers might find that navigating the amended 
integration framework requires additional time and effort. Because use 
of the integration safe harbors will remain voluntary, we expect that 
issuers will only rely on the safe harbors if such reliance might 
reduce their compliance costs.
c. Effects of Efficiency, Competition, and Capital Formation
    The amended integration provisions are expected to improve capital 
formation by enabling issuers to combine financing under different

[[Page 3559]]

exemptions and registered offerings more optimally as part of their 
financing strategy. However, the net capital formation benefits may be 
modest for issuers that do not need multiple offerings (e.g., relying 
on a single Rule 506(b) offering with no, or few, non-accredited 
investors but seeking a larger amount of financing).
    It is unclear how the integration amendments will affect 
competition for investor capital. To the extent the amendments reduce 
issuer compliance costs associated with accessing a broader range of 
offering exemptions, competition for investor capital in those market 
segments might increase. However, net effects on overall competition 
for investor capital may be limited to the extent that issuers 
reallocate between offering exemptions or additional investor capital 
is drawn to these markets under the amendments.
    As discussed above, the amendments might offer the greatest 
benefits to smaller issuers that have varying financing needs or to 
issuers that need to rely on multiple offering exemptions to meet their 
financing needs (e.g., because they lack an established accredited 
investor network to support financing exclusively through Rule 506(b) 
and need to rely on non-accredited investors or general solicitation).
    By streamlining and harmonizing integration safe harbors, the 
amendments are expected to improve the efficiency and reduce the cost 
of an issuer's compliance efforts, particularly for issuers conducting 
multiple offerings.
d. Reasonable Alternatives
    As an alternative, we could adopt a uniform safe harbor with a time 
period other than 30 days (e.g., 15, 45, 60, 75, or 90 days). Compared 
to the final amendments, the alternative of a universal safe harbor 
with a shorter (longer) time period would reduce (increase) the 
likelihood that multiple offerings are integrated and, accordingly, 
reduce (increase) issuer costs of compliance. Compared to the final 
amendments, the alternative of a safe harbor with a shorter (longer) 
time period would provide issuers with greater (lower) flexibility in 
tailoring their capital raising strategy to changing financing needs 
and market conditions. Compared to the final amendments, such an 
alternative also might increase (reduce) the number of instances where 
issuers improperly divide a single plan of financing into multiple 
offerings.
    As another alternative, we could replace the integration doctrine 
with general anti-evasion principles \622\ or a disclosure 
requirement.\623\ Compared to the amendments, this alternative would 
increase the likelihood that multiple offerings could be conducted 
consistent with Section 5 or the terms of any applicable exemptions 
and, accordingly, reduce costs of compliance for some issuers that seek 
to avoid or postpone registration. However, conducting an anti-evasion 
analysis or providing disclosures in cases of multiple offerings under 
this alternative could increase compliance costs for some issuers, 
compared to the amendments, depending on the nature of the disclosure 
requirement and issuer circumstances. Compared to the final amendments, 
this alternative would provide issuers with greater flexibility in 
tailoring their capital raising strategy to changing financing needs 
and market conditions. However, compared to the final amendments, such 
an alternative also would likely increase the number of instances where 
issuers improperly divide a single plan of financing into multiple 
offerings, even in the presence of general anti-evasion or disclosure 
requirements.
---------------------------------------------------------------------------

    \622\ See CrowdCheck Letter. In a comment on the Concept 
Release, this commenter explained its view that the ``integration 
doctrine should only be retained as an anti-avoidance mechanism 
where an issuer artificially divides an offering in order to comply 
with a number-of-investors or dollar offering limit.'' See 
CrowdCheck Concept Release Letter.
    \623\ See J. Clarke Letter (suggesting to replace the concept of 
integration with a form required by all issuers to file and keep 
current describing all historical and current exempt and registered 
offerings made by the issuer).
---------------------------------------------------------------------------

    The amendments replace the five-factor test. As another 
alternative, we could codify the use of the five-factor test for all 
analyses of integration.\624\ Compared to the final amendments, such an 
alternative could be more successful in identifying instances where 
issuers improperly divide what is economically a single offering into 
multiple offerings to avoid exemption limitations. However, it also 
would result in additional costs for issuers and reduced flexibility to 
combine multiple offering methods.
---------------------------------------------------------------------------

    \624\ See CFA Letter; and Md. St. Bar Assoc. Letter (suggesting 
that the five-factor test be retained).
---------------------------------------------------------------------------

2. General Solicitation and Offering Communications
a. ``Demo Days'' and Similar Events
    As discussed in greater detail in Section II.B.1 above, we are 
adding certain ``demo day'' communications to the list of 
communications that will not be deemed general solicitation. In a 
change from the proposal, in response to comments, we are expanding the 
types of entities that may sponsor an event in reliance on the 
exemption to include State governments and instrumentalities of State 
and local governments (in addition to local governments, as proposed). 
We are also revising the definition of ``angel investor group'' to 
specify that, such a group must have ``defined'' processes and 
procedures for making investment decisions, but that such processes and 
procedures do not necessarily need to be written. In response to 
commenters,\625\ we are also revising the information that issuers may 
convey about an offering of securities during a ``demo day'' to add the 
unsubscribed amount in an offering. These changes may incrementally 
increase the reliance on the exemption, compared to the proposed 
provision. In addition, as discussed above, to address concerns raised 
by commenters with respect to the possibility of offering-related 
communications being made broadly to non-accredited investors, we are 
adopting certain limitations on the pool of investors that may 
virtually attend such events. This change may incrementally reduce 
reliance on the exemption, compared to the proposed provision.
---------------------------------------------------------------------------

    \625\ See, e.g., IAA Letter; ACA Letter; Transcript of SEC Small 
Business Capital Formation Advisory Committee (May 8, 2020), 
available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-050820.pdf, at 70. An issuer would also be able to 
disclose at a ``demo day,'' as proposed, that (i) it is in the 
process of offering or planning to offer securities; (ii) the type 
and amount of securities being offered; and (iii) the intended use 
of the proceeds of the offering.
---------------------------------------------------------------------------

i. Benefits
    The amendments to Rule 148 specify that certain limited ``demo 
day'' activities would not be deemed general solicitation. These events 
are generally organized by a group or entity (such as a university, 
angel investors, an accelerator, or an incubator) that invites issuers 
to present their businesses to potential investors, with the aim of 
securing investment. These amendments are expected to benefit issuers 
by expanding the range of options for communicating about their 
business with prospective investors without incurring the cost of 
restrictions associated with general solicitation and by allowing them 
to more efficiently access potential investors, as supported by various 
commenters.\626\ These benefits may be relatively more pronounced for 
small and emerging issuers that may not have a sufficient existing 
angel investor network to rely on in a Rule 506(b) or Section 4(a)(2) 
offering. The additional restrictions on the virtual participation of 
prospective

[[Page 3560]]

investors in ``demo day'' events excluded from the definition of 
general solicitation are expected to reduce the likelihood of non-
accredited investor participation, thus decreasing potential risk to 
investors.
---------------------------------------------------------------------------

    \626\ See supra note 216.
---------------------------------------------------------------------------

ii. Costs
    Several commenters expressed concern about the effect of the 
amendments on investors,\627\ for example, because such expanded use of 
``demo day'' activities could lead to an increase in instances of 
fraud.\628\ Overall, we expect costs to investors from the ``demo day'' 
amendments to be modest because the amendments significantly restrict 
permissible activities of ``demo day'' sponsors. In particular, the 
sponsor of the seminar or meeting will not be allowed to: make 
investment recommendations or provide investment advice to attendees of 
the event; engage in any investment negotiations between the issuer and 
investors attending the event; charge attendees of the event any fees, 
other than reasonable administrative fees; receive any compensation for 
making introductions between event attendees and issuers or for 
investment negotiations between such parties; or receive any 
compensation with respect to the event that would require registration 
of the sponsor as a broker-dealer or an investment adviser. These 
restrictions are expected to mitigate the risk that investors would be 
improperly induced into an investment as a result of misleading 
information or sales pressure from financially incentivized ``demo 
day'' sponsors.
---------------------------------------------------------------------------

    \627\ See supra note 222.
    \628\ See Better Markets Letter.
---------------------------------------------------------------------------

iii. Effects on Efficiency, Competition, and Capital Formation
    The final amendments are expected to make it easier for issuers to 
participate in ``demo days'' without incurring the costs of 
restrictions associated with general solicitation. To the extent that 
the amendments encourage some additional issuers to participate in 
``demo days,'' and such participation facilitates their efforts to 
raise capital, issuers might realize capital formation benefits. 
Overall, the effects of the amendments on efficiency, competition, and 
capital formation are expected to be modest because issuers may offer 
securities to the same individuals and groups other than through a 
``demo day''.
iv. Reasonable Alternatives
    As an alternative, we could limit the ``demo day'' exception under 
the amendments by prohibiting any form of control or affiliation with 
the issuer or group of issuers, prohibiting entities whose sole or 
primary purpose is to attract investors to private issuers, and 
limiting issuer's discussion to factual business information and 
prohibiting discussion of any potential securities offering, as 
suggested by one commenter.\629\ This alternative would potentially 
reduce the risk of investors receiving biased information about the 
investment opportunity at the ``demo day''. However, the restrictions 
under this alternative could significantly reduce the flexibility for 
issuers to solicit prospective investors and raise capital.
---------------------------------------------------------------------------

    \629\ See NASAA Letter.
---------------------------------------------------------------------------

    As another alternative, we could adopt a definition of general 
solicitation that would either narrow or expand the scope of 
communications that constitute general solicitation. The alternative of 
narrowing (expanding) the scope of communications that constitute 
general solicitation, either through changes to the examples of 
communications that constitute general solicitation or through a 
definition of general solicitation, would provide greater (lower) 
flexibility to issuers with regard to the manner of communicating 
offers of securities and reaching prospective investors, potentially 
expanding (limiting) the ability of issuers that lack an established 
network of investors with whom they have a pre-existing relationship to 
raise capital through an exempt offering. Narrowing (expanding) the 
scope of communications that constitute general solicitation also could 
expose investors, including non-accredited investors, to more (fewer) 
offers of securities from prospective issuers. Additional offers of 
securities might reduce investor search costs for investors eligible 
and seeking to invest in the offerings of issuers that engage in 
solicitation, enabling investors to potentially make more informed 
decisions and allocate capital more efficiently to a broader range of 
investment opportunities, and vice versa. The alternative of providing 
a specific definition of general solicitation might incrementally 
reduce the compliance costs of issuers to determine whether 
communications that fall outside the list of provided examples 
constitute general solicitation. However, this alternative could 
decrease the flexibility for issuers to consider all relevant facts and 
circumstances in determining whether a particular communication 
constitutes general solicitation.
    As another alternative, we could simplify the existing framework 
for all exempt offerings by deregulating offers, thus eliminating 
general solicitation restrictions and focusing on disclosure 
requirements for sales.\630\ This alternative would significantly 
expand the options for pre-offering and offering-related 
communications, giving issuers greater flexibility and reducing costs 
compared to the final amendments, some of which expand pre-offering 
communications but impose additional conditions (such as filing and 
legending). However, by shifting the investor protections to 
requirements for sales and antifraud provisions, this alternative might 
result in investors that are used to relying on information in offers 
having to wait for the disclosures required in conjunction with a sale.
---------------------------------------------------------------------------

    \630\ See CrowdCheck Letter.
---------------------------------------------------------------------------

b. Solicitations of Interest and Other Offering Communications
    As discussed in greater detail in Section II.B.2 above, we are 
adopting a generic test-the-waters exemption that would permit an 
issuer to use testing-the-waters materials for an offer of securities 
prior to making a determination as to the exemption under which the 
offering may be conducted. In connection with this exemption, we are 
requiring that the generic solicitation materials be made publicly 
available as an exhibit to, or with, the offering materials filed with 
the Commission, if the Regulation A or Regulation Crowdfunding offering 
is commenced within 30 days of the generic solicitation. Further, if 
the issuer sells securities under Rule 506(b) within 30 days of the 
generic solicitation to non-accredited investors, the issuer would be 
required to provide such investors with any written communication used 
under the generic testing-the-waters exemption. We are also expanding 
permissible offering communications under Regulation Crowdfunding by 
permitting testing the waters prior to filing a Form C with the 
Commission. Issuers will be required to use legends and to include any 
solicitation materials with the Form C that is filed with the 
Commission. The economic effects of the amendments will be limited if 
issuers are reluctant to test the waters, for example, as a result of 
the filing requirements or applicable State restrictions. Finally, as 
discussed in Section II.B.3 above, we are amending Rule 204 to expand 
communications permissible under Regulation Crowdfunding after the 
filing of Form C.

[[Page 3561]]

i. Benefits
    In general, allowing issuers to gauge interest through expanded 
testing the waters is expected to reduce uncertainty about whether an 
offering could be completed successfully.\631\ Allowing solicitation 
prior to conducting an offering will enable issuers to determine market 
interest in their securities before incurring the costs of preparing 
and conducting an offering. Testing the waters before filing can reduce 
the risk of a failed offering and the associated reputational costs. 
If, after testing the waters, the issuer is not confident that it would 
attract sufficient investor interest, the issuer could consider 
modifying offering plans or the target amount of the offering, 
reconsidering the contemplated offering structure and terms, postponing 
the offering, or exploring alternative methods of raising capital. This 
option might be useful for smaller issuers, especially early stage 
issuers, first-time issuers, issuers in lines of business characterized 
by a considerable degree of uncertainty, and other issuers with a high 
degree of information asymmetry. The ability to engage in testing-the-
waters communications might attract certain issuers--those that may be 
uncertain about the prospects of raising investor capital--to consider 
using an exempt offering, thus potentially promoting competition for 
investor capital as well as capital formation. Importantly, the 
amendments could benefit issuers that find after testing the waters 
that their offering is unlikely to be successful and choose not to 
proceed with an offering, thus saving disclosure preparation and filing 
costs (including, where applicable, the cost of review or audit of 
financial statements by an independent accountant), lowering the risk 
of disclosure of potentially sensitive proprietary information to 
competitors and mitigating the reputational cost from a failed 
offering.
---------------------------------------------------------------------------

    \631\ See supra notes 233 (discussing commenter support for 
generic testing the waters) and 253 (discussing commenter support 
for testing the waters under Regulation Crowdfunding) and 
accompanying text.
---------------------------------------------------------------------------

    Enabling issuers to engage in generic testing-the-waters 
communications prior to determining the specific exemption type may 
provide additional flexibility to gauge market interest that is likely 
to be especially valuable for smaller, less well known issuers that may 
lack an accurate understanding of prospective investor demand for their 
securities. Similarly, permitting issuers to solicit investor interest, 
orally or in writing, in Regulation Crowdfunding offerings is expected 
to benefit issuers by enabling them to gauge investor interest in a 
prospective Regulation Crowdfunding offering before incurring the full 
costs of preparing and filing an offering circular.
    The requirement to include legends is expected to provide notice to 
investors of the preliminary nature of these communications. Issuers 
that proceed with an offering under Regulation A or Regulation 
Crowdfunding after testing the waters will be required to include as 
exhibits to the offering statement any written materials used in a 
generic testing-the-waters communication within 30 days prior to the 
filing of a Regulation A or Regulation Crowdfunding offering statement. 
Issuers will also be required to include as exhibits any Regulation 
Crowdfunding testing-the-waters materials. Combined, these requirements 
are expected to provide informational benefits to investors and allow 
them to compare the solicitation materials with the offering statement 
disclosures, leading to potentially more informed investment decisions. 
The requirement to provide materials used for a generic testing-the-
waters solicitation to any non-accredited investors in a Rule 506(b) 
offering that occurs within 30 days of such solicitation is expected to 
incrementally enhance the ability of investors in the offering to make 
informed decisions.
    The amendments expanding communications permissible under 
Regulation Crowdfunding after the filing of Form C are expected to 
benefit issuers by allowing greater flexibility to communicate with 
prospective investors about the offering.\632\ In addition to 
permitting oral communications, in response to comments received, we 
are expanding the information that an issuer may provide in accordance 
with Rule 204 to include a brief description of the use of proceeds of 
the offering and information on the progress of the offering toward its 
funding goals. We are also amending Rule 204 to clarify that an issuer 
may provide information about the terms of an offering under Regulation 
Crowdfunding in the offering materials for a concurrent offering (such 
as a Form 1-A for a concurrent Regulation A offering or a Securities 
Act registration statement). Being able to communicate with prospective 
investors outside the communications channels provided by the online 
crowdfunding platform is expected to facilitate the efforts of issuers 
to solicit prospective investors and advertise the offering, 
potentially resulting in a higher rate of offering success and more 
capital formation, particularly for lesser known, small issuers. Off-
portal communications about the terms of the offering are also expected 
to incrementally improve the information available to investors and 
reduce costs of searching for information about offering terms for some 
prospective investors (e.g., investors that may have prior knowledge 
of, or be customers of, the issuer) that would prefer to find out about 
offering terms without first reviewing the crowdfunding platform's 
website and communications channels. Should such prospective investors 
decide to invest in an offering, they would still have to do so through 
the portal and would have access therein to the filed offering 
materials, other offering information, and investor education materials 
required by Regulation Crowdfunding. Communications intended to drive 
traffic to the intermediary's website, and therefore to the issuer's 
offering, would continue to be governed by the Regulation Crowdfunding 
advertising restrictions.
---------------------------------------------------------------------------

    \632\ See supra note 269 (discussing commenters that supported 
expanded oral communications by Regulation Crowdfunding issuers).
---------------------------------------------------------------------------

ii. Costs
    We recognize that there might also be potential costs associated 
with expanding the use of testing-the-waters communications in 
connection with a contemplated Regulation Crowdfunding offering or 
another exempt offering. If the contents of the offering circular 
differ substantively from the material distributed through testing-the-
waters communications, and if investors rely on testing-the-waters 
materials when making investment decisions, this might lead investors 
to make less informed investment decisions.\633\ For example, if the 
information conveyed through testing-the-waters communications is an 
incomplete representation of the risk of an offering, and if investors 
fail to read the subsequent offering circular before making the 
investment decision, they might make a less informed investment 
decision. These investor costs might be exacerbated to the extent that, 
currently, investors in Regulation Crowdfunding offerings are likely to 
be small and potentially limited in their capacity to process 
information contained in testing-the-waters communications. The removal 
of accredited investor investment limits under the Regulation 
Crowdfunding amendments is expected to increase the participation of 
accredited investors in such offerings

[[Page 3562]]

and thus the average Regulation Crowdfunding investor's size and 
financial sophistication.
---------------------------------------------------------------------------

    \633\ See supra notes 237 (discussing commenters that expressed 
concern about generic testing the waters) and 258 (discussing 
commenters that opposed testing the waters under Regulation 
Crowdfunding), and accompanying text.
---------------------------------------------------------------------------

    These potential investor protection concerns are expected to be 
alleviated by several factors:
     The application of the antifraud provisions of the Federal 
and State securities laws; \634\
---------------------------------------------------------------------------

    \634\ Testing-the-waters communications under Regulation 
Crowdfunding would be treated as offers of securities, similar to 
testing-the-waters communications under Regulation A, Section 5(d), 
and the recently adopted Rule 163B.
---------------------------------------------------------------------------

     For issuers that proceed with a Regulation Crowdfunding 
offering:
    [cir] The availability of an offering circular, allowing investors 
to review disclosures compliant with Regulation Crowdfunding prior to 
investing;
    [cir] The requirement that written testing-the-waters materials be 
included with Form C, allowing the public and Commission staff to 
review written solicitation materials and compare them to the contents 
of the offering circular;
    [cir] The availability of investor education materials required to 
be provided by crowdfunding intermediaries before investing; and
    [cir] The continued application of other provisions of Regulation 
Crowdfunding, including ones expected to provide additional investor 
protection, such as investment limits for non-accredited investors, 
offering limits, crowdfunding intermediary requirements, periodic 
reporting requirements, and issuer eligibility restrictions; and
     The reputational incentives of issuers and intermediaries, 
as well as the risk of litigation (particularly for issuers and 
intermediaries that have assets and that engage in testing-the-waters 
communications).
    Further, concerns about costs of expanding testing-the-waters 
communications to investors should be considered in the context of the 
baseline. Investors in Regulation Crowdfunding offerings today might 
perform an incomplete analysis of the offering risks if they base their 
investment decision on the promotional video or summary information 
from the crowdfunding platform's campaign page and fail to review the 
entire contents of the offering materials. Low investment minimums 
(many around $100, and some as low as $25) might make it optimal for 
investors to allocate a limited amount of time to due diligence 
regarding prospective crowdfunding investments. While some unscrupulous 
issuers might seek to disseminate misleading information through 
testing-the-waters communications, such issuers or intermediaries 
already could engage in misleading communications today, and such 
misleading offering communications would remain violations of the 
antifraud provisions of the Federal securities laws.
    The amendments to Rule 204 of Regulation Crowdfunding expanding the 
ability to advertise the ongoing offering and discuss it in off-portal 
oral and written communications with prospective investors might 
similarly result in some investors receiving incomplete information 
about the offering from the issuer, and, if such investors fail to 
review the offering circular and other filed offering materials, 
potentially making less well informed investment decisions.\635\
---------------------------------------------------------------------------

    \635\ See supra note 270 (discussing commenters that opposed 
expanded oral communications by Regulation Crowdfunding issuers).
---------------------------------------------------------------------------

    Several factors are expected to mitigate potential costs to 
investors due to expanded off-portal communications:
     The availability of the offering circular containing 
disclosures compliant with Regulation Crowdfunding prior to investing, 
as well as the continued applicability of Rule 204 requirements, such 
as the requirement to include a link directing the potential investor 
to the intermediary's platform where the Form C disclosure document is 
available;
     The application of antifraud provisions of Federal and 
State securities laws;
     The availability of investor education materials required 
to be provided by funding portals;
     The other provisions of Regulation Crowdfunding, including 
ones expected to provide additional investor protection, such as 
investment limits, offering limits, crowdfunding intermediary 
requirements, periodic reporting requirements, and issuer eligibility 
restrictions, continue to apply; and
     The reputational incentives of issuers, as well as the 
risk of litigation (for issuers with assets).
    The amendments that allow issuers to engage in testing the waters 
prior to determining the specific exemption type might lead to investor 
confusion with regard to the regulatory framework applicable to the 
contemplated offering, particularly for non-accredited investors that 
may be less sophisticated. However, for issuers that proceed with an 
exempt offering, the investor protections of the respective exemption 
would continue to apply. Importantly, because investors would be able 
to review the offering circular that clearly delineates the exemption 
relied on for issuers that proceed with a Regulation A or Regulation 
Crowdfunding offering, investors are expected to receive the disclosure 
necessary to reach an informed investment decision. Furthermore, should 
an issuer elect to proceed with a Regulation A or Regulation 
Crowdfunding offering within 30 days of a generic testing-the-waters 
communication, the testing-the-waters materials must be filed as an 
exhibit to, or with, the offering statement, enabling investors and the 
Commission staff to review testing-the-waters materials and compare 
them against the disclosures in the offering statement. In cases where 
an issuer decides to proceed with a Rule 506(c) offering after testing 
the waters, non-accredited investors that might have received 
solicitations would remain restricted from participation in a Rule 
506(c) offering.
    In cases of issuers that choose not to proceed with a Rule 506(c), 
Regulation A, or Regulation Crowdfunding offering following testing the 
waters for an exempt offering, but that choose instead to undertake an 
exempt offering under an exemption that does not permit general 
solicitation, the amendments are not expected to have significant 
effects on investors in such a private placement or registered 
offering. Restrictions specific to private placements, including a 
restriction on general solicitation for a Rule 506(b) or a Section 
4(a)(2) offering would continue to apply in that case. In cases of 
issuers proceeding with a registered offering, gun jumping provisions 
of the Securities Act and other investor protections associated with 
registered offerings (including staff review, Section 11 liability, 
disclosure requirements in the registration statement, and Exchange Act 
reporting requirements) would continue to apply.
    Because the use of testing-the-waters communications will remain 
voluntary, we anticipate that issuers will rely on testing-the-waters 
communications only if the benefits anticipated by issuers justify the 
expected costs. Issuers that elect to test the waters may incur costs, 
including direct costs of identifying prospective investors and 
developing testing-the-waters solicitation materials; indirect costs of 
potential disclosure of proprietary information to solicited investors; 
and in some instances, potential legal costs associated with liability 
arising from testing-the-waters communications with prospective 
investors. We note that issuers that proceed with an exempt offering 
without testing the waters similarly might incur costs of searching and 
soliciting investors, either on their own or through an intermediary.

[[Page 3563]]

iii. Effects of Efficiency, Competition, and Capital Formation
    The expansion of permissible testing the waters prior to exempt 
offerings is expected to facilitate capital formation for small issuers 
by giving prospective issuers that might not otherwise consider an 
exempt offering a low-cost method of assessing investor interest in a 
potential offering and efficiently adjusting their financing strategy 
to reflect information about market demand. These effects are expected 
to be particularly significant for issuers contemplating Regulation 
Crowdfunding offerings that presently have to incur the compliance 
costs of preparing and filing Form C and the risk of disclosure of 
proprietary information to competitors, as well as the reputational 
risk of a failed offering, and do not have a cost-effective way of 
gauging investor demand. Similarly, the amendments to expand 
permissible issuer communications in Regulation Crowdfunding offerings 
might promote capital formation in the Regulation Crowdfunding market 
by allowing issuers to more effectively reach prospective investors as 
part of marketing the offering and to more efficiently structure the 
offering based on feedback from prospective investors. Combined, these 
amendments might make it easier for the smallest issuers with low 
investor recognition and limited or no securities offering experience 
to access the Regulation Crowdfunding market or issue securities 
pursuant to another offering exemption, resulting in potential positive 
effects on competition. To the extent that these amendments result in 
issuers switching between offering exemptions, the net effects on 
capital allocation might be modest. However, in that scenario some 
issuers might still benefit from a lower cost of capital if they are 
able to obtain preliminary information that helps them to identify the 
most cost-effective offering method and terms that are likely to 
attract sufficient investor demand.
iv. Reasonable Alternatives
    The final amendments permit testing-the-waters communications about 
a contemplated exempt offering for issuers that have not yet narrowed 
their offering plans to a specific exemption, so long as the testing-
the-waters materials contain required legends and, should an issuer 
proceed with an exempt offering under Regulation A or Regulation 
Crowdfunding within 30 days, that written testing-the-waters 
communications be filed. As an alternative, we could have permitted 
testing-the-waters communications in conjunction with a contemplated 
exempt offering that does not currently permit such communications, but 
required the issuer to have determined and to specify in a legend the 
offering exemption that would be used. Compared to the proposal, by 
informing solicited investors about the contours of the exempt offering 
that is being contemplated, this alternative could potentially increase 
the utility of the information in the solicitation to prospective 
investors (e.g., whether the offering would be open to non-accredited 
investors, and if it is, whether investment limits or other 
requirements apply). However, because small and early stage issuers 
might be testing the waters to gauge their optimal offering strategy, 
including how much capital might in principle be raised (and thus, 
whether a Regulation A offering, or for instance, a Regulation 
Crowdfunding offering, is more cost-effective), such an alternative 
would significantly limit the flexibility of issuers to obtain valuable 
information from pre-offering communications. It also may not result in 
meaningful investor protection benefits compared to the final 
amendments in light of the legend requirements, antifraud provisions, 
and, for issuers that proceed with an offering, the exhibit filing 
requirements and other investor protections specific to the respective 
exemption the issuer uses.
    The final amendments permit testing-the-waters communications in 
connection with Regulation Crowdfunding offerings prior to the filing 
of Form C. As an alternative, we could permit testing-the-waters 
communications both before and after the filing of Form C.\636\ This 
alternative would provide greater flexibility to issuers compared to 
the final amendments, potentially increasing the likelihood that the 
issuer would raise the desired amount of capital. This option might be 
most useful for smaller and early stage issuers. This alternative might 
also require investors to expend additional effort to compare testing-
the-waters communications after the filing of an offering statement 
with the filed offering statement disclosures. However, the incremental 
economic effects of this alternative on investors and issuers might be 
limited because of the advertising permitted under Rule 204 and because 
the incremental costs of filing testing-the-waters materials might 
discourage the use of testing the waters after the filing of Form C 
under this alternative.
---------------------------------------------------------------------------

    \636\ Under Regulation A, testing the waters is permitted before 
and after the filing of Form 1-A before the qualification of Form 1-
A. However, unlike Regulation Crowdfunding, Regulation A issuers are 
not able to accept investor commitments between the filing and the 
qualification of Form 1-A. Under Regulation Crowdfunding, issuers 
may accept investor commitments upon the filing of Form C because 
Commission qualification is not applicable to Form C. Thus, 
permitting testing-the-waters communications before the filing of 
Form C would be more consistent with the testing-the-waters 
communications permissible under Regulation A, before investor 
commitments may be accepted.
---------------------------------------------------------------------------

    As an alternative, we could require testing the waters to be 
conducted through a registered intermediary, as suggested by some 
commenters.\637\ Including the registered intermediary in the testing-
the-waters process under the alternative could provide an additional 
layer of investor protections, compared to the amendments, 
particularly, for non-accredited investors that could participate in a 
Regulation Crowdfunding offering if it is launched. However, such 
benefits may be attenuated by the other investor protections included 
in the amendments (such as the filing requirement and the availability 
of the offering circular containing disclosures compliant with 
Regulation Crowdfunding prior to investing), and in the event the 
offering is launched, by the general investor protections of Regulation 
Crowdfunding. Compared to the amendments, this alternative could result 
in additional costs for issuers that already incur various other costs 
to launch a small offering. By limiting the options for testing-the-
waters communications to intermediary-facilitated communications, this 
alternative also could reduce issuer ability and flexibility to reach 
prospective investors.
---------------------------------------------------------------------------

    \637\ See NextSeed Letter; and CrowdCheck Letter.
---------------------------------------------------------------------------

    Issuers that proceed with a Regulation Crowdfunding offering will 
be subject to a filing requirement with respect to written testing-the-
waters communications, consistent with Rule 255 of Regulation A. As an 
alternative, we could allow testing-the-waters communications prior to 
a contemplated Regulation Crowdfunding offering but not impose a filing 
requirement. As another alternative, we could waive the filing 
requirement for testing-the-waters communications prior to any exempt 
offering, including a Regulation A offering. Issuers that have elected 
to use testing-the-waters communications have already incurred the cost 
of preparing the materials, so the incremental direct cost of the 
requirement to file the materials with the Commission would be 
relatively low. We recognize that this alternative could reduce the 
indirect costs of some

[[Page 3564]]

issuers by limiting the ability of the issuer's competitors to discover 
information about the issuer or the costs associated with requesting 
confidential treatment for the proprietary portions of the information. 
However, we note that this information may become available to 
competitors in any event through the solicitation process or as part of 
the offering materials (to the extent that the offering materials 
contain similar information). Furthermore, removing the requirement to 
publicly file the materials for issuers that proceed with an offering 
might result in adverse effects on the protection of investors to the 
extent that it may facilitate fraudulent statements by issuers to all 
or a selected group of investors that might fail to compare the 
statements in the solicitation materials against the offering circular. 
This consideration is especially salient because testing-the-waters 
communications under Rule 255 and under the amendments could be 
directed at any investor, including non-accredited investors. On 
balance, we believe that the requirements governing the use of testing-
the-waters communications appropriately balance the goals of providing 
flexibility to issuers and protection to investors.
    Amended Rule 204 allows oral communications with prospective 
investors once the Form C is filed, so long as the communications 
comply with the requirements of Rule 204, and moderately expands the 
information that an issuer may provide in accordance with that rule. As 
an alternative, we could expand Rule 204 further, broadening the range 
of terms an issuer may advertise or not restricting the scope of issues 
that may be addressed in offering advertisements, as suggested by some 
commenters.\638\ Such an alternative would provide greater flexibility 
to issuers to advertise the offering to prospective investors, which 
might increase the likelihood of offering success and yield capital 
formation benefits. However, such an alternative might increase 
information processing challenges for investors--particularly less 
sophisticated investors--that might incur greater effort to compare the 
more extensive advertising content with the offering statement 
disclosure, or if they are unable to validate the extended advertising 
content against the offering statement disclosure, potentially be at 
risk of less informed investment decisions.
---------------------------------------------------------------------------

    \638\ See supra note 271.
---------------------------------------------------------------------------

3. Rule 506(c) Verification Requirements
    As discussed in Section II.C above, to address some of the concerns 
about challenges and costs associated with accredited investor status 
verification in Rule 506(c) offerings, the amendments add a new item to 
the non-exclusive list in Rule 506(c) that allows an issuer (or those 
acting on its behalf) to establish that an investor remains an 
accredited investor as of the time of sale if the issuer (or those 
acting on its behalf) previously took reasonable steps to verify that 
investor as an accredited investor, the investor provides a written 
representation that the investor continues to qualify as an accredited 
investor to the issuer (or those acting on its behalf), and the issuer 
(or those acting on its behalf) is not aware of information to the 
contrary. After considering commenter input, we are adding a five-year 
limitation on the use of this verification method, after which the 
issuer must take reasonable steps to verify that the investor is an 
accredited investor.
a. Benefits
    The addition to the non-exclusive list in Rule 506(c) concerning 
verification of investors for which the issuer previously took 
reasonable steps to verify accredited investor status is expected to 
reduce the cost of verification for issuers that may opt to engage in 
more than one Rule 506(c) offering over time with potential repeat 
investors.\639\ This new method also may help reduce the risk of harm 
to investors from continually having to provide financially sensitive 
information to the issuer (or those acting on its behalf) when the 
additional investor protection benefits of doing so are limited given 
the pre-existing relationship between the issuer (or those acting on 
its behalf) and such investors.
---------------------------------------------------------------------------

    \639\ See supra note 284 and accompanying text.
---------------------------------------------------------------------------

b. Costs
    Generally, because the amendment represents an incremental revision 
to the principles-based approach to verification in Rule 506(c), its 
costs are expected to be modest. However, we recognize that some 
previously verified investors that experience changes in financial 
circumstances and lose accredited investor status over time might 
provide written representations that they are accredited 
investors,\640\ and if issuers are not aware of information to the 
contrary, such issuers might sell securities to those non-accredited 
investors under Rule 506(c). As noted above, we expect these risks 
would be mitigated by the pre-existing relationship between the issuer 
(or those acting on its behalf) and such investors. Further, consistent 
with some commenters' suggestions,\641\ in a change from the proposal, 
we are adopting a time limit in conjunction with this additional means 
of verification of accredited investor status. We expect this time 
limit will further mitigate the likelihood of the costs to investors 
described above.
---------------------------------------------------------------------------

    \640\ See supra note 288.
    \641\ See supra note 290.
---------------------------------------------------------------------------

c. Effects on Efficiency, Competition, and Capital Formation
    Generally, because the final amendments represent an incremental 
revision to the principles-based approach to verification in Rule 
506(c), we expect modest effects on efficiency, competition, and 
capital formation.
d. Reasonable Alternatives
    We are adopting amendments to the existing non-exclusive list of 
verification methods. As an alternative, we could rescind the non-
exclusive list. Compared to the final amendments, this alternative 
could reduce costs for some issuers that presently feel constrained to 
use one of the listed verification methods, even though other, less 
costly methods may be better suited for their particular facts and 
circumstances. However, the effects of eliminating the non-exclusive 
list might be limited if issuers that presently rely on the listed 
verification methods continue to do so under a more principles-based 
approach.
    We are allowing issuers to establish that a previously verified 
investor remains accredited for up to a five-year period if the 
investor provides a representation to that effect and the issuer is not 
aware of information to the contrary. As an alternative, as proposed, 
we could allow issuers to make such a determination for an unlimited 
period of time. Compared to the final amendments, this alternative 
could reduce costs for issuers with repeat investors through less 
frequent verification of investor status. At the same time, this 
alternative could increase the likelihood of having investors that 
previously were accredited but subsequently exited accredited investor 
status (e.g., due to a change in income or net worth) and thus may have 
a lower ability to incur the risks of a Rule 506(c) offering becoming 
purchasers in a Rule 506(c) offering.
    As another alternative, we could adopt additional means of 
verification of accredited investor status (such as

[[Page 3565]]

investment amounts \642\ or self-certification \643\) as suggested by 
some commenters.\644\ Compared to the final amendments, these 
alternatives would further reduce the costs of accredited investor 
status verification for issuers. However, they would result in a 
significantly higher likelihood of non-accredited investors becoming 
purchasers in an offering involving general solicitation under Rule 
506(c). In particular, self-certification would be a significantly less 
rigorous means of verification that, in conjunction with general 
solicitation, could significantly increase risks to non-accredited 
investors. Relatedly, the alternative of basing verification on the 
amount invested would increase the likelihood that a non-accredited 
investor participates in an offering. Moreover, this alternative would 
increase risks to such non-accredited investors because they would be 
more likely to have an underdiversified position in the event they 
allocate a high investment amount to an investment opportunity under 
Rule 506(c) to meet the verification requirement, resulting in a 
greater risk of losses to such investors.
---------------------------------------------------------------------------

    \642\ See, e.g., CrowdCheck Letter; Invesco Letter; and NextSeed 
Letter.
    \643\ See, e.g., Sen. Toomey Letter; IPA Letter; and NextSeed 
Letter. See also D. Burton Letter; and J. Clarke Letter.
    \644\ See supra note 290.
---------------------------------------------------------------------------

    As another alternative, we could amend Rule 506(c) to add the fact 
that an offering is conducted through a registered intermediary to the 
optional means of accredited investor status verification, building on 
the suggestion of one commenter.\645\ The benefit of this alternative 
compared to the amendments would be to reduce costs for issuers. As 
some commenters have stated, the requirement to take reasonable steps 
to verify accredited investor status has generally impacted issuers' 
willingness to use Rule 506(c).\646\ However, because this alternative 
would not involve verifying each purchaser's accredited investor 
status, it could significantly increase the likelihood of non-
accredited investors that learned about the offering through general 
solicitation under Rule 506(c) becoming purchasers in the offering, 
with the associated increase in risks to such investors.
---------------------------------------------------------------------------

    \645\ See, e.g., TIAA Letter (recommending not requiring 
verification for offerings involving a registered investment 
adviser, broker-dealer placement agent or other such intermediary).
    \646\ See supra note 285.
---------------------------------------------------------------------------

4. Disclosure Requirements
a. Required Disclosures to Non-Accredited Investors in Rule 506(b) 
Offerings
    The amendments to Rule 502(b) generally align financial disclosure 
requirements for non-reporting companies that sell to non-accredited 
investors under Rule 506(b) with the disclosures required for offerings 
under Tier 1 and Tier 2 of Regulation A, which also allows sales to 
non-accredited investors.
i. Benefits
    The amendments to the Rule 502(b) disclosure requirements for sales 
to non-accredited investors will lower the burden of preparing 
financial disclosures, particularly the costs of audited financial 
statements, for issuers in Rule 506(b) offerings up to $20 million that 
would no longer be subject to those requirements.\647\ We do not have 
information on the costs of an audit in Rule 506(b) offerings involving 
sales to non-accredited investors. As a proxy, we consider audit costs 
reported by Regulation A Tier 2 issuers and smaller reporting company 
issuers. Based on Regulation A Tier 2 offerings qualified from June 
2015 through December 2019, the average (median) audit cost, where 
reported, was $29,015 ($12,319). Based on information from Audit 
Analytics, the average (median) audit fees, where available, for 
reporting companies with market capitalization up to $75 million were 
$386,876 ($95,000) for fiscal years ending in 2018 or 2019.\648\ We 
recognize that these costs may differ from the costs incurred by 
issuers in Rule 506(b) offerings to non-accredited investors. Overall, 
relatively few non-accredited investors participated in Rule 506(b) 
offerings affected by these amendments. We estimate that in 2019 among 
new Rule 506(b) offerings by non-reporting issuers other than pooled 
investment funds seeking up to $20 million, between approximately 4.6 
percent and 9.5 percent had at least one non-accredited investor.\649\
---------------------------------------------------------------------------

    \647\ See supra note 313.
    \648\ Estimates reflect data as recorded in Audit Analytics as 
of August 26, 2020, including the full set of filings due for fiscal 
year ending in 2019.
    \649\ See supra note 127. This estimate is based on the analysis 
of data in initial Form D filings with reported offer size, 
excluding pooled investment fund issuers and reporting issuers. 
Reporting issuers are identified based on 2019 filings of annual 
reports or amendments to them.
---------------------------------------------------------------------------

    Lowering costs of sales to non-accredited investors under Rule 
506(b) may expand access to capital for some issuers that are not able 
to obtain sufficient external financing through other methods or 
through sales of securities to accredited investors only under Rule 
506(b). Compliance cost savings in the offering process and expanded 
access to external financing are expected to enhance shareholder value 
and thus benefit the issuer's existing shareholders.
    As a result of lower disclosure costs, some issuers in Rule 506(b) 
offerings that presently do not sell securities to non-accredited 
investors may be more willing to sell securities to non-accredited 
investors, which could increase the number of issuers subject to the 
amendments compared to the estimates above. If the amendments result in 
more issuers selling securities to non-accredited investors under Rule 
506(b), those non-accredited investors could benefit from an expanded 
set of investment opportunities, which might allow them to allocate 
their capital more efficiently. These benefits might be attenuated if 
the increase in sales to non-accredited investors under Rule 506(b) is 
driven by issuers switching from Rule 504, Regulation A, or Regulation 
Crowdfunding offerings, which also accept non-accredited investors, to 
Rule 506(b), resulting in little change in the set of investment 
opportunities available to non-accredited investors. It is difficult to 
predict whether an increase in sales to non-accredited investors under 
Rule 506(b), if any, will be due to additional non-accredited investors 
in Rule 506(b) offerings or greater participation by existing non-
accredited investors in other issuers' Rule 506(b) offerings. Due to 
the limited data disclosed about investors on Form D, we cannot 
estimate the number of unique non-accredited purchasers in such 
offerings because a single investor may be a purchaser in multiple Rule 
506(b) offerings in a given year.
ii. Costs
    Scaling Rule 502(b) disclosure requirements for sales to non-
accredited investors--and particularly repealing the requirement to 
provide audited balance sheets in offerings up to $20 million--can 
result in less informed investor decisions by some non-accredited 
investors.\650\ For instance, to the extent that audited financial 
statements are valuable for informed investment decisions,\651\ scaled

[[Page 3566]]

disclosures in offerings of up to $20 million might cause some non-
accredited investors to incorrectly value the offered securities and to 
make less well informed investment decisions. Further, the elimination 
of audit requirements for disclosures to non-accredited investors in 
Rule 506(b) offerings of up to $20 million might encourage some issuers 
with relatively higher information risk to sell securities to non-
accredited investors given the absence of investment limits in such 
offerings. Costs to investor protection from scaling the audit 
requirement in Rule 506(b) offerings with non-accredited purchasers may 
be higher than in Regulation A offerings because Rule 506(b) offerings 
do not undergo Commission review.\652\ The requirement that non-
accredited investors must satisfy the knowledge and experience standard 
of 17 CFR 230.506(b)(2)(ii) (``Rule 506(b)(2)(ii)'') in order to be 
eligible to participate in an offering under such rule is expected to 
mitigate some of these costs. Further, in the aggregate these costs to 
investors are expected to be limited by the cap on the number of non-
accredited investors that can participate in a Rule 506(b) offering.
---------------------------------------------------------------------------

    \650\ See supra note 314.
    \651\ See, e.g., Erik Boyle & Melissa Lewis-Western, The Value-
Add of an Audit in a Post-SOX World (Working Paper, Apr. 2018) 
(finding that an audit continues to be associated with reduced 
financial statement error at public companies post-SOX and that the 
size of the effect is economically significant); Petro Lisowsky & 
Michael Minnis, The Silent Majority: Private U.S. Firms and 
Financial Reporting Choices (Univ. of Chi. Booth Sch. of Bus., 
Research Paper No. 14-01, Apr. 12, 2018) (finding that ``[n]early 
two-thirds [of private firms] do not produce audited GAAP financial 
statements. Moreover, while firms with external capital are more 
likely to produce audited GAAP statements, we find that thousands of 
firms with external debt and dispersed ownership do not. Equity and 
trade credit are potentially more important factors than debt in 
affecting private firms' production of audited GAAP reports. 
Finally, young, high growth firms lacking tangible assets are 
significantly more likely to produce audited GAAP reports relative 
to established firms with physical assets, suggesting that audited 
financial reports play an important information role in capital 
allocation when business activity is less verifiable.''); Michael 
Minnis, The Value of Financial Statement Verification in Debt 
Financing: Evidence from Private U.S. Firms, 49 J. Acct. Res, 457 
(2011) (showing the value of audited financial statements for 
private debt pricing); David W. Blackwell, Thomas R. Noland, & Drew 
B. Winters, The Value of Auditor Assurance: Evidence from Loan 
Pricing, 36 J. Acct. Res. 57 (1998) (finding cost of debt reductions 
in a small sample of small private firms with audited financial 
statements); and Jeong[hyphen]Bon Kim et al., Voluntary Audits and 
the Cost of Debt Capital for Privately Held Firms: Korean Evidence, 
28 Contemp. Acct. Res. 585 (2011) (confirming the result in a Korean 
sample). See also Ciao-Wei Chen, The Disciplinary Role of Financial 
Statements: Evidence from Mergers and Acquisitions of Privately Held 
Targets, 57 J. Acct. Res. 391 (2019) (examining ``whether requiring 
the disclosure of audited financial statements disciplines managers' 
mergers and acquisitions (M&As) decisions'' and finding that ``the 
disclosure of private targets' financial statements is associated 
with better acquisition decisions . . . [and] that this disciplining 
effect of disclosure is more pronounced when monitoring by outside 
capital providers is more difficult and costly'').
    However, two studies using survey data from the Federal 
Reserve's Survey of Small Business Finances do not find that an 
audit is significantly associated with a lower interest rate in 
small privately held firms. See Kristian D. Allee & Teri Lombardi 
Yohn, The Demand for Financial Statements in an Unregulated 
Environment: An Examination of the Production and Use of Financial 
Statements by Privately-Held Small Businesses, 84 Acct. Rev. 1 
(2009); and Gavin Cassar, Christopher D. Ittner, & Ken S. 
Cavalluzzo, Alternative Information Sources and Information 
Asymmetry Reduction: Evidence from Small Business Debt, 59 J. Acct. 
& Econ. 242 (2015).
    \652\ See NASAA Letter.
---------------------------------------------------------------------------

    In evaluating the investor costs of the amendments, we consider the 
baseline, which includes similarly scaled requirements for financial 
disclosures required to be made to non-accredited investors in 
Regulation A Tier 1 and Regulation Crowdfunding offerings of the same 
size. However, those offering types are associated with certain 
additional provisions intended to protect non-accredited investors, 
which are not afforded to non-accredited purchasers in Rule 506(b) 
offerings (e.g., Commission qualification and State registration of 
Regulation A Tier 1 offerings, offering statement disclosure 
requirements in Regulation A and Regulation Crowdfunding offerings, as 
well as investment limit, periodic disclosure, and funding portal 
requirements in Regulation Crowdfunding offerings). If non-accredited 
investors remain infrequently represented in Rule 506(b) offerings, the 
aggregate impacts on costs to investors may be limited. However, the 
aggregate impacts on investor protection could be amplified if the 
scaled requirements encourage additional issuers to accept non-
accredited investors in Rule 506(b) offerings.
iii. Effects on Efficiency, Competition, and Capital Formation
    If scaled financial statement disclosures lead to more non-
accredited investor offerings under Rule 506(b), and if such investors 
contribute additional capital the issuers would not have otherwise 
raised from accredited investors, the amendments may incrementally 
promote capital formation through Rule 506(b). If non-accredited 
investor capital drawn to Rule 506(b) offerings is mostly reallocated 
from other offerings to non-accredited investors (e.g., registered 
offerings or offerings under Regulation A, Regulation Crowdfunding, 
Rule 504, Rule 147/147A, etc.), the net effects on aggregate capital 
formation will be limited. However, in that instance, issuers may still 
benefit if they are able to obtain a lower cost of capital under the 
amendments (e.g., because of lower compliance costs in Rule 506(b) 
offerings, even after providing disclosures to non-accredited 
investors, or because non-accredited investors in Rule 506(b) offerings 
provide better financing terms).
    Streamlining disclosure requirements in Rule 506(b) offerings with 
non-accredited investors to be more aligned with those under Regulation 
A is expected to make compliance more efficient for those issuers that 
undertake these types of offerings along with Rule 506(b) offerings to 
non-accredited investors.
    The amendments also may incrementally increase the availability of 
Rule 506(b) offerings that allow non-accredited investors, potentially 
enabling more efficient allocation of capital of non-accredited 
investors among investment alternatives that are otherwise unavailable 
to them. While non-accredited investors can participate in other exempt 
offerings, Rule 506(b) offerings account for the largest share of the 
exempt offerings market and draw issuers that typically do not 
participate in Regulation A or Regulation Crowdfunding offerings. The 
majority of Rule 506(b) offerings are by issuers that are not reporting 
companies. While non-accredited investors can invest in registered 
offerings, in most cases issuers in registered offerings have a 
different profile than issuers in private placements.\653\ Expanding 
opportunities

[[Page 3567]]

for investment in operating company and exempt investment fund 
offerings under Rule 506(b) might allow non-accredited investors to 
construct a more efficient portfolio.\654\ However, as discussed above, 
the amendments also may in some cases result in less informed 
investment decisions, lowering the efficiency of capital allocation.
---------------------------------------------------------------------------

    \653\ Investors in public firms can access more extensive 
disclosures and rely on the protections of the Securities Act 
registration and Exchange Act reporting regimes. Listed public firms 
are more likely to have analyst coverage, which may provide 
additional information to investors.
    Past academic studies comparing private and publicly listed 
firms arrive at somewhat mixed conclusions about investment and 
innovation behavior of such firms. For example, one study finds that 
public firms' patents rely more on existing knowledge, are more 
exploitative, and are less likely in new technology classes, while 
private firms' patents are broader in scope and more exploratory. 
See Huasheng Gao, Po-Hsuan Hsu, & Kai Li, Innovation Strategy of 
Private Firms, 53 J. Fin. & Quantitative Analysis 1 (2018). See also 
Daniel Ferreira, Gustavo Manso, & Andr[eacute] C. Silva, Incentives 
to Innovate and the Decision to Go Public or Private, 27 Rev. Fin. 
Stud. 256 (2014) (showing, in a theoretical model, that private 
ownership creates incentives for innovation). Another study shows 
that public firms in external finance dependent (but not in internal 
finance dependent) industries spend more on research and development 
and generate a better patent portfolio than their private 
counterparts. See Viral Acharya & Zhaoxia Xu, Financial Dependence 
and Innovation: The Case of Public versus Private Firms, 124 J. Fin. 
Econ. 223 (2017). A different U.S. study finds that listed firms 
invest less and are less responsive to changes in investment 
opportunities compared to observably similar, matched private firms, 
especially in industries in which stock prices are particularly 
sensitive to current earnings. See John Asker, Joan Farre-Mensa, & 
Alexander Ljungqvist, Corporate Investment and Stock Market Listing: 
A Puzzle?, 28 Rev. Fin. Stud. 342 (2015). But see Naomi E. Feldman 
et al., The Long and the Short of It: Do Public and Private Firms 
Invest Differently? (Working Paper, 2019) (finding that public firms 
invest more in long-term assets--particularly innovation--than 
private firms). See also Vojislav Maksimovic, Gordon M. Phillips, & 
Liu Yang, Do Public Firms Respond to Investment Opportunities More 
than Private Firms? The Impact of Initial Firm Quality (Nat'l Bureau 
of Econ. Research, Working Paper No. 24104, Dec. 2017) (finding that 
public firms respond more to demand shocks after their IPO and are 
more productive than their matched private counterparts, 
particularly in industries that are capital intensive and dependent 
on external financing); and Sandra Mortal & Natalia Reisel, Capital 
Allocation by Public and Private Firms, 48 J. & Quantitative 
Analysis 77 (2013) (a cross-country study showing that public listed 
firms take better advantage of growth opportunities than private 
firms, although the differential only exists in countries with well-
developed stock markets).
    Some studies also find that private and public firms differ in 
their financing, cash, and payout decisions, cost of capital, and 
other characteristics. See, e.g., Kim P. Huynh, Teodora Paligorova, 
& Robert Petrunia, Debt Financing in Private and Public Firms, 14 
Annals Fin. 465 (2018); Huasheng Gao, Jarrad Harford, & Kai Li, 
Determinants of Corporate Cash Policy: Insights from Private Firms, 
109 J. Fin. Econ. 623 (2013); Sandra Mortal, Vikram Nanda, & Natalia 
Reisel, Why Do Private Firms Hold Less Cash than Public Firms? 
International Evidence on Cash Holdings and Borrowing Costs, 113 J. 
Banking & Fin. 1 (2020); Roni Michaely & Michael R. Roberts, 
Corporate Dividend Policies: Lessons from Private Firms, 25 Rev. 
Fin. Stud. 711 (2012); Menachem Abudy, Simon Benning, & Efrat Shust, 
The Cost of Equity for Private Firms, 37 J. Corp. Fin. 431 (2016); 
Ilan Cooper & Richard Priestley, The Expected Returns and Valuations 
of Private and Public Firms, 120 J. Fin. Econ. 41 (2016); and Serkan 
Akguc, Jongmoo Jay Choi, & Suk-Joong Kim, Do Private Firms Perform 
Better than Public Firms? (Working Paper, 2015).
    \654\ In portfolio theory, constraining the set of investment 
opportunities yields a potentially inferior optimal portfolio. 
However, the presence of information frictions due to a lack of 
investor sophistication might reverse this general prediction and 
result in lower portfolio risk-adjusted returns. See supra note 591.
---------------------------------------------------------------------------

    The incremental economic effects of the amendments to non-
accredited investor disclosures in Rule 506(b) offerings discussed 
above might be modest, relative to the baseline, for several reasons: 
(i) While non-accredited investors are not subject to investment limits 
in Rule 506(b) offerings, their participation in Rule 506(b) offerings 
remains highly limited by the restriction that no more than 35 
investors participate and that such investors must meet the knowledge 
and experience standard of the rule; (ii) non-accredited investors may 
be unwilling to participate in the majority of Rule 506(b) offerings 
because of the higher due diligence and transaction costs, potentially 
higher investment minimums that may be inconsistent with optimal 
diversification in their portfolio, and significantly lower liquidity 
involved in private placements due to transferability restrictions and 
a highly limited secondary market; (iii) issuers may be unwilling to 
accept non-accredited investors in Rule 506(b) offerings for reasons 
other than the cost of disclosures (e.g., a preference to attract 
accredited investors that may be able to bring a larger amount of 
capital and business expertise, an unwillingness to expand the 
capitalization table that may make future angel investors or venture 
capital (``VC'') funding less interested in providing funding to the 
issuer, an unwillingness to increase the number of non-accredited 
investors that may draw the issuer incrementally closer to the Section 
12(g) registration threshold, or concerns about investor relations and 
risk of litigation involving less informed investors); and (iv) even 
though required disclosures to non-accredited investors would be scaled 
under the amendments, the direct and indirect costs of such disclosures 
(such as risks of disclosure of proprietary information to a broader 
range of investors) may discourage issuers from selling to non-
accredited investors in Rule 506(b) offerings.
iv. Reasonable Alternatives
    We are repealing audit requirements for Rule 506(b) offerings of up 
to $20 million involving non-accredited investors. As an alternative, 
we could repeal audit requirements for all Rule 506(b) offerings, 
irrespective of offer size. As compared to the proposal, this 
alternative would result in additional compliance cost savings for 
issuers in Rule 506(b) offerings with sales to non-accredited investors 
and might induce additional Rule 506(b) issuers to accept non-
accredited investors. However, the relative benefits of compliance cost 
savings under this alternative might have a more limited impact in 
larger offerings. Further, such an alternative could increase costs to 
non-accredited investors as a result of less well informed investment 
decisions, particularly if non-accredited investors, which are not 
subject to investment limits in Rule 506(b), invest significant amounts 
in large Rule 506(b) offerings without the benefit of audited financial 
statements. Limitations on the number and types of non-accredited 
investors that are eligible to participate in Rule 506(b) offerings (no 
more than 35 non-accredited investors are allowed to participate and 
such investors must possess sophistication) would limit the aggregate 
costs to non-accredited investors under this alternative. Such an 
alternative would also be inconsistent with the requirements applicable 
to other larger offerings available to non-accredited investors, 
including larger offerings under Regulation A Tier 2 and registered 
offerings, both of which require audited financial statements.
    Under the final amendments, audited financial statement disclosures 
will not be required for sales to non-accredited investors in Rule 
506(b) offerings of up to $20 million by non-reporting issuers, 
irrespective of how much capital is invested by non-accredited 
purchasers. As another alternative, we could require audited financial 
statement disclosures in Rule 506(b) offerings by non-reporting issuers 
that have up to $20 million in sales to non-accredited investors. On 
the one hand, this alternative would reduce costs for non-reporting 
issuers with limited sales to non-accredited investors under Rule 
506(b). On the other hand, each non-accredited investor that is a 
purchaser in such an offering may incur a potentially significant loss 
of information and increase in due diligence costs, which do not depend 
on the amount of capital committed by other non-accredited investors to 
this offering.
    As another alternative, rather than scale disclosure requirements 
in Rule 506(b) offerings by non-reporting issuers of up to $20 million 
with sales to non-accredited investors, we could waive the requirements 
for disclosures to non-accredited investors altogether. This 
alternative would result in significantly lower compliance costs for 
issuers and could encourage more issuers to sell securities to non-
accredited investors under Rule 506(b). However, the loss of 
information to non-accredited investors could significantly reduce 
their ability to allocate capital in an informed manner, particularly 
because a lack of a secondary trading market in many cases precludes 
effective price discovery through other sources. Alternatively, we 
could require issuers to provide the same disclosures to non-accredited 
investors if they provide any disclosures, such as a private placement 
memorandum, to accredited investors. While such a provision could 
significantly lower non-accredited investor information risk and due 
diligence costs in some cases, without dramatically increasing issuer 
costs (because they already would have to incur many of the direct 
costs to provide the disclosure to accredited investors), non-
accredited investors might suffer a significant loss of information in 
cases where the issuer's disclosures to accredited investors are 
limited. The existing requirement that the non-

[[Page 3568]]

accredited investor satisfy the knowledge and experience standard of 
Rule 506(b)(2)(ii), as well as the continued application of the 
antifraud provisions of the Federal securities laws, might mitigate 
some of the investor protection risks under this alternative.
    We are extending the disclosure requirements of Regulation A Tier 2 
for sales to non-accredited investors by non-reporting issuers under 
Rule 506(b), irrespective of the size of the Rule 506(b) offering above 
$20 million. As an alternative, we could extend the financial statement 
requirements of Regulation A Tier 2 to sales to non-accredited 
investors in offerings under Rule 506(b) up to $75 million (the amended 
Regulation A Tier 2 offer limit), and continue to apply the existing 
financial statement disclosure requirements (that are aligned with the 
financial statement disclosure requirements applicable to registration 
statements) to Rule 506(b) offerings exceeding $75 million that include 
sales to non-accredited investors. Compared to the final amendments, 
this alternative might increase compliance costs for non-reporting 
issuers seeking to raise over $75 million under Rule 506(b) and sell 
securities to non-accredited investors. At the same time, these 
financial statement disclosures may lower the risk of less informed 
investment decisions by non-accredited investors in such offerings 
compared to the proposal, particularly for small and pre-revenue 
issuers with large financing needs. However, the impact of this 
alternative may be modest because relatively few offerings would be 
affected by this alternative compared to the final amendments. We 
estimate that in 2019 there were approximately 383 offerings under Rule 
506(b) by non-reporting issuers other than pooled investment funds with 
offer sizes in excess of $75 million (excluding undefined offer sizes), 
of which between 3.1 percent and 4.4 percent of offerings involved non-
accredited investors.\655\ This alternative might also decrease the 
willingness of non-reporting issuers to accept non-accredited investors 
in Rule 506(b) offerings exceeding $75 million, resulting in 
potentially fewer investment opportunities for non-accredited investors 
compared to the proposal.
---------------------------------------------------------------------------

    \655\ See supra note 127. This estimate is based on the analysis 
of Form D data in initial Form D filings with reported offer size, 
excluding pooled investment fund issuers and reporting issuers. 
Reporting issuers are identified based on 2019 filings of annual 
reports or amendments to them.
---------------------------------------------------------------------------

    As another alternative, we could extend Regulation Crowdfunding 
financial statement disclosure requirements to Rule 506(b) offerings 
with non-accredited purchasers, as suggested by one commenter.\656\ 
Under such an alternative, issuers in offerings above $107,000 and up 
to $5 million (the amended Regulation Crowdfunding limit) would have to 
provide non-accredited purchasers with financial statements that have 
been either reviewed or audited by an independent accountant (depending 
on offering size). Compared to the amendments, which only require 
audited financial statements in offerings with non-accredited 
purchasers of above $20 million, this alternative could provide non-
accredited purchasers in such offerings with additional certainty about 
financial statement disclosures. However, it also would introduce 
additional costs for such issuers to obtain an independent accountant 
review \657\ or audit of its financial statements.
---------------------------------------------------------------------------

    \656\ See, e.g., J. Clarke Letter.
    \657\ In the Regulation Crowdfunding Adopting Release, the 
Commission estimated review costs to be approximately $1,500 to 
$18,000. See Regulation Crowdfunding Adopting Release, at 71499. 
Recent reports and commenters estimate such costs at between $1,500 
and $6,000. See Temporary Amendments Adopting Release, at 27127.
---------------------------------------------------------------------------

b. Simplification of Disclosure Requirements in Regulation A Offerings
    The final amendments extend to Regulation A issuers certain 
accommodations presently available to reporting companies, namely: (1) 
The option to redact confidential information from material contracts 
and certain other agreements filed as exhibits without a need to submit 
a confidential treatment request; (2) the option to redact information 
that would constitute a clearly unwarranted invasion of personal 
privacy in any exhibit; and (3) the option of incorporating by 
reference financial statement information into Regulation A offering 
statements. The amendments also eliminate the requirement to file a 
draft offering statement as a separate exhibit with Form 1-A and 
instead enable automated public dissemination of the draft offering 
statement through EDGAR, similar to the framework in place for 
registered offerings. In addition, the amendments permit the Commission 
to declare an offering statement, or a post-qualification amendment to 
such offering statement, abandoned, consistent with the rule applicable 
to registered offerings.
i. Benefits
    Extending to Regulation A issuers the option to redact confidential 
information from material contracts and certain other agreements filed 
as exhibits without a need to submit a confidential treatment request--
provided that information is not material and is the type of 
information that the issuer both customarily and actually treats as 
private and confidential--is expected to reduce disclosure costs for 
Regulation A issuers and expedite the filing process by eliminating the 
need to file a confidential treatment application and the associated 
cost, which was supported by the commenters that addressed these 
amendments.\658\ Similarly, extending to Regulation A issuers the 
option to redact information that would constitute a clearly 
unwarranted invasion of personal privacy in any exhibit is expected to 
reduce disclosure costs and expedite the filing process for affected 
Regulation A issuers. These accommodations are currently available to 
reporting companies. Submitting a confidential treatment request 
requires a filer to prepare a detailed application to the Commission 
that identifies the particular text for which confidential treatment is 
sought, a statement of the legal grounds for the exemption, and an 
explanation of why, based on the facts and circumstances of the 
particular case, disclosure of the information is unnecessary for the 
protection of investors. If the Commission staff issues comments on the 
application, the filer might need to revise and resubmit the 
application. These requirements impose direct compliance costs on 
filers, for instance, in the form of legal counsel costs. For filers 
not willing or not able to incur such costs, inclusion of confidential 
information of proprietary value in a material contract or similar 
exhibit that is filed publicly can result in significant indirect costs 
due to the disclosure of sensitive information to potential 
competitors. While under the amendments, filers would still need to 
determine whether information they are redacting is material, they will 
not need to follow the confidential treatment application process.
---------------------------------------------------------------------------

    \658\ See supra note 326.
---------------------------------------------------------------------------

    Based on EDGAR filings analysis, we have identified 11 issuers in 
qualified Regulation A offerings that have also filed confidential 
treatment applications as of December 2019. We lack data to determine 
how many of those filers had filed confidential treatment applications 
with regard to information that could be redacted under the amendments. 
In general, more than 90 percent of the confidential treatment requests 
granted by the Commission in fiscal year 2018

[[Page 3569]]

were made in reliance on the exemption concerning competitive harm. It 
is also difficult to gauge how many filers had proprietary information 
in material contracts or similar exhibits but opted not to file a 
confidential treatment request due to legal and other costs of 
preparing such a request. One commenter on the FAST Act Modernization 
Release estimated that legal fees for confidential treatment requests 
ranged from $35,000 to over $200,000,\659\ while another commenter 
estimated that attorneys and paralegals at the company spend an average 
of 80 hours each quarter preparing redacted exhibits and related 
confidential treatment requests.\660\ According to another commenter, 
the cost savings of streamlining the confidential treatment process are 
expected to be relatively more impactful for smaller filers because 
such issuers have a lower threshold for determining whether a contract 
is material and therefore required to be filed publicly, as well as for 
issuers in industries that are associated with more confidential 
treatment requests, such as biotechnology.\661\ We generally expect 
similar cost savings from extending this accommodation to Regulation A 
issuers.
---------------------------------------------------------------------------

    \659\ See FAST Act Modernization Release, at note 341.
    \660\ See FAST Act Modernization Release, at note 342. Under the 
amendments, filers will still need to prepare redacted exhibits and 
in some cases filers will incur costs to respond to a staff request 
to demonstrate that redacted information was not material.
    \661\ See FAST Act Modernization Release, at note 343 and 
accompanying text.
---------------------------------------------------------------------------

    Similarly, extending to Regulation A issuers the option of 
incorporation by reference of previously filed financial statement 
information into the offering statement, consistent with the current 
rules applicable to registered securities offerings filed on Form S-1, 
is expected to incrementally reduce Form 1-A preparation costs.
    Enabling automated dissemination of draft offering statements in 
lieu of the existing exhibit filing requirement, consistent with the 
process of dissemination of draft registration statements, is expected 
to incrementally reduce filer effort to prepare the offering statement 
and promote greater efficiency of the filing process and regulatory 
harmonization.
    Similarly, permitting the Commission to declare an offering 
statement, or a post-qualification amendment to such offering 
statement, abandoned, consistent with the rule applicable to registered 
offerings, is expected to promote greater regulatory harmonization and 
to incrementally promote efficiency of the filing process in cases 
where only a post-qualification amendment, rather than the entire 
offering, is abandoned. The amendments are expected to benefit 
investors by reducing potential investor confusion arising from the 
presence of the unqualified post-qualification amendment on EDGAR.
ii. Costs
    The extension of the option to redact confidential information from 
material contracts filed as exhibits to Regulation A filings is not 
expected to result in a significant loss of information to investors 
because of the condition that any information being omitted not be 
material. Filers electing to rely on this accommodation would still 
need to incur costs to determine that information meets the standard 
for redaction, as they do today when they file a confidential treatment 
request, but they would not incur the cost of preparing a confidential 
treatment application.\662\ One potential cost of the final amendments 
to Regulation A investors is that information might be redacted by 
filers that would not otherwise be afforded confidential treatment by 
the staff. However, based on previous experience and a review of 
confidential treatment applications by reporting companies, we believe 
that such instances would be rare.\663\
---------------------------------------------------------------------------

    \662\ Filers may be asked by the Commission staff to provide on 
a supplemental basis an unredacted copy of the exhibit and provide 
an analysis of why the redactions are consistent with the redacted 
exhibit rules, which might result in incremental additional costs.
    \663\ See FAST Act Modernization Release, at Section VI.D.2.
---------------------------------------------------------------------------

    Allowing Regulation A issuers to rely on incorporation by reference 
of financial statement information from previously filed periodic 
reports may marginally increase search time for potential investors. 
Instead of having all the information available in one location, 
investors may need to separately access the incorporated reports in 
order to price the offered security. However, the inclusion of 
hyperlinks should facilitate the retrieval of such information by 
investors. As a result, any increase in the costs to investors of 
assembling and assimilating necessary information is expected to be 
minimal. We do not have data to assess if, and to what extent, the Form 
1-A revision would be burdensome to investors.
iii. Effects on Efficiency, Competition, and Capital Formation
    Extending certain disclosure accommodations presently available to 
reporting companies to Regulation A issuers is expected to have an 
incremental beneficial effect on capital formation under Regulation A 
by reducing disclosure and compliance costs required to undertake a 
Regulation A offering. If lower compliance costs encourage new issuers, 
particularly smaller issuers with less compliance experience that might 
not have otherwise been able to access external financing, to raise 
capital under Regulation A, the amendments may, on the margin, promote 
competition. Compliance cost savings may have relatively greater 
benefits for smaller issuers to the extent that such costs have a fixed 
component.
    If the amendments marginally reduce the amount of information 
available to investors such that the ability to make informed 
investment decisions is affected, they may result in less efficient 
capital allocation and, for Regulation A securities with a secondary 
market (e.g., OTC-quoted Regulation A securities), less informationally 
efficient secondary market prices.
iv. Reasonable Alternatives

[[Page 3570]]

    The amendments will permit Regulation A issuers to incorporate 
previously filed financial statements by reference. As an alternative, 
we could also permit forward incorporation by reference on Form 1-A 
with the same conditions as the ones for forward incorporation by 
reference available to smaller reporting companies on Form S-1. Forward 
incorporation by reference allows an issuer to automatically 
incorporate by reference periodic and current reports filed subsequent 
to the qualification of the registration statement. This would result 
in compliance cost savings for Regulation A issuers and allow for 
greater regulatory harmonization and more uniformity in disclosure 
requirements applicable to different categories of offerings by small 
issuers. Forward incorporation by reference would eliminate the need 
for Regulation A issuers to update information in a qualified Form 1-A 
filing that has become stale or is incomplete and file post-
qualification amendments solely related to updating information from 
periodic reports, thereby reducing compliance costs.\664\ By avoiding 
the need to file certain post-qualification amendments, under this 
alternative Regulation A issuers might be able to move more quickly and 
at a lower cost to raise capital when favorable market conditions 
occur. Forward incorporation by reference, however, could increase 
investor search costs and eliminate the benefit of staff review of 
post-qualification amendments. Because issuers with a relatively higher 
level of information risk--for instance, issuers not current in their 
reports, blank check companies, shell companies (other than business 
combination related shell companies), and penny stock issuers, as well 
as issuers whose reports are not available on a website maintained by 
or for the issuer--would be ineligible for forward incorporation under 
this alternative, the increase in investor information gathering costs 
under this alternative might be small.
---------------------------------------------------------------------------

    \664\ We lack data for a reliable estimate of the number of 
affected issuers because it is difficult to determine which of the 
post-qualification filings solely update information from periodic 
reports versus other information, such as offering price, amount 
sought, offering deadline, as well as financial information. Based 
on the analysis of EDGAR filings from June 2015 through December 
2019, we estimate that the average (median) issuer in a qualified 
Regulation A offering has filed 1.7 (0) post-qualification 
amendments.
---------------------------------------------------------------------------

    The disclosure simplification amendments will apply to all 
Regulation A issuers. As an alternative, we could extend the provisions 
only to Regulation A issuers that are reporting companies. This 
alternative would be generally consistent with the treatment of 
reporting companies in registered offerings. It would decrease the 
potential for loss of information available to Regulation A investors 
about material contracts and similar agreements and marginally reduce 
their costs of retrieving financial statement information from 
previously filed periodic reports that are incorporated by reference 
for issuers other than reporting companies. However, this alternative 
also would decrease the benefits of the rule, compared to the 
proposal.\665\
---------------------------------------------------------------------------

    \665\ The change to permit Exchange Act registrants to use 
Regulation A was adopted in December 2018 and approximately 17 
Exchange Act registrants sought to use Regulation A to conduct an 
offering in 2019, of which 11 of those offerings were qualified.
---------------------------------------------------------------------------

c. Confidential Information Standard
    As discussed in Section II.D.3 above, the current requirements for 
registrants to file material contracts as exhibits to their disclosure 
documents permit registrants to redact provisions or terms of exhibits 
required to be filed if those provisions or terms are both (i) not 
material and (ii) would likely cause competitive harm to the registrant 
if publicly disclosed. We are adopting as proposed the amendments to 
the exhibit filing requirements by removing the competitive harm 
requirement and replacing it with a standard more closely aligned with 
the Supreme Court's definition of ``confidential'' that permits 
information to be redacted from material contracts if it is the type of 
information that the issuer both customarily and actually treats as 
private and confidential and that is also not material. These 
amendments are expected to benefit issuers through greater regulatory 
simplification and harmonization of the requirements governing 
confidential information in exhibits with the Supreme Court's 
definition, enabling more efficient compliance and greater flexibility 
to redact confidential information from exhibits. To the extent that 
the amendments makes the option to redact certain information from 
exhibits more attractive to issuers, it may result in a marginally 
decreased availability of information to investors.
    As an alternative, as suggested by one commenter, we could have 
extended the amendments to include participation agreement and 
administrative contract exhibits to Form N-6.\666\ This alternative 
would be unlikely to result in significant benefits to issuers because 
information contained in such exhibits is already disclosed to 
investors in other contexts and, in our staff's experience, these 
exhibits do not contain confidential or proprietary information.
---------------------------------------------------------------------------

    \666\ See Comm. of Annuity Insurers Letter.
---------------------------------------------------------------------------

5. Offering and Investment Limits
a. Offering and Investment Limits Under Regulation A, Regulation 
Crowdfunding, and Rule 504
    As proposed, the final amendments increase the 12-month offering 
limit for Regulation Crowdfunding, presently set at $1.07 million, to 
$5 million; the 12-month offering limit for Regulation A Tier 2, 
presently set at $50 million, to $75 million with the associated 
revision of the 12-month offering limit for sales by existing affiliate 
security holders from $15 million to $22.5 million; and the 12-month 
offering limit for Rule 504, presently set at $5 million, to $10 
million.
    We can gain some insight into the likely capital formation benefits 
of a higher offering limit from repeat issuers that have raised 
multiple rounds of financing under the capped offering exemptions. Some 
of those issuers might have had to raise financing over multiple years 
because of the existing offering limits. The following table examines 
total proceeds per issuer reported raised during 2016 through 2019.

   Table 11--Capital Raising During 2016-2019 by Repeat Issuers Using
                           Affected Exemptions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Number of Regulation A issuers that raised at     14.
 least $50 million.
Average (median) amount reported raised.........  $13.4 million ($5.0
                                                   million).
Number of Regulation Crowdfunding issuers that    51 (27).
 raised at least $1.0 million ($1.07 million).
Average (median) amount reported raised.........  $213,678 ($106,900).
Number of Rule 504 issuers other than pooled      7.
 investment funds that raised at least $5
 million.
Average (median) amount reported raised.........  $384,200 ($100,000).
------------------------------------------------------------------------

[[Page 3571]]

    Some of the existing issuers under the exemptions being amended 
have conducted other types of offerings that are not subject to 
offering limits. Information about offering sizes in Rule 506 can 
provide additional insights for the review of the offering limits for 
Regulation A, Regulation Crowdfunding, and Rule 504.\667\ Generally, 
however, we do not know whether those issuers used Rule 506 because the 
offering limits of the exemptions being amended were too low for their 
needs or for other reasons. The table below shows the capital raising 
under Rule 506 in 2019 by issuers using offering exemptions being 
amended.\668\
---------------------------------------------------------------------------

    \667\ We focus on Rule 506 offerings due to data limitations. 
First, reporting companies are ineligible under Rule 504. 
Additionally, we have identified only one Regulation Crowdfunding 
issuer that has undertaken a registered offering as of December 31, 
2019. Further, very few Regulation A issuers have undertaken a 
registered offering during this period, resulting in a lack of 
reliable data on such issuers' registered offering proceeds. From 
June 19, 2015, through December 31, 2019, we identified 14 issuers 
in qualified Regulation A offerings that had a registration 
statement declared effective, based on the analysis of EDGAR 
filings. These were issuers that proceeded to list on an exchange 
after their Regulation A offering and then sought follow-on 
financing through a registered offering.
    \668\ For purposes of this table, Regulation A issuers are 
defined as issuers in qualified Regulation A offerings from June 
2015 through December 2019; Rule 504 issuers are defined as issuers 
in new and amended Rule 504 offerings from 2016 through 2019; 
Regulation Crowdfunding issuers are issuers in Regulation 
Crowdfunding offerings from May 2016 through December 2019. Data on 
Rule 506 financing is based on total proceeds reported raised per 
issuer in new and amended Form D filings from 2019. Pooled 
investment funds are excluded.

    Table 12--Capital Raising Under Rule 506 in 2019 by Issuers Using
                           Affected Exemptions
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Number of Regulation A issuers raising financing  34.
 under Rule 506.
Average (median) amount reported raised under     $5.8 million ($0.2
 Rule 506 per Regulation A issuer.                 million).
Number of Regulation Crowdfunding issuers         139.
 raising financing under Rule 506.
Average (median) amount reported raised under     $2.4 million ($0.2
 Rule 506 per Regulation Crowdfunding issuer.      million).
Number of Rule 504 issuers raising financing      110.
 under Rule 506.
Average (median) amount reported raised under     $1.4 million ($0.3
 Rule 506 per Rule 504 issuer.                     million).
------------------------------------------------------------------------

    Evidence in Tables 11 and 12 suggests that most issuers that rely 
on Regulation A, Regulation Crowdfunding, and Rule 504 tend to raise 
amounts of financing, both under these exemptions and when they raise 
financing under Rule 506, which has no offering limit, that are below 
the existing offering limits. This observation is based on the pool of 
issuers attracted to these offering exemptions with the provisions that 
are in place today. It is likely that issuers with larger financing 
needs forgo the exemptions with offering limits that are too low for 
their financing needs. Expanding the offering limits is therefore 
expected to attract additional issuers to these exemptions.
    It is difficult to predict how many new issuers will be drawn to 
Regulation Crowdfunding, Regulation A, and Rule 504 under the amended 
offering limits. Because of potential unobservable differences in 
issuer characteristics, comparisons presented below are intended as 
illustrative examples. The table below \669\ examines the use of other 
securities offering methods by issuers that raised amounts above the 
existing limits but below the amended offering limit thresholds, some 
of which may consider using the amended exemptions. We consider (1) 
Rule 506 and registered offerings for purposes of analyzing the amended 
offering limit threshold under Regulation A; (2) Regulation A, Rule 
504, and Rule 506 offerings for purposes of analyzing the amended 
offering limit threshold under Regulation Crowdfunding; and (3) 
Regulation A and Rule 506 offerings for purposes of analyzing the 
amended offering limit threshold under Rule 504.\670\ Information on 
amounts raised under Section 4(a)(2), Section 3(a)(11), and Rules 147/
147A is not available to us.
---------------------------------------------------------------------------

    \669\ For purposes of this table, Regulation A issuers are 
defined as issuers in qualified Regulation A offerings from June 
2015 through December 2019; Rule 504 issuers are defined as issuers 
in new and amended Rule 504 offerings from 2016 through 2019; 
Regulation Crowdfunding issuers are issuers in Regulation 
Crowdfunding offerings from May 2016 through December 2019. Data on 
Rule 506 financing is based on total proceeds reported raised per 
issuer in new and amended Form D filings from 2019. Pooled 
investment funds are excluded.
    \670\ For purposes of analyzing the amended offering limit 
thresholds under Regulation Crowdfunding and Rule 504, we do not 
consider registered offering activity, as registered offerings are 
not likely to be a cost-effective alternative at those offer sizes.

Table 13--Evaluation of Offering Limit Amendments Based on Evidence From
            Select Other Securities Offering Methods in 2019
------------------------------------------------------------------------
 
------------------------------------------------------------------------
  Regulation A: Offering limit increase from $50 million to $75 million
------------------------------------------------------------------------
Number of issuers in offerings that raised above $50
 million and up to $75 million:
    Rule 506 \a\...........................................          171
    Registered offerings \b\...............................           57
------------------------------------------------------------------------
 Regulation Crowdfunding: Offering limit increase from $1.07 million to
                               $5 million
------------------------------------------------------------------------
Number of issuers in offerings that raised above $1.07
 million and up to $5 million:
    Regulation A \c\.......................................           13
    Rule 504 \d\...........................................           55
    Rule 506 \e\...........................................        4,004
------------------------------------------------------------------------
    Rule 504: Offering limit increase from $5 million to $10 million
------------------------------------------------------------------------
Number of issuers in offerings that raised above $5 million
 and up to $10 million:
    Regulation A \f\.......................................           10

[[Page 3572]]

 
    Rule 506 \g\...........................................        1,618
------------------------------------------------------------------------
\a\ Regulation A eligibility criteria exclude investment companies and
  blank check companies and limit the exemption to U.S. and Canadian
  issuers, so for comparability pooled investment funds and issuers
  outside the U.S. and Canada are excluded from the Rule 506 proceeds
  used in this estimate. Reporting companies are eligible to rely on
  Regulation A under the 2018 amendments.
\b\ Registered offering proceeds are based on gross proceeds reported in
  SDC Platinum for U.S. public offerings of equity, debt, and
  convertible securities with issue dates in 2019, excluding withdrawn,
  postponed, and rumored offerings, asset-backed securities offerings,
  blank check issuers, investment fund issuers, and issuers outside the
  U.S. and Canada.
\c\ For purposes of this table, only incremental Regulation A proceeds
  reported in 2019 are considered, as opposed to cumulative proceeds
  reported from June 2015 through December 2019. Regulation Crowdfunding
  eligibility criteria limit the exemption to U.S. issuers and exclude
  Exchange Act reporting companies, so for comparability non-U.S.
  issuers and reporting companies are excluded from the Regulation A
  proceeds used in this estimate.
\d\ Regulation Crowdfunding eligibility criteria exclude investment
  companies and Exchange Act reporting companies and limit the exemption
  to U.S. issuers, so for comparability pooled investment funds and non-
  U.S. issuers are excluded from Rule 504 proceeds used in this
  estimate. Reporting companies are ineligible under Rule 504.
\e\ Regulation Crowdfunding eligibility criteria exclude investment
  companies and Exchange Act reporting companies and limit the exemption
  to U.S. issuers, so for comparability pooled investment funds,
  reporting companies, and non-U.S. issuers are excluded from Rule 506
  proceeds used in this estimate. Reporting companies are identified
  based on annual reports or amendments to them filed in 2019.
\f\ For purposes of this table, only incremental Regulation A proceeds
  reported in 2019 are considered, as opposed to cumulative proceeds
  reported from June 2015 through the end of the period. Rule 504
  eligibility criteria exclude Exchange Act reporting companies, so for
  comparability reporting companies are excluded from the Regulation A
  proceeds used in this estimate.
\g\ For comparability with other estimates in this table, we exclude
  reporting companies and pooled investment funds from Rule 506 proceeds
  used in this estimate. Reporting companies are identified based on
  annual reports or amendments to them filed in 2019.

    Given the scale of Regulation A offering activity today, the number 
of Rule 506 and registered offerings in the $50 million to $75 million 
range suggests potential for a significant relative increase in 
Regulation A activity under the amended offering limit. As a crucial 
caveat, issuers choosing to rely on Rule 506 or registered offerings 
today may be inherently different from the types of issuers that might 
find Regulation A attractive under the amended limit. Further, the 
number of Rule 506 offerings in the $1.07 million to $5 million range 
significantly exceeds the absolute number of Regulation Crowdfunding 
offerings today, which thus may suggest potential for a significant 
relative increase in Regulation Crowdfunding activity under the amended 
offering limit. Similarly, the number of Rule 506 offerings in the $5 
million to $10 million range significantly exceeds the absolute number 
of Rule 504 offerings today, which thus may suggest potential for a 
significant relative increase in Rule 504 activity under the amended 
offering limit. As a caveat, issuers choosing to rely on Rule 506 today 
may be inherently different from the types of issuers that might find 
Regulation Crowdfunding or Rule 504 attractive under the amended 
limits. Importantly, historical use of other offering methods may not 
fully represent potential future use of the exemptions being amended, 
particularly if the amendments facilitate offerings by issuers that may 
not currently rely on securities offerings. We lack data or a 
methodology to predict how many new issuers that would not have 
otherwise undertaken any securities offering will be drawn to 
Regulation Crowdfunding, Regulation A, and Rule 504 under the 
amendments.
    As discussed above, in response to commenters, we also are 
extending for an additional 18 months the temporary relief from certain 
financial statement review requirements for eligible issuers offering 
up to $250,000 of securities in reliance on Regulation Crowdfunding in 
a 12-month period. The temporary final rules adopted on May 4, 2020, 
and subsequently extended on August 28, 2020, serve as the economic 
baseline against which the costs and benefits, as well as the impact on 
efficiency, competition, and capital formation, of these amendments are 
measured. Consistent with the existing temporary relief, the 
eligibility criteria exclude (1) issuers that were organized or had 
operations for less than six months prior to the commencement of the 
offering and (2) issuers that were not compliant with Regulation 
Crowdfunding requirements with regard to any prior offerings in which 
they sold securities. Historical data provides an indication of the 
potential share of offerings eligible for the extended relief among all 
offerings. From the inception of Regulation Crowdfunding through 
December 31, 2019, we estimate that 1,537 (approximately 77 percent of 
the total number of crowdfunding offerings during this period) were 
initiated by 1,407 issuers that were eligible or would have been 
eligible for the relief under the six-month eligibility criteria.\671\ 
It is more difficult to estimate the percentage of prior Regulation 
Crowdfunding issuers that would not be eligible because they were not 
compliant with one or more of the requirements of Regulation 
Crowdfunding in a prior offering. From inception through December 31, 
2019, we estimate that there were 149 repeat Regulation Crowdfunding 
issuers, including 116 such issuers that had reported successful 
completion of at least one Regulation Crowdfunding offering on Form C-
U.\672\ We are unable to predict precisely the number of issuers likely 
to rely on this provision among eligible issuers.\673\ A review of new 
filings made on Form C on or after May 4, 2020, provides some 
information about issuer reliance on this provision under the existing 
temporary relief. As of September 30, 2020, we find that, of the 400 
new offerings on Form C by eligible issuers (excluding filings 
withdrawn as of September 30, 2020, and duplicate filings, across 
offerings of all sizes), 53 offerings, or 13% provided certified

[[Page 3573]]

rather than reviewed financial statements.\674\
---------------------------------------------------------------------------

    \671\ For this estimate, eligibility was estimated approximately 
based on the issuer having been formed at least six months prior to 
the filing date of the offering as reported in the XML portion of 
Form C and having had (1) either positive assets, revenues, net 
income, debt, accounts receivable, cost of goods sold, taxes paid, 
or employees in the most recent fiscal year reported in the XML 
portion of Form C, or (2) a prior Regulation Crowdfunding offering. 
In addition, we recognize that many of the past Regulation 
Crowdfunding issuers may meet the six-month eligibility criterion as 
of the effective date of these amendments, should they wish to avail 
themselves of the relief for a follow-on offering under Regulation 
Crowdfunding.
    \672\ This figure likely provides a lower bound on the number of 
issuers that have initiated a follow-on offering after successfully 
completing a prior offering due to incomplete reporting of offering 
proceeds on Form C-U. Follow-on issuance activity may differ from 
historical data due to changes in the crowdfunding market as a 
result of confounding market factors and continued uptake of the 
relief under the temporary rules by past issuers. See also Temporary 
Amendments Adopting Release, at 27124.
    \673\ For a more detailed discussion, see Temporary Amendments 
Adopting Release, at 27124-5.
    \674\ See supra note 671 for the definition of eligible issuer 
used in this estimate. This estimate may represent a lower bound 
because reliance on the provisions is not disclosed in a structured 
data or in a standardized format and was evaluated based on manual 
review of filings for mention of the temporary rules. Of the issuers 
in the 53 offerings, we identified 48 as first-time issuers and five 
as repeat Regulation Crowdfunding issuers based on having made a 
prior filing on Form C. Each of the five repeat Regulation 
Crowdfunding issuers had made a filing on Form C-U and a filing on 
Form C-AR (annual report), however, our review did not examine the 
details of these filings for specific content. In addition to the 
issuers in the 53 offerings discussed above (which listed dates of 
organization that were six months or more prior to filing), we 
examined all issuers using reviewed financial statement relief 
between May 4, 2020, and September 30, 2020, and we identified four 
issuers (all of which were first-time issuers) in offerings seeking 
above $107,000 and up to $250,000 that listed a date of organization 
that was less than six months prior to filing. We could not confirm, 
based on the filings, whether the issuers may have been organized 
prior to the date listed, such as in a different corporate form 
(e.g., a limited liability company instead of a corporation). Our 
review of the recent Regulation Crowdfunding filings focused on the 
use of the relief and the small sample size on which these estimates 
are based limits our ability to draw systematic inference about 
issuers relying on the relief.
---------------------------------------------------------------------------

i. Benefits
    The amended Regulation A Tier 2, Regulation Crowdfunding, and Rule 
504 offering limits are expected to increase capital formation in those 
markets by enabling existing issuers that are approaching offering 
limits to raise larger amounts of financing, as well as by drawing new 
issuers that are deterred by relatively low offering limits today.\675\
---------------------------------------------------------------------------

    \675\ See supra notes 363 and 365 (noting commenters supporting 
the benefits of an increased Regulation A limit); supra note 419 
(noting commenters supporting the benefits of an increased 
Regulation Crowdfunding limit); and supra note 397 (noting 
commenters supporting the benefits of an increased Rule 504 limit). 
Many individual commenters recommended raising the Regulation 
Crowdfunding limit in light of economic concerns raised by COVID-19.
---------------------------------------------------------------------------

    We recognize that these benefits will be limited if issuers raise 
amounts below the limit. We note that some commenters suggested that 
there is not compelling evidence of the need for increased offering 
limits in Regulation A, Regulation Crowdfunding, or Rule 504 or that 
more information is needed to determine whether such an increase is 
appropriate.\676\ While historical utilization rates for these 
exemptions have not reached offering limits for the average issuer, it 
is important to note that estimates from past data obtained under the 
existing limits are inevitably subject to selection bias--high-growth 
issuers or larger issuers with considerable financing needs may forgo 
these offering methods because it may not make sense for such issuers 
to incur the cost of an offering with a lower offering limit in 
addition to pursuing other financing options. Similarly, the high fixed 
cost of due diligence and marketing related to the kinds of small 
issuers and offerings represented in the market today may cause 
intermediaries to be unwilling to participate in the Regulation A 
market under the existing offering limits. As a result, if smaller 
issuers, issuers with a lower growth rate, or issuers without 
intermediaries are overrepresented in the Regulation A market today, 
they may account for relatively low average proceeds raised. Thus, 
historical utilization rates could fail to capture the potentially 
expanded pool of prospective issuers with larger financing needs that 
may consider these exemptions, and pursue larger offerings, under the 
amendments, as well as the potentially expanded pool of intermediaries 
and investors that are expected to be drawn to the Regulation A market 
under the amended offering limit. Similarly, startups whose financing 
needs may exceed the existing $1.07 million annual Regulation 
Crowdfunding limit or the existing $5 million Rule 504 limit--such as 
startups with a significant growth potential--may be reluctant to 
consider Regulation Crowdfunding or Rule 504 because even after they 
incur the cost of compliance and other offering costs, they would still 
have to resort to other financing to meet their remaining financing 
needs. Thus, the existing offering limits likely shape the composition 
of issuers, intermediaries, and investors attracted to these 
exemptions. While it is possible that low utilization will continue to 
be driven by factors other than the offering limit, significant caution 
is warranted with respect to any prediction of future utilization under 
an expanded offering limit extrapolated from historical data.
---------------------------------------------------------------------------

    \676\ See supra notes 370, 425, and 398.
---------------------------------------------------------------------------

    The effects on aggregate capital formation will also be limited if 
the issuers drawn to the amended exemptions are switching from other 
securities offering methods; \677\ however, such issuers may still 
benefit from optimizing their financing strategy and lowering their 
cost of capital.
---------------------------------------------------------------------------

    \677\ See supra note 427 (discussing concerns of commenters 
about substitution between registered offering and exempt offering 
markets).
---------------------------------------------------------------------------

    The amendments also may lead to changes in the composition of the 
pool of issuers relying on these exemptions by drawing a larger and 
more diversified set of issuers with high growth potential and 
financing needs in excess of the existing limits.\678\ Today such 
startups may forgo an exemption with an offering limit in favor of a 
Rule 506 offering. A broader and more diversified range of investment 
opportunities may benefit investors in these market segments, 
particularly non-accredited investors that seek exposure to private 
companies but are constrained from participation in private placements. 
The amended offering limits also may make the exemptions more 
attractive to a broader range of intermediaries, some of which may be 
deterred from participating in these markets today by fixed costs 
(e.g., due diligence, compliance, crowdfunding platform operation, 
etc.) in proportion to potential compensation.\679\
---------------------------------------------------------------------------

    \678\ See, e.g., supra note 365 (discussing comment letters that 
suggested that an increase in the Regulation A offering limit could 
encourage development of the smaller initial public offering market, 
encouraging more issuers to conduct offerings and providing more 
investment opportunities for investors).
    \679\ See, e.g., supra note 366 (discussing commenters that 
suggested that the higher offering limits would improve the 
economics for issuers and broker dealers to participate in the 
Regulation A market).
---------------------------------------------------------------------------

    Under the existing rules, Regulation A Tier 2 offerings are not 
subject to State registration and qualification requirements. We are 
not making changes to this provision, which will continue to apply to 
Tier 2 offerings up to the amended offering limit. Under the existing 
rules, Regulation Crowdfunding offerings up to $1.07 million similarly 
are preempted from State registration and qualification requirements 
under Section 4(a)(6). The amendments we are adopting in this release 
extend the preemption of State registration and qualification 
requirements to Regulation Crowdfunding offerings in excess of $1.07 
million and not exceeding the amended offering limit ($5 million). This 
provision will benefit prospective issuers seeking above $1.07 million 
in a 12-month period under Regulation Crowdfunding through lower costs 
of compliance and a more streamlined offering process than if the 
offering had been subject to State review. An additional benefit to our 
approach is that issuers and intermediaries will potentially incur 
lower legal costs due to greater certainty as to the application of 
preemption to Regulation Crowdfunding offerings above $1.07 
million.\680\ Rule 504 offerings will remain subject to State 
registration and qualification requirements. Because issuers in small 
offerings continue to have a choice of securities offering exemptions, 
issuers that seek to avail themselves of the State review regime

[[Page 3574]]

may continue to do so through a Regulation A Tier 1 or a Rule 504 
offering.
---------------------------------------------------------------------------

    \680\ See supra Section II.E.3.c.
---------------------------------------------------------------------------

    The temporary final rules currently in effect serve as the economic 
baseline against which the benefits of the amendments extending the 
relief from certain Regulation Crowdfunding financial statement review 
requirements are measured. Thus, we do not expect additional 
significant benefits to result from the extension. Extension of the 
temporary relief will allow small businesses to continue to avail 
themselves of the benefits of the relief as they do today under the 
baseline,\681\ particularly in the face of significant challenges 
facing small businesses as a result of the COVID-19 crisis.\682\ While 
the existing temporary rule specifies that it applies to issuers 
affected by COVID-19, the extension of this relief under the final 
rules does not include this condition. Given the broad scope of the 
direct and indirect impact that COVID-19 has had on small business 
issuers and the continuing challenges they face, we do not expect this 
change in conjunction with the 18-month extension to have a substantial 
economic impact.\683\ We note that several commenters supported 
extending the temporary relief.\684\
---------------------------------------------------------------------------

    \681\ The relief allows issuers to raise capital without 
incurring costs and delays involved in an independent accountant's 
review of their financial statements. This incrementally enhances 
the efficiency of conducting the offering and yields capital 
formation benefits for eligible issuers. See also Temporary 
Amendments Adopting Release, at 27127. The upfront costs of 
obtaining a review report may be nontrivial for small issuers, 
particularly issuers experiencing declines in internal cash flows as 
a result of the COVID-19 crisis. In the Crowdfunding Adopting 
Release, the Commission estimated review costs to be approximately 
$1,500-$18,000. See Crowdfunding Adopting Release, at 71499. More 
recent information about the costs of a review report is available 
from commenters and industry sources. For example, one industry 
source estimates the cost of a review as $2,000-$2,450 for a single-
owner LLC/S-Corp/Sole Proprietor issuer that has not previously had 
a review or audit but is in possession of full financial records and 
$2,400-$2,950 for a single-owner issuer that has not previously had 
a review or audit and instead tracks financials in a spreadsheet 
format. These are estimates based on a hypothetical issuer. Costs 
may vary depending on the accountant and the issuer's circumstances. 
See CrowdfundCPA Crowdfunding Audit/Review Cost Calculator, 
available at: http://crowdfundcpa.com/cost-estimate---calculator.html (retrieved April 22, 2020). A commenter on the 
Concept Release stated that it has ``interviewed dozens of CPA firms 
and found that the average cost of reviewing a company that has two 
years of financial history is at least $6,000'' and that ``[f]or a 
company with no history, this quote (from many CPA firms) has been 
in the $1,500 to $2,500 range.'' See Letter from Mainvest (Sep. 24, 
2019), available at: https://www.sec.gov/comments/s7-08-19/s70819-6193357-192513.pdf.
    \682\ See infra note 695.
    \683\ See id.
    \684\ See supra note 449.
---------------------------------------------------------------------------

ii. Costs
    The amendments may increase aggregate potential investor 
losses.\685\ Increased offering limits under Regulation A Tier 2, 
Regulation Crowdfunding, and Rule 504 may make it easier for smaller, 
higher-risk issuers to access capital through these exemptions.\686\ 
The increased offering limits could also make the exemptions more 
attractive to issuers that cannot meet more restrictive requirements 
applicable to larger offerings today, resulting in potentially greater 
representation of such issuers among the issuers relying on the amended 
exemptions.\687\ For example, some issuers seeking up to $5 million 
that are unable to meet State or Commission qualification requirements 
under Regulation A would instead be able to offer $5 million, rather 
than only $1.07 million, under Regulation Crowdfunding, which does not 
require State or Commission review prior to sales. As another example, 
some issuers seeking up to $75 million in an offering and also seeking 
to avoid the more extensive periodic reporting, beneficial ownership 
reporting, proxy disclosure, and 17 CFR 243.100 through 243.103 
requirements associated with being a public reporting company would be 
able to forgo registration and offer up to $75 million, rather than $50 
million, under Regulation A. Issuers seeking up to $75 million and 
seeking to avoid restrictions on testing the waters with individual 
investors, as well as unlisted issuers seeking to avoid State law 
restrictions on primary offers and sales, may find amended Regulation A 
Tier 2 to be increasingly attractive compared to a registered offering. 
To the extent that issuers under Regulation A Tier 2, Regulation 
Crowdfunding, and Rule 504 are subject to fewer rules and requirements 
or fail to comply with those rules and requirements, investors may be 
at an increased risk of loss.\688\
---------------------------------------------------------------------------

    \685\ See, e.g., CFA Letter (expressing concern about the 
negative effects of increasing the use of Regulation A for non-
accredited investors and increased risks of investor losses); R. 
Rutkowski Letter (expressing concern about risk to non-accredited 
investors in Regulation A and Regulation Crowdfunding offerings); 
and Morningstar Letter (noting a lack of investment advice such as 
from a broker or investment adviser that investors might have access 
to with regard to an investment in a public company).
    \686\ See, e.g., Md. St. Bar Assoc. Letter (expressing concern 
that Regulation Crowdfunding will draw non-accredited investors to 
issuers that accredited investors refused to fund and further 
stating that companies that require more than $50 million every 12 
months should be raising capital through registered offerings rather 
than Regulation A); B. Richardson Letter (discussing uncertainty 
about Regulation Crowdfunding issuer outcomes); Better Markets 
Letter (stating that early-stage companies have a high risk of 
failure and that retail investors cannot adequately diversify among 
such firms due to the ``dearth of investable funds''); CFA Letter 
(stating that ``worse deals are sold to members of the general 
public subject to Reg. A, Reg. CF, and Rule 504''); CFA Institute 
Letter (stating that increased offering limits ``may attract other 
high-risk issuers''); AFREF Letter and R. Rutkowski Letter 
(expressing concern about risk to retail investors from the 
expansion of offering limits under Regulation A, Regulation 
Crowdfunding, and Rule 504). See also CFA Institute Letter (noting 
``the outsized role played by a single industry--real estate--in 
Regulation A markets''). Real estate issuers have accounted for the 
majority of financing under Regulation A to date. See Report to 
Congress on Regulation A/Regulation D Performance, at p. 32. We 
recognize that unlisted REITs, including Regulation A REITs, may 
pose risks to some non-accredited investors. We note that such 
investors already may invest in unlisted REITs that are registered 
under Section 12(g). See Investor Bulletin: Non-traded REITs, 
available at https://www.sec.gov/oiea/investor-alerts-bulletins/ib_nontradedreits.html. Although Regulation A Tier 2 REIT offerings 
are eligible for certain additional relief relative to unlisted 
REITs registered under Section 12(g) (including testing the waters 
and semi-annual rather than quarterly reporting), Regulation A Tier 
2 offerings are subject to non-accredited investor investment 
limits. The ability to access unlisted real estate offerings may 
offer benefits--as well as risks--to investors. Real estate is 
associated with considerable returns among private funds (to which 
non-accredited investors generally lack access). See Report to 
Congress on Regulation A/Regulation D Performance, at Table 14. Real 
estate also accounts for the largest share of non-fund Regulation D 
offerings (to which non-accredited investors also rarely have access 
today). See id, at Figure 9. Non-accredited investor access to real 
estate private equity through Regulation A could expand their 
investable opportunity set and potential for diversification, 
allowing them to potentially construct more efficient portfolios. 
See, e.g., IPA Letter (supporting ``increased access to investment 
strategies with low correlation to the equity markets, including net 
asset value real estate investment trusts (``REITs''), lifecycle 
REITs, business development companies, interval funds and direct 
participation programs . . . individual investor access to a wide 
variety of asset classes that have historically been available only 
to institutional investors''). See also supra note 654.
    \687\ See, e.g., CFA Institute Letter (expressing concern about 
risks to non-accredited investors from adverse selection in 
Regulation A and Regulation Crowdfunding offerings); and Md. St. Bar 
Assoc. Letter.
    \688\ See, e.g., CII Letter (discussing concerns about 
Regulation A issuer compliance); NASAA Letter (recommending 
strengthening corporate governance and disclosure obligations and 
rescinding preemption of State securities regulation to increase the 
regulatory oversight of these companies making them more attractive 
to and safer for investors); and J. Marks Letter (expressing concern 
about Regulation Crowdfunding issuer compliance). See also, e.g., 
Mercer Bullard, Crowdfunding's Culture of Noncompliance: An 
Empirical Analysis, 24 Lewis & Clark L. Rev. 899 (2020).
---------------------------------------------------------------------------

    The increased offering limits for Regulation A Tier 2, as well as 
the increased offering limit for Regulation Crowdfunding (combined with 
the Regulation Crowdfunding qualified purchaser amendments) also will 
expand the scope of offerings that are not subject to State 
registration and qualification requirements, potentially increasing 
risk of investor losses to the

[[Page 3575]]

extent not mitigated by other investor protection provisions. Rule 504 
offerings will remain subject to State registration and qualification 
requirements.
    The investor costs described above are expected to be mitigated by 
the investor protection provisions of each exemption. In particular, 
Regulation A Tier 2 offerings will remain subject to offering statement 
and ongoing disclosure requirements, non-accredited investor investment 
limits, bad actor disqualification provisions, and issuer eligibility 
requirements, and will continue to be required to undergo Commission 
qualification before sales can be made. Regulation Crowdfunding 
offerings will remain subject to offering statement and periodic 
disclosure requirements, intermediary requirements, including investor 
education and measures to reduce the risk of fraud, as well as non-
accredited investor investment limits, bad actor disqualification 
provisions, and issuer eligibility requirements. Moreover, costs to 
investors are expected to be further mitigated by the continued 
application of the antifraud provisions of Federal and State securities 
laws and the role of reputational incentives of issuers and, if 
applicable, intermediaries, in these offerings. Rule 504 offerings will 
remain subject to issuer eligibility requirements, bad actor 
disqualification provisions, and State registration and qualification 
requirements.
    As discussed above, the temporary final rules currently in effect 
serve as the economic baseline against which the costs of the 
amendments extending the relief from certain Regulation Crowdfunding 
review requirements are measured. Thus, we do not expect additional 
significant costs to result from the extension. We recognize that costs 
to investors associated with the temporary final rules will continue to 
be incurred under the amendments extending the rules, similar to the 
baseline.\689\ Importantly, several provisions of the temporary rules 
are expected to continue to mitigate potential risks to investors. 
Issuers relying on the temporary rules must still provide prominent 
disclosure that financial information certified by the principal 
executive officer of the issuer has been provided instead of financial 
statements reviewed by a public accountant that is independent of the 
issuer. Moreover, temporary relief from the review report requirement 
does not preclude liability in instances of materially misleading 
financial disclosures provided at the time of the offering, and general 
anti-fraud provisions and liability for offers under Regulation 
Crowdfunding will continue to apply. Finally, the remaining investor 
protections of Regulation Crowdfunding continue to provide significant 
safeguards for investors in offerings reliant on the temporary relief 
from the review report requirement.
---------------------------------------------------------------------------

    \689\ Although a review report provides a more limited level of 
assurance compared to an audit report, reviewed financial statements 
confer valuable informational benefits to investors. See, e.g., Brad 
A. Badertscher et al., Verification Services and Financial Reporting 
Quality: Assessing the Potential of Review Procedures (Simon Bus. 
Sch., Working Paper No. FR 17-17, July 2018) (``[B]oth reviews and 
audits yield significantly better reporting quality scores and lower 
cost of debt than zero-verification compilations. However, model-
based reporting quality scores of reviews and audits are 
indistinguishable statistically, on average. Regarding broader 
economics, we find that relative to compilations, reviews yield more 
than half the added interest rate benefit associated with an audit, 
at considerably less than half the added cost. Overall, our results 
suggest reviews may provide a cost-effective verification 
alternative to audits, and the potential of analytical procedures 
warrants more attention by audit researchers and regulators.''); 
Evisa Bogdani, Monika Causholli & W. Robert Knechel, The Role of 
Assurance in Equity Crowdfunding (Working Paper, 2019) (finding that 
``firms that provide either reviewed or audited financial statements 
are more likely to reach their target capital, attract a greater 
number of investors, and raise more capital relative to firms that 
only provide management-certified financial statements'' in equity 
crowdfunding). Thus, in cases of issuers temporarily exempted from 
the review report requirement, particularly in an environment of 
heightened market uncertainty, investors may have less information 
in making their investor decisions and may incur additional risks. 
Exemptive relief from the review report requirement also may 
continue to weaken the incentives of some issuers to provide 
compliant financial statement disclosures since they no longer would 
be required to undergo a review by an independent accountant and to 
provide such a report to investors, resulting in potentially less 
informative financial disclosures provided to investors in affected 
offerings. For example, some financial statement disclosures 
provided by issuers below the existing review report threshold are 
not prepared in a U.S. GAAP-compliant manner. See, e.g., Letter from 
CrowdCheck (Oct. 30, 2019) commenting on the Concept Release, 
available at: https://www.sec.gov/comments/s7-08-19/s70819-6368811-196431.pdf. However, to the extent that issuer financial disclosures 
are historical in nature, such disclosures might be relatively less 
meaningful for purposes of assessing the current financial condition 
and growth prospects of an issuer that was financially sound but has 
experienced significant adverse effects as a result of the COVID-19 
crisis. Further, historical financial disclosures may be 
incrementally less meaningful for evaluating the business of a 
recently formed or development-stage issuer. See, e.g., Letter from 
Mainvest (stating that ``a company with no operating history simply 
does not have historical financial information that can be reviewed. 
Issuers on our platform unfortunately are required to get CPA 
reviews of a balance sheet with almost no zeros [sic]. This adds 
practically no value to investor protections and significantly 
increases up-front costs to companies.'').
---------------------------------------------------------------------------

iii. Effects on Efficiency, Competition, and Capital Formation
    The amendments to the Regulation A, Regulation Crowdfunding, and 
Rule 504 offering limits are expected to increase capital formation in 
those markets and to provide issuers that cannot meet their financing 
needs under existing exemptions with a means of raising external 
financing and potentially lowering their cost of capital (e.g., as a 
result of economies of scale and fixed cost of initiating an offering), 
resulting in more efficient allocation of capital to growth 
opportunities. The capital formation effects of the amendments are 
expected to be more limited if issuers raise amounts of financing below 
the amended offering limits or if some of the capital raised under the 
amended exemptions would have been otherwise raised through other 
securities offering methods. For example, raising the Regulation 
Crowdfunding offering limit may draw some of the issuers that would 
have otherwise sought between $1.07 and $5 million under Rule 504, Rule 
506, or Regulation A. Similarly, raising the Rule 504 offering limit 
may draw some of the issuers that would have otherwise sought between 
$5 and $10 million under Rule 506 or Regulation A. Those scenarios 
entail the switching of issuers between offering methods rather than 
new capital formation.
    As discussed above, these amendments may enable some issuers to 
delay or forgo a registered offering, thereby avoiding the associated 
costs of Exchange Act registration and being a public reporting 
company. For example, the higher offering limits for the discussed 
exemptions may allow more issuers to raise capital from non-accredited 
investors without registration. This could result in less disclosure 
and lower liquidity for some of these investors. However, this 
possibility must be considered in the context of the baseline, under 
which those issuers otherwise might have relied on Rule 506, which 
significantly limits non-accredited investor access and, for non-
accredited investors that do invest, restricts resales as well as 
limits the ability to obtain current information about the issuer. 
Alternatively, issuers on the margin between a Regulation A Tier 2 
offering and a registered offering might have registered their 
securities but not listed on an exchange in a traditional public 
offering (due to cost, small size, lack of underwriter or institutional 
investor interest, etc.). As a result, their securities would have no 
secondary market or be quoted over-the-counter, which affords only 
marginal

[[Page 3576]]

benefits, if any, of liquidity and information availability compared to 
a Regulation A Tier 2 offering.
    If the amended offering limits draw additional issuers to these 
exemptions, which accept an unlimited number of non-accredited 
investors, the amendments could expand the set and nature of investable 
opportunities for non-accredited investors seeking exposure to issuers 
that have not yet registered an offering. The effects on competition 
for investor capital will depend on how the additional investor capital 
drawn to the affected markets compares to the amount of additional 
financing sought by issuers in these markets. By promoting access to 
external financing for smaller issuers, the amendments may increase 
product market competition among small issuers and between small 
issuers and more established issuers.
    As discussed above, the temporary final rules currently in effect 
serve as the economic baseline against which the economic effects of 
the amendments extending the relief from the review report requirements 
are measured. Thus, we do not expect additional significant effects on 
efficiency, competition, or capital formation to result from the 
extension.
iv. Reasonable Alternatives
    As an alternative, we could have adopted different offering limits. 
For example, we could have adopted smaller increases to the offering 
limits, such as an adjustment to the existing offering limits to 
reflect the rate of inflation since the enactment of the JOBS Act in 
April 2012.\690\ As another alternative, we could have adopted larger 
increases in the offering limits, as suggested by some commenters.\691\ 
Compared to the final amendments, a higher (lower) offering limit could 
make an offering under the exemption more (less) cost-effective for 
issuers (and if applicable, intermediaries) facing fixed offering and 
due diligence costs, resulting in larger (smaller) capital formation 
benefits. Compared to the final amendments, a higher (lower) offering 
limit could draw a larger (smaller) pool of additional issuers to the 
respective segment of the exempt market and potentially expand 
investment opportunities for non-accredited investors seeking exposure 
to issuers that have not yet registered their securities. The net 
impacts of these alternatives on capital formation, investor 
protection, and competition could be limited if most of the incremental 
offering activity under these alternatives is due to issuers switching 
between various offering methods. Even if most of the additional 
issuers under these alternatives would have otherwise raised financing 
through another offering method, such issuers might still be able to 
benefit from a lower cost of capital under the alternative of increased 
offering limits. The net impacts of the alternative would be further 
attenuated to the extent that the majority of issuers continue to raise 
amounts below the offering limits.\692\ As a caveat, similar to the 
discussion above, existing data on issuers approaching the offering 
limits may not be representative of the amounts that would be raised if 
a different pool of issuers or investors is drawn to the respective 
market segment under alternative offering limits.
---------------------------------------------------------------------------

    \690\ The Regulation A offering limit has not been adjusted for 
inflation since the enactment of the JOBS Act. Between April 2012, 
when the JOBS Act was enacted, and December 2019, the rate of CPI 
inflation was 11.7 percent according to Bureau of Labor Statistics 
(``BLS'') data. Adjusting for inflation would yield a Regulation A 
limit of $55.845 million ($50 million x 1.1169). The Regulation 
Crowdfunding offering limit was last adjusted for inflation in April 
2017. Between April 2017 and December 2019, the rate of CPI 
inflation was 5.09 percent, according to BLS data. Adjusting for 
inflation would yield a Regulation Crowdfunding offering limit of 
$1.124 million ($1.07 million x 1.0509). The Rule 504 offering limit 
was raised to $5 million in October 2016. Between October 2016 and 
December 2019, the rate of CPI inflation was 6.31 percent. Adjusting 
for inflation would yield a Rule 504 offering limit of $5.316 
million ($5 million x 1.0631).
    \691\ For instance, some commenters have suggested raising the 
Regulation A offering limit to $100 million. See supra note 367. 
Some commenters have suggested raising the Regulation Crowdfunding 
offering limit above $5 million. See supra note 421.
    \692\ For example, the average (median) Regulation Crowdfunding 
offering reported proceeds of $213,678 ($106,900) between the 
inception of Regulation Crowdfunding (May 16, 2016) through December 
31, 2019; the average (median) Regulation A issuer reported raising 
$13.4 million ($5.0 million) between the effective date of 2015 
Regulation A amendments (June 19, 2015) and December 31, 2019.
---------------------------------------------------------------------------

    It is difficult to predict how many new issuers that would not have 
otherwise engaged in a securities offering would be drawn to the 
respective exempt market segment under these alternatives, compared to 
the amended offering limits. The table below examines the use of 
alternative securities offering methods that are most likely to be 
relied on by issuers that raise amounts above existing offering limits 
but below several alternative offering limit thresholds to illustrate 
the potential number of additional issuers that presently utilize other 
offering methods that do not have a cap but that might see the amended 
exemption as an option under these alternatives. The caveats that 
accompany Table 12 continue to apply.

 Table 14--Evaluation of Alternatives to the Amended Offering Limits Using Evidence From Capital Raising in 2019
                                Through Select Other Securities Offering Methods
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                             Evaluation of Alternative Regulation A Offering Limits
----------------------------------------------------------------------------------------------------------------
Number of issuers that raised above $50 million and up to:                           Number of       Number of
                                                                                    issuers in      issuers in
                                                                                     offerings      registered
                                                                                  under Rule 506   offerings \b\
                                                                                        \a\
----------------------------------------------------------------------------------------------------------------
$55.845 million (inflation adjustment)..........................................              51              17
$60 million.....................................................................              85              29
$70 million.....................................................................             144              46
$75 million (amended offering limit)............................................             171              57
$80 million.....................................................................             198              72
$90 million.....................................................................             231              90
$100 million....................................................................             270             122
$110 million....................................................................             298             143
$120 million....................................................................             315             151
$125 million....................................................................             325             162
----------------------------------------------------------------------------------------------------------------

[[Page 3577]]

 
                        Evaluation of Alternative Regulation Crowdfunding Offering Limits
----------------------------------------------------------------------------------------------------------------
Number of issuers that raised above $1.07 million and up to:         Number of       Number of       Number of
                                                                    issuers in      issuers in      issuers in
                                                                     offerings       offerings       offerings
                                                                  under Rule 504  under Rule 506       under
                                                                        \c\             \d\        Regulation A
                                                                                                        \e\
----------------------------------------------------------------------------------------------------------------
$1.124 million (inflation adjustment)...........................               2             104               0
$2 million......................................................              31           1,542               2
$3 million......................................................              44           2,662               7
$4 million......................................................              51           3,388              10
$5 million (amended offering limit).............................              55           4,004              13
$6 million......................................................  ..............           4,454              15
$7 million......................................................  ..............           4,813              17
$8 million......................................................  ..............           5,127              20
$9 million......................................................  ..............           5,333              21
$10 million.....................................................  ..............           5,567              23
$15 million.....................................................  ..............           6,233              29
$20 million.....................................................  ..............           6,604              31
----------------------------------------------------------------------------------------------------------------
                               Evaluation of Alternative Rule 504 Offering Limits
----------------------------------------------------------------------------------------------------------------
Number of issuers that raised above $5 million and up to:                            Number of       Number of
                                                                                    issuers in      issuers in
                                                                                     offerings       offerings
                                                                                  under Rule 506       under
                                                                                        \f\        Regulation A
                                                                                                        \g\
----------------------------------------------------------------------------------------------------------------
$5.316 million (inflation adjustment)...........................  ..............             152               0
$6 million......................................................  ..............             464               2
$7 million......................................................  ..............             834               4
$8 million......................................................  ..............           1,166               7
$9 million......................................................  ..............           1,377               8
$10 million (amended offering limit)............................  ..............           1,618              10
$15 million.....................................................  ..............           2,315              16
$20 million.....................................................  ..............           2,695              18
$25 million.....................................................  ..............           2,974              19
----------------------------------------------------------------------------------------------------------------
\a\ Regulation A eligibility criteria exclude investment companies and blank check companies and limit the
  exemption to U.S. and Canadian issuers, so for comparability pooled investment funds and issuers outside the
  U.S. and Canada are excluded from the Rule 506 proceeds used in this estimate. Reporting companies are
  eligible to rely on Regulation A under the 2018 amendments.
\b\ Registered offering proceeds are based on gross proceeds reported in SDC Platinum for U.S. public offerings
  of equity, debt, and convertible securities with issue dates in 2019, excluding withdrawn, postponed, and
  rumored offerings, asset-backed securities offerings, blank check issuers, investment fund issuers, and
  issuers outside the U.S. and Canada.
\c\ For purposes of this table, only incremental Regulation A proceeds reported in 2019 are considered, as
  opposed to cumulative proceeds reported from June 2015 through December 2019. Regulation Crowdfunding
  eligibility criteria limit the exemption to U.S. issuers and exclude Exchange Act reporting companies, so for
  comparability non-U.S. issuers and reporting companies are excluded from the Regulation A proceeds used in
  this estimate.
\d\ Regulation Crowdfunding eligibility criteria exclude investment companies and Exchange Act reporting
  companies and limit the exemption to U.S. issuers, so for comparability pooled investment funds and non-U.S.
  issuers are excluded from Rule 504 proceeds used in this estimate. Reporting companies are ineligible under
  Rule 504.
\e\ Regulation Crowdfunding eligibility criteria exclude investment companies and Exchange Act reporting
  companies and limit the exemption to U.S. issuers, so for comparability pooled investment funds, reporting
  companies, and non-U.S. issuers are excluded from Rule 506 proceeds used in this estimate. Reporting companies
  are identified based on annual reports or amendments to them filed in 2019.
\f\ For purposes of this table, only incremental Regulation A proceeds reported in 2019 are considered, as
  opposed to cumulative proceeds reported from June 2015 through the end of the period. Rule 504 eligibility
  criteria exclude Exchange Act reporting companies, so for comparability reporting companies are excluded from
  the Regulation A proceeds used in this estimate.
\g\ For comparability with other estimates in this table, we exclude Exchange Act reporting companies and pooled
  investment funds from Rule 506 proceeds used in this estimate. Reporting companies are identified based on
  annual reports or amendments to them filed in 2019.

    After considering these alternatives and public comment, we 
continue to believe that the amended offering limits are most likely to 
provide meaningful capital formation benefits and increased access to 
investment opportunities to investors while representing a balanced 
approach to expansion of the respective offering exemptions.
    We are amending the Regulation A Tier 2 offering limit but not the 
Tier 1 offering limit. As an alternative, we could amend the Tier 1 
offering limit, as suggested by one commenter.\693\ For example, we 
could raise the Tier 1 offering limit proportionately to the increase 
in the Tier 2 offering limit, by 50 percent, from $20 million to $30 
million. The economic effects of this alternative are similar to the 
ones considered above. A higher (lower) Tier 1 offering limit could 
draw more (fewer) issuers to Tier 1 of Regulation A. Some of the 
additional issuers drawn to Tier 1 under this alternative might be 
switching from Tier 2 or other exempt offering methods, which might 
limit the net impact on capital formation.\694\ Even

[[Page 3578]]

in that case, some issuers switching from Tier 2 or other offering 
methods might be able to decrease their cost of capital.
---------------------------------------------------------------------------

    \693\ See Chamber of Digital Commerce Letter. But see CII 
Letter; NASAA Letter; and CrowdCheck Letter (opposing an increase in 
the Tier 1 offering limit).
    \694\ For example, from June 2015 through December 2019, we have 
identified seven Tier 2 issuers that reported raising between $20 
million and $30 million in financing under Regulation A and that 
could become newly eligible to raise the same amount of financing 
under Tier 1, if it were amended under this alternative. However, 
they also might not choose to switch to Tier 1 if they find Tier 2 
to be more attractive (e.g., due to preemption of State review or an 
easier path to quotation on the upper tiers of the OTC market in the 
presence of periodic reports required by Tier 2). For example, from 
June 2015 through December 2019, we estimate that 112 Tier 2 issuers 
reported raising up to $20 million in financing under Regulation A 
even though that amount would have made them eligible to use Tier 1 
as well. Further, some issuers might still prefer Tier 2 because it 
allows issuers to undertake an offering with a higher maximum 
offering amount, which provides issuers with flexibility to raise 
more capital without having to undergo a re-qualification (e.g., if 
market conditions improve) even if the average issuer's proceeds do 
not reach the amount sought.
---------------------------------------------------------------------------

    We are raising the Regulation Crowdfunding offering limit to $5 
million, which may create redundancies between Regulation Crowdfunding 
and Rule 504. The amended Rule 504 offering limit also may create 
redundancies between Rule 504 and Regulation A. As an alternative, we 
could eliminate Rule 504. Such an alternative might contribute to 
regulatory simplification. However, it also might be disruptive for 
those issuers that rely on Rule 504 and find it to be cost-effective 
for their financing strategy (e.g., due to a lack of the intermediary 
and periodic reporting requirements).
    We are extending temporary relief from the review report 
requirement for eligible issuers in Regulation Crowdfunding offerings 
of up to $250,000 for an additional 18 months. As an alternative, we 
could have amended the Regulation Crowdfunding offering limit but not 
extended the temporary relief from certain review requirements for 
eligible issuers in offerings of up to $250,000. As a general matter, 
the flexibility to access limited amounts of capital under Regulation 
Crowdfunding on an expedited basis, without incurring the cost of an 
independent accountant's review report, facilitates capital formation 
and reduces some of the barriers to accessing capital markets for the 
smallest issuers, allowing some issuers to raise additional capital or 
to optimize their financing cost through a more efficient and 
streamlined offering process. By providing targeted relief in a market 
segment that primarily attracts small businesses, which are 
disproportionately affected by downturns, the amendments extending the 
temporary relief also serve to incrementally enhance competition 
between small businesses and larger businesses (which tend to be less 
financially constrained).\695\ The alternative of not extending the 
relief would impose costs and reduce the flexibility for small issuers 
adversely affected by COVID-19 seeking to meet their financing needs 
through Regulation Crowdfunding. It also would create competitive 
disparities for otherwise similar issuers that initiate offerings of 
this size before and after the expiration of the existing relief 
(February 28, 2021).
---------------------------------------------------------------------------

    \695\ Research has related small size to financing constraints, 
and conversely, larger size to being less financially constrained. 
See, e.g., Nathalie Moyen, Investment--Cash Flow Sensitivities: 
Constrained versus Unconstrained Firms, 59 J. FIN. 2061 (2004); 
Christopher Hennessy, Amnon Levy, & Toni Whited, Testing Q Theory 
with Financing Frictions, 83 J. FIN 691 (2007). Other studies also 
show that diversified firms can rely on internal capital markets to 
mitigate financing constraints. See, e.g., Venkat Kuppuswamy & 
Bel[eacute]n Villalonga, Does Diversification Create Value in the 
Presence of External Financing Constraints? Evidence from the 2007-
2009 Financial Crisis, 62 MGMT. SCI. 905 (2016) (showing that ``the 
value of corporate diversification increased during the 2007-2009 
financial crisis'' and that ``conglomerates' access to internal 
capital markets became more valuable''). See also, e.g., several 
recent working papers examining impacts of the COVID-19 crisis on 
small businesses: Alexander W. Bartik et al., How Are Small 
Businesses Adjusting to COVID-19? Early Evidence from a Survey, 
(Nat'l Bureau of Econ. Research, Working Paper No. 26989, 2020); 
Jose Maria Barrero, Nicholas Bloom, & Steven J. Davis, COVID-19 Is 
Also a Reallocation Shock, (Nat'l Bureau of Econ. Research, Working 
Paper No. 27137, 2020); John Eric Humphries, Christopher Neilson, & 
Gabriel Ulyssea, The Evolving Impacts of COVID-19 on Small 
Businesses Since the CARES Act, (Cowles Foundation, Discussion Paper 
No. 2230, 2020); Robert W. Fairlie, The Impact of COVID[hyphen]19 on 
Small Business Owners: Evidence from the First Three Months after 
Widespread Social-Distancing Restrictions, 29 J. Econ. Mgmt. 
Strategy 727 (2020).
---------------------------------------------------------------------------

    We recognize that the alternative of allowing the temporary relief 
to expire could incrementally decrease concerns about investor 
protection compared to extending the relief.\696\ Generally, however, 
the aggregate incremental effect of the temporary rules on retail 
investor protection is likely limited by various factors, including the 
tailoring of the relief (through the eligibility requirements and the 
narrow scope and time-limited nature of the relief) and the modest size 
of the Regulation Crowdfunding market compared to other market segments 
that draw retail investors.\697\ Further, issuers are required to 
disclose reliance on the temporary relief to investors, enabling more 
informed decisions. In addition, several essential safeguards contained 
in the 2015 Regulation Crowdfunding rules continue to apply, such as 
offering and investment limits, the use of registered crowdfunding 
intermediaries to conduct Regulation Crowdfunding offerings, other 
disclosure requirements of Form C, and annual report obligations. While 
we recognize that there may be somewhat greater investor protection 
concerns with an extension of the temporary final rules compared to an 
alternative of allowing the temporary relief to expire, overall we do 
not believe the difference to be significant in light of the other 
features of these offerings.
---------------------------------------------------------------------------

    \696\ See also Temporary Amendments Adopting Release, at 27122; 
Better Markets Letter.
    \697\ See also Temporary Amendments Extension, at 54489.
---------------------------------------------------------------------------

    We could also extend the relief from review report requirements for 
eligible issuers in offerings of up to $250,000 for a shorter or longer 
time period than specified in these amendments. The alternative of 
extending the relief for a shorter (longer) time period would lead to 
fewer (more) potential issuers being afforded the flexibility in 
capital raising under the temporary rules, compared to the amendments. 
Because of the severe and continuing economic impact of the COVID-19 
crisis, we believe that the extension of the temporary rules is 
appropriate.
    As another alternative, we could permanently raise the financial 
statement requirement thresholds, for instance, in proportion to the 
increase in the offering limit: $500,000 for reviewed financial 
statements (in lieu of $107,000); $2.5 million for audited financial 
statements for follow-on offerings (in lieu of $535,000); and $5 
million for audited financial statements for initial offerings (in lieu 
of $1.07 million).\698\ As another alternative, we could waive certain 
other disclosure requirements (e.g., progress updates and/or annual 
reports) for the lower tier of crowdfunding offerings (e.g., offerings 
up to $250,000 or $1 million) to make crowdfunding offerings more cost-
effective for the smallest issuers, many of which have not yet begun 
generating revenue and might not have enough liquid assets or access to 
loans to cover the compliance costs of a Regulation Crowdfunding 
offering. Scaling disclosure requirements for Regulation Crowdfunding 
offerings under these alternatives could attract a larger set of early 
stage issuers that seek to raise small amounts of capital to Regulation 
Crowdfunding while providing a degree of independent verification of 
accounting quality for larger crowdfunding offerings in a more cost-

[[Page 3579]]

effective manner than with an audit.\699\ Scaling disclosure 
requirements under this alternative, however, would result in 
information loss to investors, potentially contributing to less well 
informed investment decisions, greater risk of investment losses, and 
less efficient allocation of capital. Moreover, this alternative could 
attract high-risk issuers to the lower crowdfunding tier, which could 
undermine future capital raising in that market tier.
---------------------------------------------------------------------------

    \698\ See, e.g., Wefunder Letter (recommending a $1 million 
threshold for reviewed financial statements and a $5 million 
threshold for audited financial statements); CCA Letter 
(recommending increasing the reviewed financial statements threshold 
to $500,000 and the audited financial statements threshold to $5 
million for initial offerings).
    \699\ See supra note 689.
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b. Investment Limits Under Regulation Crowdfunding
    The final amendments revise Regulation Crowdfunding investment 
limits.\700\ As proposed, the amended limits will be based on the 
greater of, rather than the lower of, an investor's annual income or 
net worth. Further, as proposed, the amended limits will only apply to 
non-accredited investors.
---------------------------------------------------------------------------

    \700\ See supra Section II.E.3.
---------------------------------------------------------------------------

i. Benefits
    The amendments will increase the maximum amount that can be 
invested across all Regulation Crowdfunding offerings by the subset of 
non-accredited investors whose net worth and annual income diverge. 
This may benefit issuers by increasing the amount of capital formation 
and/or by lowering the overall costs of soliciting non-accredited 
investors. Relaxing the investment limitation may also benefit the 
affected subset of non-accredited investors by enabling them to achieve 
more efficient portfolio allocations and enhanced upside from investing 
in early-stage companies. Because crowdfunding issuers commonly set 
investment minimums, relaxing the investment limitation may allow the 
affected investors to invest in a larger number of crowdfunding 
issuers, holding invested amounts constant, which may result in greater 
diversification within the crowdfunding category of the investor's 
portfolio. However, a larger aggregate investment in the crowdfunding 
category may reduce the diversification of the investor's overall 
portfolio, holding portfolio size constant. The effect of the 
amendments on portfolio diversification will also depend on how much 
investors allocate to different crowdfunding securities, out of the 
allowable limit, relative to non-crowdfunding securities, and on the 
correlations between crowdfunding and non-crowdfunding securities 
chosen by investors for their portfolios.
    The amendments will also remove the investment limitation for 
accredited investors in Regulation Crowdfunding, harmonizing the 
treatment of accredited investors across Regulation Crowdfunding, 
Regulation A, Regulation D, and private placements not reliant on 
Regulation D.\701\ Accredited investors are expected to possess the 
capability to evaluate larger crowdfunding investments and the 
resulting financial risk. Removing the investment constraint may 
benefit such investors by allowing them to allocate their capital more 
efficiently within their overall investment portfolio. It may also 
create stronger incentives to perform due diligence, screen, and 
monitor crowdfunding issuers, which may have positive spillovers for 
non-accredited investors in Regulation Crowdfunding. It is possible 
that accredited investors will simply reallocate capital between 
exemptions (e.g., in cases of side-by-side Regulation Crowdfunding/Rule 
506(c) offerings). Accredited investors may also continue to favor 
private placements, which do not cap offering size and allow them to 
capitalize more fully on their due diligence, with fewer spillovers to 
the rest of the market (because information about investments is 
private, there is less free riding on large investors' due diligence) 
and more bargaining power to negotiate offering terms.
---------------------------------------------------------------------------

    \701\ See also supra note 431 (discussing commenters that 
supported the amendments).
---------------------------------------------------------------------------

    We lack the data to assess how many investors may be affected by 
the described amendments to investment limits because investor 
information generally is not available and is not required to be 
disclosed. Based on a subset of data made available by one crowdfunding 
intermediary,\702\ among non-accredited investors with available 
information on annual income and net worth, revising the investment 
limits as described can increase the investment limit by 98 percent for 
the median non-accredited investor in that subset. In addition, 
approximately nine percent of investors in the examined subset of data 
were accredited and thus will no longer be subject to investment limits 
under the amendments. The economic effects of the amendments will be 
mitigated to the extent that investors may invest amounts below the 
investment limits.\703\ We cannot determine whether these results are 
representative of the distribution of investors on other funding 
portals or during other time periods, or how that distribution may 
change under the amendments if new investors and issuers are drawn to 
Regulation Crowdfunding.
---------------------------------------------------------------------------

    \702\ See 2019 Regulation Crowdfunding Report, at notes 91-93 
and accompanying text. Information on amounts invested by an average 
investor or the number of investors per offering is not available 
for the full sample of Regulation Crowdfunding offerings. 
Information on offerings from one intermediary from May 2016 through 
September 2018 provides some insight into the typical investment 
size, investor composition, and number of investors in crowdfunding 
offerings. For purposes of these estimates, we exclude investments 
redirected to a Rule 506(c) offering; offerings that were not funded 
(i.e., were either canceled or ongoing) or had missing data; 
observations where an investor made but subsequently withdrew the 
commitments, yielding a cumulative investment of zero; and investor 
observations with missing accredited investor status.
    \703\ See 2019 Regulation Crowdfunding Report, at 40 (``For most 
investors with available data on annual income and net worth 
(approximately 30% of investors in offerings funded on the 
platform), cumulative amounts invested during the entire considered 
period (almost 2.5 years) through this intermediary's platform did 
not reach the investment limit, with fewer than 10% of investors on 
the platform investing amounts exceeding their 12-month investment 
limit over the entire 2.5-year period. According to information 
provided by another intermediary respondent to the lookback survey, 
the median (average) crowdfunding investment through its platform 
was $1,335 ($500), with investors making an average of 2.7 
investments and approximately 40% of investors making two or more 
investments. According to information provided by a different 
intermediary respondent, the average investment was approximately 
$992, and investors made an average of 1.5 investments. Based on 
available data, we are unable to determine whether these investors 
also invested in crowdfunding offerings through other crowdfunding 
platforms; thus, these estimates are likely to represent a lower 
bound on average investment amounts.'').
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ii. Costs
    The final amendments to Regulation Crowdfunding investment limits 
may increase the magnitude of investor losses, particularly if some 
investors inefficiently under-diversify their portfolios and take on 
too much risk from crowdfunding investments.\704\ For example, relaxing 
investment limits may enable some non-accredited investors to make 
larger investments in crowdfunding offerings based on an incomplete 
assessment of information about the securities offered, with the 
resulting potential for increased investor losses that they may be less 
able to bear. However, other investor protection provisions of 
Regulation Crowdfunding, such as issuer disclosure requirements and 
investor education and other intermediary requirements, may partly 
mitigate these risks. The potential costs of the amendments should be 
considered in the context of the baseline, under which non-accredited 
investors are permitted to invest unlimited amounts in both listed and 
unlisted registered securities and in

[[Page 3580]]

Regulation A Tier 1 securities,\705\ as well as up to ten percent of 
the higher of income or net worth in each offering of Regulation A Tier 
2 securities, and thus they already may be in a position of making 
investments which also may result in considerable risk to investor 
portfolios.
---------------------------------------------------------------------------

    \704\ See, e.g., CII Letter (opposing increasing investment 
limits for non-accredited investors); Morningstar Letter (opposing 
increasing investment limits for non-accredited investors due to a 
lack of investment advice and the difficulty of detected scams); 
NASAA Letter; and CFA Letter.
    \705\ In contrast to Regulation Crowdfunding securities, sales 
and offers of unlisted registered securities and Regulation A Tier 1 
securities are subject to State registration requirements, 
including, in some states, merit review.
---------------------------------------------------------------------------

    The final amendments removing investment limits for accredited 
investors in Regulation Crowdfunding offerings are not expected to 
result in a negative effect on investor protection given that 
accredited investors generally have the capacity to fend for themselves 
and greater ability to withstand financial losses. Because accredited 
investors are not subject to investment limitations in offerings under 
Regulation A, in offerings under Regulation D, in other private 
placements, or in registered offerings, they may simply reallocate 
capital between holdings of securities issued under other exemptions. 
It is also possible that accredited investors investing large amounts 
may continue to prefer private placements, as discussed above.
iii. Effects on Efficiency, Competition, and Capital Formation
    The described amendments to Regulation Crowdfunding investment 
limits may incrementally promote capital formation through Regulation 
Crowdfunding, particularly for issuers that may attract accredited 
investors or non-accredited investors who have a greater disparity 
between income and net worth. The revised investment limits may allow 
some investors that were constrained by existing investment limits to 
attain a more efficient portfolio allocation. For other investors, 
relaxing investment limits may enable an inefficiently high exposure to 
crowdfunding investments, resulting in under-diversification. If the 
amendments increase accredited investor participation in Regulation 
Crowdfunding offerings, the average intensity of monitoring and 
screening of issuers by investors may increase, with potential positive 
spillovers for small investors that lack the expertise and incentives 
to engage in comparable monitoring and screening. This may lead to 
greater efficiency of capital allocation in the Regulation Crowdfunding 
market. Removing accredited investor investment limits may lead to a 
reallocation of investment opportunities in that market segment from 
non-accredited investors to accredited investors, as indicated by one 
commenter.\706\
---------------------------------------------------------------------------

    \706\ See J. Pampena Letter (suggesting the change may eliminate 
investment opportunities for non-accredited investors). According to 
the commenter, if accredited investors are permitted to invest under 
Regulation Crowdfunding without an investment limit, investment from 
accredited investors will rapidly satisfy the offering limits of 
these mostly small offerings.
---------------------------------------------------------------------------

    Depending on how the additional investor capital drawn to 
Regulation Crowdfunding compares to the amount of additional financing 
sought by issuers in these markets after the amendments, the amendments 
may affect competition among issuers for investor capital.
    The net impacts of the amendments may be attenuated if the 
additional capital is reallocated from other offerings that either do 
not have investment limits or that have less stringent investment 
limits (e.g., Rule 506, other private placements, or Regulation A).
iv. Reasonable Alternatives
    As an alternative, we could align Regulation Crowdfunding 
investment limits with those of Regulation A Tier 2--apply the ten-
percent limit on a per-offering basis to all non-accredited investors--
rather than apply a two-tier limit (five percent for non-accredited 
investors with a lower income and net worth and ten percent for other 
non-accredited investors) across all Regulation Crowdfunding offerings 
in a twelve-month period. Compared to the final amendments, this 
alternative would have expanded investment limits, particularly for 
non-accredited investors with lower income and net worth and for 
investors that participate in multiple Regulation Crowdfunding 
offerings, yielding potential increases in capital formation benefits 
and non-accredited investor access to startup investment opportunities. 
However, this alternative also might have increased investor losses per 
investor and decreased diversification for some non-accredited 
investors, compared to the final amendments.
    As another alternative, we could have increased or lowered the 
numerical thresholds in investment limits under Regulation 
Crowdfunding. For example, we could scale up the $2,200 numerical 
threshold in the investment limit in proportion to the increase in the 
offering limit (from $2,200 to $11,000). This alternative would 
increase (decrease) capital formation benefits while increasing 
(decreasing) the magnitude of potential investor losses per non-
accredited investor, particularly for non-accredited investors with 
lower income and net worth, compared to the final amendments.
    As another alternative, we could require verification of accredited 
investor status under Regulation Crowdfunding, similar to Rule 
506(c).\707\ Under this alternative, the likelihood of non-accredited 
investors that could have been mistakenly identified as accredited 
investors without verification incurring losses from a large investment 
under Regulation Crowdfunding would be decreased compared to the 
amendments. However, issuers would incur additional costs of 
verification of investor status under this alternative (whether in the 
form of the cost passed along to the issuer by an intermediary, or the 
cost incurred by the issuer directly). While such additional costs 
would be smaller for issuers with a prior or concurrent Rule 506(c) 
offering, for the typical Regulation Crowdfunding issuer that is small, 
with limited internal cash flows and no prior offering experience, such 
costs may serve as a significant barrier to accepting accredited 
investors in a Regulation Crowdfunding offering.
---------------------------------------------------------------------------

    \707\ See, e.g., J. Clarke Letter; Raise Green & New Haven Comm. 
Solar Letter; and Honeycomb Letter (supporting self-verifications).
---------------------------------------------------------------------------

6. Eligibility Requirements in Regulation Crowdfunding and Regulation A
a. Eligibility Requirements Under Regulation Crowdfunding
    The final rules will allow crowdfunding issuers to raise capital 
through a crowdfunding vehicle, substantially as proposed. Such 
crowdfunding vehicles will be formed by or on behalf of the underlying 
crowdfunding issuer to serve merely as a conduit for investors to 
invest in the crowdfunding issuer and will not have a separate business 
purpose. This approach is designed to allow investors in the 
crowdfunding vehicle to achieve the same economic exposure, voting 
power, and ability to assert State and Federal law rights, and receive 
the same disclosures under Regulation Crowdfunding, as if they had 
invested directly in the underlying crowdfunding issuer in an offering 
made under Regulation Crowdfunding. As discussed in Section II.F.2 
above, after considering public comment, we are not adopting the 
proposal to limit the types of securities that may be offered and sold 
in reliance on Regulation Crowdfunding.
i. Benefits
    The final rules will benefit issuers by allowing them to reduce the

[[Page 3581]]

administrative complexities associated with a large and diffuse 
shareholder base.\708\ Commenters generally supported permitting 
crowdfunding issuers to use crowdfunding vehicles.\709\ As discussed in 
Section II.F.1.c above, under the final rules, natural person investors 
in the crowdfunding vehicle will be excluded from the number of holders 
of record for purposes of Section 12(g). We expect this provision to 
significantly increase the utility of the crowdfunding vehicle 
structure to issuers, especially in offerings that attract small 
investors, and potentially make it easier for Regulation Crowdfunding 
issuers to raise capital from venture capitalists and other large 
investors in the future. However, the effect on all except the largest 
crowdfunding issuers may be limited due to the availability of the 
conditional exemption in Exchange Act Rule 12g-6.
---------------------------------------------------------------------------

    \708\ See also Proposing Release, at note 420.
    \709\ See supra note 480. But see CFA Letter and CII Letter.
---------------------------------------------------------------------------

    Currently, some early-stage issuers with high growth potential that 
have a chance of attracting VC funding in the future may avoid 
conducting an offering under Regulation Crowdfunding due to concerns 
about a large and unwieldy capitalization table. By potentially 
alleviating some of these concerns, the final rule may encourage 
additional issuers with high growth potential to consider pursuing an 
offering under Regulation Crowdfunding. Because these issuers might 
presently offer securities only to accredited investors or a few non-
accredited investors through offerings under Rule 506 or through other 
private placement offerings, the final rule may benefit non-accredited 
investors by expanding their access to investment opportunities in 
startups with high growth potential that are early in their lifecycle.
    As discussed in Section II.F.1 above, the use of a crowdfunding 
vehicle will be subject to certain conditions designed to ensure that 
investors achieve the same economic exposure, voting power, and ability 
to assert State and Federal law rights, and receive the same 
disclosures under Regulation Crowdfunding, as if they had invested 
directly in the crowdfunding issuer in an offering made under 
Regulation Crowdfunding, thereby minimizing any potential adverse 
effects for investors of investing in a crowdfunding issuer through 
such an offering structure. The crowdfunding vehicle and the 
crowdfunding issuer also will be co-issuers in the offering, with the 
resulting joint liability for offers and sales, and the offering must 
comply with Section 4(a)(6) of the Securities Act and Regulation 
Crowdfunding.
    The required transparency and single-purpose nature of the 
crowdfunding vehicle, combined with the continued application of the 
substantive and disclosure requirements of Regulation Crowdfunding and 
the antifraud provisions of the Federal and State securities laws, are 
expected to provide significant investor protections for crowdfunding 
vehicle investors under the final rules.
ii. Costs
    The use of crowdfunding vehicles may result in additional offering 
costs. The costs of forming and operating the crowdfunding vehicle will 
be incurred by the crowdfunding issuer, which may decrease the overall 
economic benefits of the offering for all investors in the crowdfunding 
issuer, including investors in the crowdfunding vehicle. However, to 
the extent that the crowdfunding vehicle yields benefits for the 
crowdfunding issuer, including expanded potential for future funding 
rounds due to the treatment of the crowdfunding vehicle under Section 
12(g), reduced capitalization table concerns and greater efficiency of 
administration of a large and diffuse investor base, these economic 
benefits of a crowdfunding vehicle may offset the additional costs. The 
balance of these tradeoffs is likely to vary depending on the issuer's 
offering experience, potential for raising follow-on financing from a 
large investor, costs associated with the formation and operation of 
the crowdfunding vehicle, and the number of investors participating in 
the crowdfunding offering. Because the use of the crowdfunding vehicle 
structure will be voluntary, we expect issuers to use a crowdfunding 
vehicle only when the issuers determine that the benefits justify the 
costs.
    If the crowdfunding vehicle is administered by an external entity 
on behalf of the issuer, the associated fees may depend on other 
business between the external administrator and the issuer. On the one 
hand, administration fees may be reduced in instances where an issuer 
obtains a bundle of other services related to the offering from the 
external administrator or where an administrator seeks future business 
of the issuer related to other offerings. On the other hand, 
administration fees may be increased to compensate for discounted fees 
for other services related to this or other offerings. Several factors 
are expected to mitigate concerns about administration fees. 
Competition among external service providers is expected to put 
downward pressure on such fees. The requirement that crowdfunding 
vehicle costs be incurred by the crowdfunding issuer rather than the 
crowdfunding vehicle will ensure a degree of alignment of interests of 
crowdfunding vehicle investors and the crowdfunding issuer with respect 
to crowdfunding vehicle costs. The highly limited scope of permissible 
activities of the crowdfunding vehicle will further limit potential 
discretion related to fees.
    As discussed above, the conditions for the use of crowdfunding 
vehicles are expected to minimize any potential conflicts of interest 
incremental to a crowdfunding vehicle.\710\ The crowdfunding vehicle 
structure is not expected to significantly affect information 
processing costs for investors, compared to a direct crowdfunding 
offering, because of the transparency and single-purpose nature of the 
crowdfunding vehicle, as well as the provisions designed to ensure that 
crowdfunding vehicle investors receive the same disclosures under 
Regulation Crowdfunding, as if they had invested directly in the 
crowdfunding issuer.
---------------------------------------------------------------------------

    \710\ Small investors in a direct crowdfunding offering might 
face agency conflicts today. However, we do not expect the 
amendments to result in significant additional agency conflicts for 
investors in direct crowdfunding vehicle offerings.
---------------------------------------------------------------------------

iii. Effects on Efficiency, Competition, and Capital Formation
    The final rules are expected to enhance capital formation by making 
Regulation Crowdfunding more attractive to issuers. If the incremental 
financing is largely due to issuers switching from other offering 
methods to Regulation Crowdfunding, the net impact on capital formation 
may be minimal. However, if that is the case, the final rules may 
reduce the cost of capital. By giving crowdfunding issuers the 
flexibility to conduct a crowdfunding offering via a crowdfunding 
vehicle, the final rules may make crowdfunding offerings more 
attractive to a broader range of issuers, enabling such issuers to 
diversify their financing strategy at an early stage of their operation 
and in some cases potentially obtain a lower cost of capital or greater 
amounts of capital than they would otherwise. The final rules may be 
especially beneficial for crowdfunding issuers with high growth 
potential by helping them attract institutional investors or other 
large investors in the future, thus enabling a potentially more 
efficient financing and growth strategy.
    Further, the ability to use a crowdfunding vehicle may expand 
investment opportunities available to non-accredited investors and, as 
a

[[Page 3582]]

result, potentially affect the efficiency of their capital allocation. 
If the final rules draw additional issuers to Regulation Crowdfunding, 
broader access to those investment opportunities may enable non-
accredited investors to allocate their capital more efficiently.
    The final rules may promote competition. By making Regulation 
Crowdfunding attractive to a broader subset of small issuers, they may 
incrementally broaden access to funding for small and early stage 
issuers, many of which have not participated in other securities 
offerings and are otherwise highly financially constrained. Expanding 
access to capital for small and early stage issuers may, on the margin, 
encourage new entry and promote competition between small issuers and 
more established competitors. The aggregate effects on competition for 
investor capital are difficult to predict and will depend on the 
relative effects of the final rules on issuer and investor willingness 
to participate in Regulation Crowdfunding.
iv. Reasonable Alternatives
    As an alternative, we could require that a registered investment 
adviser or ERA manage the crowdfunding vehicle, as suggested by some 
commenters and the 2017 Treasury Report.\711\ Under this alternative, 
investors in crowdfunding vehicles could benefit because an investment 
adviser is a fiduciary subject to the requirements of the Advisers Act 
and regulations thereunder. The final rule's conditions, however, are 
designed to limit the crowdfunding vehicle's activities to that of 
acting as a conduit to directly hold the securities of the crowdfunding 
issuer without the ability for independent investment decisions to be 
made on behalf of the crowdfunding vehicle. Moreover, investors in the 
crowdfunding vehicles remain protected by the provisions of Regulation 
Crowdfunding as well as the antifraud protections of the Federal 
securities laws more broadly. Any incremental benefits of this 
alternative to investors therefore could be limited. In addition, such 
a requirement would likely deter issuers, particularly small issuers, 
from using the crowdfunding vehicle structure. Given the relatively 
small amount of capital that can be raised through Regulation 
Crowdfunding, particularly in offerings by smaller issuers, it may not 
be economically feasible to require a registered investment adviser or 
an ERA to manage the crowdfunding vehicle.\712\ Further, small issuers 
may lack access to investment advisory expertise.
---------------------------------------------------------------------------

    \711\ See supra note 489. See also 2017 Treasury Report.
    \712\ See also supra notes 528, 530 and accompanying text.
---------------------------------------------------------------------------

    As another alternative, we could remove some of the requirements in 
the final rule,\713\ such as the restrictions on the permissible 
activities and other provisions intended to provide the investor with 
the same economic exposure, rights, and disclosures as they would have 
if they invested in a direct Regulation Crowdfunding offering or the 
requirement that crowdfunding vehicle costs be borne by the 
crowdfunding issuer. Removing these restrictions would increase the 
flexibility for issuers in structuring their crowdfunding offering and 
potentially make Regulation Crowdfunding more attractive as a capital 
raising option. However, it also could lead to agency conflicts and 
weaken investor protections for crowdfunding vehicle investors, 
compared to the final rule's conditions. Some of these additional costs 
to investors might be partly mitigated by the substantive and 
disclosure requirements of Regulation Crowdfunding.
---------------------------------------------------------------------------

    \713\ See supra note 484 and accompanying text (discussing 
commenters in favor of a less restrictive crowdfunding vehicle 
structure).
---------------------------------------------------------------------------

    Similarly, we could modify some of the conditions in the final rule 
so that an investor in a crowdfunding vehicle would still achieve the 
same economic exposure, and receive the same disclosures, as if he or 
she had invested in the crowdfunding issuer directly, while providing 
greater flexibility for crowdfunding vehicles and their investors to 
determine other aspects of the crowdfunding vehicle's operations. For 
example, rather than requiring a crowdfunding vehicle to vote and 
participate in tender or exchange offers or similar transactions only 
in accordance with the instructions it receives from its investors, we 
could allow a crowdfunding vehicle and its investors to determine these 
matters. A crowdfunding vehicle, for example, could disclose to its 
investors at the time of its initial offering that the vehicle will 
vote automatically with the majority of its security holders. Another 
example would be to permit a crowdfunding vehicle and its investors to 
determine how the crowdfunding vehicle will exercise any rights under 
State or Federal law, rather than providing each investor the ability 
to assert those rights.
    These and similar modifications would provide additional 
flexibility for crowdfunding vehicles and the crowdfunding issuers 
using the vehicles to raise capital. If this greater flexibility would 
result in additional offerings under Regulation Crowdfunding, this 
could provide capital formation benefits to issuers and benefit 
investors by providing additional investment options. These and similar 
modifications could, however, result in offering terms that may be less 
advantageous for investors. The net benefits and costs to investors 
would therefore depend on the extent to which a more flexible approach 
would result in additional Regulation Crowdfunding offerings relative 
to the final rule and the terms of those offerings. However, these 
alternatives would go against the purpose of the crowdfunding vehicle, 
which is to act solely as a conduit.
    As discussed above, under the final rules, natural persons 
investing in the crowdfunding vehicle will be excluded from the number 
of holders of record for purposes of Section 12(g). As an alternative, 
the final rules could treat all investors in the crowdfunding vehicle 
and investors in the crowdfunding issuer similarly for purposes of 
Section 12(g) by requiring all investors to be included in the number 
of holders of record. This alternative would increase the risk to 
Regulation Crowdfunding issuers of having to incur registration and 
Exchange Act reporting costs before they are ready to enter public 
markets. This alternative could make it harder for Regulation 
Crowdfunding issuers to raise capital from venture capitalists and 
other large investors in the future, compared to the final rules. This 
alternative would significantly decrease the utility of the 
crowdfunding vehicle structure to issuers, especially in offerings that 
attract small individual investors, compared to the final rules. 
However, this alternative could decrease the risk that crowdfunding 
issuers with a substantial number of individual investors through the 
crowdfunding vehicle structure would not exceed the thresholds in 
Section 12(g)(1) of the Exchange Act and become subject to the more 
extensive periodic reporting requirements under the Exchange Act, 
compared to the final rules. Nevertheless, the discussed effects could 
be mitigated for all except the largest Regulation Crowdfunding 
issuers, to the extent that such issuers may already avail themselves 
of the existing conditional exemption under Exchange Act Rule 12g-6.
    We are not adopting the proposed changes to the types of securities 
eligible under Regulation Crowdfunding. As an alternative, we could 
narrow the eligible security types to those eligible under Regulation A

[[Page 3583]]

(debt, equity, and debt convertible or exchangeable into equity, 
including guarantees of such securities), as proposed,\714\ which was 
supported by several commenters.\715\ This alternative could strengthen 
investor protection in some instances, to the extent that Regulation 
Crowdfunding investors may lack resources to analyze novel security 
types with complex payoff structures.\716\ This alternative could also 
make it easier for investors to compare different offerings under 
Regulation Crowdfunding and Regulation A, potentially facilitating 
better informed investment decisions. Such benefits would be limited to 
the extent that Regulation Crowdfunding disclosures already require a 
description of the terms of securities and the valuation method used, 
along with the continued application of other Regulation Crowdfunding 
investor protections (including other offering circular and periodic 
disclosure requirements, investment limits, investor education, and 
other crowdfunding intermediary requirements). At the same time, the 
alternative could impose costs on issuers by limiting the flexibility 
to offer the types of securities that are most compatible with their 
desired capital structure, financing needs, and assessment of market 
conditions.\717\ A significant share of Regulation Crowdfunding issuers 
rely on security types other than debt and equity. From inception of 
Regulation Crowdfunding in May 2016 through December 2019,\718\ we 
estimate that equity and debt accounted for 77 percent of the number of 
offerings and 74 percent of the aggregate target amount sought. The 
alternative could also impose costs on some investors that found 
securities with payoff structures other than equity or debt optimal for 
their investment strategy and relied on existing disclosures to 
accurately value such securities.
---------------------------------------------------------------------------

    \714\ For a discussion of the costs and benefits of other 
alternative security type eligibility criteria, see Proposing 
Release, at 18032.
    \715\ See supra notes 548 and 549.
    \716\ See supra note 549; U.S. Securities and Exchange 
Commission Office of the Investor Advocate, Report on Activities for 
Fiscal Year 2016, available at https://www.sec.gov/advocate/reportspubs/annual-reports/sec-investor-advocate-report-on-activities-2016.pdf; Jamie Ostrow, Buyer Beware: Securities Are Not 
Always What They Seem . . . , CrowdCheck Blog (Aug. 27, 2018), 
available at https://www.crowdcheck.com/blog/buyer-beware-securities-are-not-always-what-they-seem; and Joseph M. Green & John 
F. Coyle, Crowdfunding and the Not-So-Safe SAFE, 102 Va. L. Rev. 168 
(2016). See also U.S Securities and Exchange Commission, Investor 
Bulletin: Be Cautious of SAFEs in Crowdfunding, available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_safes; Andrew 
Stephenson, Compliance with Reg CF: When Failure Becomes Fraud, 
CrowdCheck Blog (Apr. 23, 2018), available at https://www.crowdcheck.com/blog/compliance-reg-cf-when-failure-becomes-fraud; and FINRA, Be Safe--5 Things You Need to Know About SAFE 
Securities and Crowdfunding, available at http://www.finra.org/investors/highlights/5-things-you-need-know-about-safe-securities-and-crowdfunding. But see Jack Wroldsen, Crowdfunding Investment 
Contracts, 11 Va. L. & Bus. Rev. 543 (2017).
    \717\ See supra notes 551 and 553 (opposing the restriction on 
security types eligible under Regulation Crowdfunding).
    \718\ These estimates are based on data from Form C or the 
latest amendment to it, excluding withdrawn offerings. Equity is 
comprised of common and preferred equity (including partnership/
membership units and interests). Approximately a third of Regulation 
Crowdfunding offerings were by issuers organized as limited 
liability companies or as partnerships. Debt is comprised of 
straight and convertible debt. Analysis of XML data from Form C does 
not allow a granular breakdown of debt security types. Other 
security types include SAFEs and securities not elsewhere classified 
(e.g., revenue participation agreements and miscellaneous tokens. 
Some of the revenue share agreements remaining in the ``other 
security type'' category may have quasi-debt features. SAFEs are 
identified by keyword from ``other security type description.'' 
Anecdotal review suggests that some equity and debt offerings were 
denoted as ``other'' in the form. Where detected, such instances 
were re-classified manually based on the ``other security type 
description'' field. Examples of ``other'' are, for instance, 
tokens, simple agreement for future tokens (``SAFTs''), and revenue 
participation agreements.
---------------------------------------------------------------------------

b. Excluding Delinquent Reporting Companies From Eligibility Under 
Regulation A
    The final amendments exclude reporting companies that are not 
current in periodic reports required under Section 13 or 15(d) of the 
Exchange Act from using Regulation A, consistent with the existing 
exclusion of issuers that are not subject to Exchange Act reporting and 
that have not filed required Regulation A periodic reports for the last 
two years.
i. Benefits
    The amendments are expected to promote investor protection and 
benefit investors by ensuring the availability of information about 
issuers required in periodic Exchange Act reports to Regulation A 
investors and thus enabling better informed investment decisions, which 
was supported by several commenters.\719\ Excluding issuers that are 
subject to, but not current in, Exchange Act reporting obligations from 
eligibility under Regulation A may reduce the average level of 
information asymmetry about Regulation A issuers and to the extent 
investors did not already consider a reporting company's failure to 
remain current in its reporting obligations in assessing a Regulation A 
offering may incrementally increase investor confidence and interest in 
securities offered in this market.
---------------------------------------------------------------------------

    \719\ See supra note 560. But see J. Clarke Letter.
---------------------------------------------------------------------------

    As a caveat, the use of Regulation A by reporting companies has 
been modest to date,\720\ which may attenuate the effects of changes to 
reporting company eligibility under Regulation A. By extending similar 
requirements regarding being current in periodic reports that presently 
apply in follow-on Regulation A offerings to reporting companies in 
initial Regulation A offerings, the amendments will increase uniformity 
in eligibility requirements across different categories of Regulation A 
issuers and may reduce potential for investor confusion.
---------------------------------------------------------------------------

    \720\ See supra note 667.
---------------------------------------------------------------------------

ii. Costs
    The amendments may lead to higher financing costs or reduced 
ability to raise the required financing under Regulation A for issuers 
that are not current in periodic reports required under Section 13 or 
15(d) of the Exchange Act.
iii. Effects on Efficiency, Competition, and Capital Formation
    The amendments may, on the margin, limit capital formation by 
affected issuers. At the same time, by ensuring more timely 
availability of information in periodic reports to prospective 
Regulation A investors, the amendments are expected to facilitate 
better informed decisions and more efficient allocation of investor 
capital in Regulation A offerings, and, for Regulation A securities 
with a secondary market, more informationally efficient security 
prices. In turn, if the amendments help alleviate investor concerns 
about adverse selection in the Regulation A market, they may promote 
greater investor interest in Regulation A securities, increasing 
aggregate capital formation in the Regulation A market. These effects 
on capital formation and efficiency of capital allocation may be modest 
if the amendments mainly result in a reallocation of delinquent 
reporting company issuers between Regulation A and other offering 
methods. We lack the ability to quantify the extent of such potential 
switching between offering methods as a result of the amendments.
iv. Reasonable Alternatives
    As an alternative, we could have required filers to have filed in a 
timely manner all reports required to be filed during the prior 12 
months, consistent with Form S-3 and F-3 requirements.\721\ This 
alternative may

[[Page 3584]]

benefit investors by incentivizing reporting companies that use 
Regulation A to provide timely periodic disclosures. However, we 
continue to believe that this alternative might increase costs and 
decrease the ability of reporting companies that have failed to timely 
file Exchange Act reports during the lookback period to raise follow-on 
Regulation A Tier 2 financing.\722\ Further, such conditions are not 
imposed on issuers that are not subject to Exchange Act reporting 
obligations and that seek to offer Regulation A securities. Overall, 
relative to the final amendments, we do not expect the effects of this 
alternative to be significant given the other incentives that reporting 
companies have to remain current in their Exchange Act reports (e.g., 
greater secondary market liquidity, not being delisted from an exchange 
or losing quote eligibility in the OTC market, future eligibility for a 
streamlined registration process, reduced legal liability, and a 
reputation for transparency).
---------------------------------------------------------------------------

    \721\ See General Instruction I.A.3 to Form S-3; and General 
Instruction I.A.2 to Form F-3.
    \722\ See 2018 Regulation A Release, at Section IV.B.c.2.
---------------------------------------------------------------------------

7. Bad Actor Disqualification Provisions
    The disqualification provisions of Regulation A and Regulation 
Crowdfunding currently differ from the disqualification provisions in 
Rule 506(d) in defining the lookback period for the disqualification 
event through the time of the filing, rather than through the time of 
sale. As a result, in certain circumstances, periods of time may exist 
during Regulation A and Regulation Crowdfunding offerings where an 
offering continues despite an event that would have constituted a 
disqualifying event at the time of filing.\723\ In order to harmonize 
the disqualification provisions of Regulation A and Regulation 
Crowdfunding with those of Rule 506(d) of Regulation D, the amendments 
specify that a disqualifying event that occurs at any time during an 
offering, not only prior to the filing, would disqualify the bad actor 
from further involvement in the offering. However, to reduce the cost 
for issuers of monitoring disqualification events that may affect 
beneficial owners during an ongoing offering, differently from the 
disqualification provision of Rule 506(d), we are retaining the 
disqualification lookback period through the time of filing, rather 
than through the time of sale, for disqualification events affecting 
beneficial owners.
---------------------------------------------------------------------------

    \723\ As discussed in Section II.G above, under Regulation A, if 
a covered person triggers one of the disqualifying events in Rule 
262, the Commission is able to suspend reliance on the Regulation A 
exemption through Rule 258, which requires a notice and hearing 
opportunity for the covered person. Furthermore, if a covered person 
triggers one of the disqualifying events, the issuer may need to 
consider whether it must suspend the offering until it files a post-
qualification amendment to reflect a fundamental change in the 
information set forth in the most recent offering statement or post-
qualification amendment. Regulation Crowdfunding, which similarly 
measures the lookback from the time of filing of the offering 
statement, does not have a suspension provision, similar to 
Regulation A, but similarly requires an issuer to amend the offering 
statement to disclose material changes, additions, or updates to 
information that it provides to investors for offerings that have 
not been completed or terminated.
---------------------------------------------------------------------------

a. Benefits
    By providing greater uniformity in the bad actor disqualification 
provisions across Rule 506(d), Rule 262(a), and Rule 503(a), the 
amendments may facilitate compliance for issuers, particularly issuers 
that undertake different types of exempt offerings over time. The 
amendments may further benefit issuers by reducing or even eliminating 
the need to undergo a potentially lengthy and costly Rule 258 
suspension process in the event of a disqualifying event occurring 
after the filing. By preserving the existing ``through date of filing'' 
lookback period provision with respect to disqualifying events 
involving beneficial owners, the amendments are expected to give 
issuers leeway to raise capital while managing disqualification 
monitoring costs.
    The amendments are expected to strengthen investor protection in 
cases of disqualifying events occurring after the initiation of an 
offering.\724\ This benefit is expected to be most salient for issuers 
in continuous offerings, which may span multiple months and years. For 
example, from June 2015 (when the 2015 Regulation A amendments raising 
the offering limit to $50 million took effect) through December 2019, 
based on the analysis of Form 1-A data, we estimate that approximately 
80 percent of qualified Regulation A offerings were conducted on a 
continuous basis. Based on the analysis of Form C data from inception 
of Regulation Crowdfunding through December 2019, we estimate that the 
average (median) duration of a Regulation Crowdfunding offering was 
approximately four months (three months).
---------------------------------------------------------------------------

    \724\ See supra note 570.
---------------------------------------------------------------------------

b. Costs
    The amended disqualification provisions may impose costs on issuers 
and covered persons. The amendments may lead issuers to incur 
additional due diligence and monitoring costs and potentially modify 
their policies and procedures to reduce the odds of a disqualifying 
event during an ongoing offering (e.g., replacing personnel or avoiding 
the participation of covered persons, other than beneficial owners, who 
are subject, or might become subject, to disqualifying events after 
filing).\725\ These additional costs of monitoring disqualification 
events in ongoing offerings are expected to be somewhat mitigated by 
the carve-out for events affecting the beneficial owner category of 
covered persons, which will remain subject to the existing lookback 
period (defined based on the date of filing). In addition, issuers 
might incur costs related to seeking disqualification waivers from the 
Commission. Alternatively, issuers that are disqualified from an 
ongoing Regulation A or Regulation Crowdfunding offering as a result of 
a disqualification event occurring after filing might experience an 
increased cost of capital or a reduced availability of capital. By 
subjecting additional issuers to the potential for disqualification in 
the event of a disqualification event affecting a covered person (other 
than a beneficial owner) after the offering has commenced, the 
amendments may cause some issuers to discontinue an offering, resulting 
in a failure to raise the required capital after some costs of 
preparing an offering statement or marketing an offering have already 
been incurred.
---------------------------------------------------------------------------

    \725\ See NextSeed Letter (stating that the additional 
monitoring cost will prevent issuers from relying on Regulation 
Crowdfunding) and CrowdCheck Letter (acknowledging the potential for 
significant monitoring costs, especially in Regulation Crowdfunding 
offerings).
---------------------------------------------------------------------------

c. Effects on Efficiency, Competition, and Capital Formation
    As discussed above, the amendments may cause some issuers whose 
covered persons (other than beneficial owners) become subject to a 
disqualification event after filing to discontinue an offering, 
resulting in decreased capital formation for such issuers. Additional 
costs of monitoring disqualification events might incrementally 
increase the compliance costs associated with conducting an offering 
under Regulation A or Regulation Crowdfunding. For Regulation 
Crowdfunding issuers, intermediaries might incur incrementally higher 
due diligence costs as well, insofar as the monitoring of 
disqualification triggers is not already a part of the intermediary's 
measures to reduce the risk of fraud.
    We expect the incrementally more stringent bad actor 
disqualification

[[Page 3585]]

provisions to lead most issuers to take additional steps to monitor 
disqualification events after filing and restrict the participation of 
covered persons (other than beneficial owners) in ongoing Regulation A 
and Regulation Crowdfunding offerings, which could incrementally help 
reduce the potential for fraud in these types of offerings and thus 
strengthen investor protection. To the extent that more stringent bad 
actor disqualification requirements increase investor interest in these 
offerings, on the margin, overall capital formation in the Regulation A 
and Regulation Crowdfunding markets may increase. If the amendments to 
the disqualification lookback period alleviate some of the concerns 
about adverse selection in the Regulation A and Regulation Crowdfunding 
markets and thus lower the risk premium associated with the risk of 
fraud due to the presence of bad actors in these markets, they may also 
reduce the cost of capital for issuers that rely on these offering 
exemptions.
d. Reasonable Alternatives
    As an alternative, instead of disqualifying Regulation A or 
Regulation Crowdfunding issuers affected by disqualifying events during 
an ongoing offering, we could allow such issuers to continue the 
offering but require the disclosure of a disqualifying event and the 
option for investors to cancel their investment commitments and obtain 
a refund of invested funds.\726\ This alternative might reduce costs 
for some issuers affected by a disqualification trigger in the course 
of an ongoing offering. However, it also might result in costs to 
investors if investors fail to review the disclosure of a disqualifying 
event occurring after commencement of an offering. This alternative 
also would not be consistent with the disqualification provisions in 
Rule 506(d), which might introduce confusion for issuers and investors 
that participate in multiple offerings conducted pursuant to different 
securities exemptions.
---------------------------------------------------------------------------

    \726\ See supra note 573.
---------------------------------------------------------------------------

    The amendments preserve the definition of the lookback period 
(using the time of filing as a basis) with respect to disqualification 
events affecting covered persons that are beneficial owners. As an 
alternative, we could extend the amended lookback period definition 
(continuing through the time of sale) with respect to disqualification 
events affecting all covered persons, including beneficial owners. 
Compared to the final amendments, this alternative might incrementally 
strengthen investor protection to the extent that the types of 
disqualification events that affect beneficial owners after filing in 
continuous Regulation A or Regulation Crowdfunding offerings pose 
conflicts of interest or other significant risks to investors. However, 
compared to the proposal, this alternative might result in the 
exclusion of some issuers whose beneficial owners become subject to a 
disqualification trigger after filing from eligibility to conduct an 
offering. To minimize this risk, issuers might incur increased costs of 
monitoring potential disqualification events affecting beneficial 
owners under this alternative. Issuers also might incur costs to 
restructure their share ownership to avoid beneficial ownership of 20 
percent or more of the issuer's outstanding voting equity securities, 
calculated on the basis of voting power, by individuals that may become 
subject to disqualifying events after filing.

V. Paperwork Reduction Act

A. Summary of the Collection of Information

    Certain provisions of our rules and forms affected by the 
amendments contain ``collection of information'' requirements within 
the meaning of the Paperwork Reduction Act of 1995 (``PRA'').\727\ The 
Commission is submitting the amendments to the Office of Management and 
Budget (``OMB'') for review in accordance with the PRA.\728\ The hours 
and costs associated with preparing and filing the forms constitute 
reporting and cost burdens imposed by each collection of information. 
An agency may not conduct or sponsor, and a person is not required to 
comply with, a collection of information unless it displays a currently 
valid OMB control number. Compliance with the information collections 
is mandatory. Responses to the information collections are not kept 
confidential and there is no mandatory retention period for the 
information disclosed. The titles for the affected collections of 
information are: \729\
---------------------------------------------------------------------------

    \727\ See 44 U.S.C. 3501 et seq.
    \728\ 44 U.S.C. 3507(d); and 5 CFR 1320.11.
    \729\ As discussed in Section II.D.3 above, we are revising the 
confidential information standard used in our exhibit filing 
requirements to provide that information may be redacted if it is 
both not material and the type that the registrant treats as private 
or confidential. A number of collections of information could be 
affected by this amendment, including 17 CFR 249.310 (OMB Control 
No. 3235-0063), 17 CFR 249.308a (OMB Control No. 3235-0070), Form 8-
K (OMB Control No. 3235-0060), Form S-1 (OMB Control No. 3235-0065), 
and 17 CFR 249.210 (OMB Control No. 3235-0064); as well as Form S-6 
(OMB Control No. 3235-0184); Form N-14 (OMB Control No. 3235-0336); 
Form 20-F (OMB Control No. 3235-0288); 17 CFR 239.31 (OMB Control 
No. 3235-0258); Form N-1A (OMB Control No. 3235-0307); Form N-2 (OMB 
Control No. 3235-0026); Form N-3 (OMB Control No. 3235-0316); Form 
N-4 (OMB Control No. 3235-0318); Form N-5 (OMB Control. No. 3235-
0169); Form N-6 (OMB Control No. 3235-0503); and Form N-8B-2 (OMB 
Control No. 3235-0186). We believe that the standard will not change 
the paperwork burden associated with these collections of 
information because the revised standard will be applied in similar 
circumstances and in a similar way as the current standard.
---------------------------------------------------------------------------

     ``Regulation A (Form 1-A)'' (OMB Control No. 3235-0286);
     ``Regulation D'' (a new collection of information);
     ``Regulation D Rule 504(b)(3)--Felons and Other Bad Actors 
Disclosure Statement'' (OMB Control No. 3235-0746);
     ``Regulation D Rule 506(e) Felons and Other Bad Actors 
Disclosure Statement'' (OMB Control No. 3235-0704);
     ``Form D'' (OMB Control No. 3235-0076); and
     ``Form C'' (OMB Control No. 3235-0716).
    We are combining the existing collections of information for 17 CFR 
230.504(b)(3) (``Rule 504(b)(3)''), 17 CFR 230.506(e) (``Rule 
506(e)''), and Form D in a new collection of information that covers 
all of the PRA compliance burdens for Regulation D. \730\ The 
regulations and forms listed above were adopted under the Securities 
Act and set forth filing and disclosure requirements associated with 
exempt offerings. A description of the amendments, including the need 
for the information and its use, as well as a description of the likely 
respondents, can be found in Section II above, and a discussion of the 
economic effects of the amendments can be found in Section IV above.
---------------------------------------------------------------------------

    \730\ Since the new collection of information for Regulation D 
will cover the existing compliance burdens, we are eliminating the 
separate collections of information for Rule 504(b)(3), Rule 506(e), 
and Form D.
---------------------------------------------------------------------------

B. Summary of the Effects on the Collections of Information

    PRA Table 1 \731\ summarizes the estimated effects of the 
amendments on

[[Page 3586]]

the paperwork burdens associated with the affected collections of 
information listed in Section V.A.
---------------------------------------------------------------------------

    \731\ We do not believe that the amendments with respect to the 
use of general solicitation in exempt offerings, the integration 
framework, harmonization of bad actor disqualification provisions in 
Regulation A and Regulation Crowdfunding with those in Regulation D, 
excluding Exchange Act registrants that are delinquent filers from 
relying on Regulation A, revising the non-exclusive list of methods 
for verifying accredited investor status, permitting the use of 
crowdfunding vehicles (other than Form C disclosure when a 
crowdfunding vehicle is used), increasing the Rule 504 offering 
limit, or increasing the investment limits under Regulation 
Crowdfunding will substantially or materially modify the number of 
new filings or the burdens for those filings. In addition, as 
discussed in Section II.E.3 above, we are extending certain 
provisions of the Commission's temporary relief from certain 
financial information requirements of Regulation Crowdfunding. The 
temporary relief also requires issuers relying on the temporary 
relief to provide certain additional disclosures, the burden of 
which is expected to be minimal. As discussed in the Temporary 
Amendments Adopting Release, we believe that the net change in 
paperwork burden as a result of the temporary relief will be minimal 
and are not adjusting the burden or cost estimates for Form C.

    PRA Table 1--Estimated Paperwork Burden Effects of the Amendments
------------------------------------------------------------------------
                                          Affected
    Final amendments and effects       collections of     Estimated net
                                        information          effect
------------------------------------------------------------------------
Regulation D:
 Provide a new collection                5 hour
 of information to encompass          Regulation D       compliance
 disclosure required by Regulation    (including Form    burden per
 D, including the following:          D, Rule 502(b),    response to the
[cir] Financial statement and non-    Rule 504(b)(3),    new collection
 financial statement information      and Rule 506(e)).  of information.
 and delivery requirements,
 including the proposed requirement
 to provide the purchaser with
 generic solicitation of interest
 materials (Rule 502(b)); and
[cir] Felon and bad actor
 disclosure requirements (Rules
 504(b)(3)) and 506(e).
Regulation A:
 Requiring the filing of      Form 1-A   2 hour
 generic solicitation of interest                        net decrease in
 materials. Estimated burden                             compliance
 increase: 0.5 hours per form.                           burden per
 Simplifying compliance                          form.
 with Regulation A by conforming                         25
 certain requirements with similar                       additional
 requirements for registered                             responses.
 offerings (including permitting
 the redaction of confidential
 information in certain exhibits;
 permitting incorporation by
 reference of financial statements
 in the offering circular; and
 simplifying the requirements for
 making non-public documents
 available to the public on EDGAR).
 Estimated burden decrease: 2.5
 hours per form.
 We estimate that the
 increase in offering limit would
 increase the number of filings on
 Form 1-A by 25.
Regulation Crowdfunding:
 Requiring the filing of      Form C..   1 hour
 generic solicitation of interest                        net increase in
 materials and solicitations of                          compliance
 interest under Rule 206; and                            burden per
 requiring disclosure about a co-                        form.
 issuer on Form C when an SPV is                         55
 used. Estimated burden increase: 1                      additional
 hour per form.                                          responses.
 We believe that increasing
 the offering limits under
 Regulation Crowdfunding would not
 affect the burden estimate per
 form, but we estimate that the
 increase in the offering limit
 would increase the number of
 filings on Form C by 55.
------------------------------------------------------------------------

    Although we estimate that the amendments to Regulation D that we 
are adopting will not have a net effect on the current burdens relating 
to Regulation D, we are changing how we allocate those burdens to an 
information collection for PRA purposes. In particular, as discussed 
above, we are establishing a new, single collection of information for 
Regulation D to encompass all of the associated paperwork burdens. The 
estimates for this new collection of information include the existing 
burdens associated with Form D, Rule 504(b)(3), and Rule 506(e), as 
well as other burdens resulting from the implementation of Regulation 
D. As a result, the new collection of information for Regulation D 
reflects an increase from the aggregated burdens for the existing Form 
D, Rule 504(b)(3) and Rule 506(e) collections of information. See PRA 
Table 6 below.
    Although it is not possible to predict with certainty the increase 
in the number of Regulation A and Regulation Crowdfunding offerings 
following the amendments, we estimate for purposes of the PRA an 
approximate 20 percent increase in the number of new Regulation A 
offerings resulting in 25 additional respondents, and an approximate 10 
percent increase in the number of new Regulation Crowdfunding offerings 
resulting in 55 additional respondents.\732\ It is possible that the 
increase in the offering limit may also increase the number of Form 1-
K, 17 CFR 239.92 (Form 1-SA), 17 CFR 239.93 (Form 1-U), and Form 1-Z 
filings. However, due to uncertainties regarding whether any increase 
in Tier 2 offerings would be conducted by Exchange Act reporting 
companies, we are not increasing in the number of responses for the 
associated collections of information at this time.
---------------------------------------------------------------------------

    \732\ We derived these estimates based on 125 Regulation A 
offerings filed in 2019 and 552 Regulation Crowdfunding offerings 
conducted in the second full year since effectiveness of those 
rules.
---------------------------------------------------------------------------

C. Incremental and Aggregate Burden and Cost Estimates

    Below we estimate the incremental and aggregate changes in 
paperwork burden as a result of the amendments. These estimates 
represent the average burden for all issuers, both large and small. In 
deriving our estimates, we recognize that the burdens will likely vary 
among individual issuers based on a number of factors, including the 
nature of their business. We believe that the amendments will change 
the frequency of responses to the existing collections of information 
and the burden per response.
    The burden estimates were calculated by adding the estimated 
additional responses to the existing estimated responses and 
multiplying the estimated number of responses by the estimated average 
amount of time it takes an issuer to prepare and review disclosure 
required under the amendments. For purposes of the PRA, the burden is 
to be allocated between internal burden

[[Page 3587]]

hours and outside professional costs. PRA Table 2 \733\ sets forth the 
percentage estimates we typically use for the burden allocation for 
each collection of information and the estimated burden allocation for 
the new collection of information for Regulation D. We also estimate 
that the average cost of retaining outside professionals is $400 per 
hour.\734\
---------------------------------------------------------------------------

    \733\ Here and in the tables below, we derived current estimated 
burdens and burden allocations for Regulation D using the estimates 
for Form D, Rule 504(b)(3), and Rule 506(e).
    \734\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $400 per hour. This estimate is 
based on consultations with several registrants, law firms, and 
other persons who regularly assist registrants in preparing and 
filing reports with the Commission.

  PRA Table 2--Estimated Burden Allocation for Specified Collections of
                               Information
------------------------------------------------------------------------
                                                              Outside
         Collection of  information            Internal    professionals
                                               (percent)     (percent)
------------------------------------------------------------------------
Forms 1-A, C................................          75              25
Regulation D................................          25              75
------------------------------------------------------------------------

    PRA Table 3 \735\ below illustrates the incremental change to the 
total annual compliance burden of affected forms, in hours and in 
costs, as a result of the amendments' estimated effect on the paperwork 
burden per response. The number of estimated affected responses shown 
in PRA Table 3 is based on the number of responses in the Commission's 
current OMB PRA filing inventory plus the number of additional 
responses we estimate as a result of the amendments (25 responses for 
Form 1-A, and 55 responses for Form C).\736\
---------------------------------------------------------------------------

    \735\ The estimated reductions in Columns (C), (D), and (E) are 
rounded to the nearest whole number.
    \736\ The OMB PRA filing inventory represents a three-year 
average.

                PRA Table 3--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Burden hour      Change in        Change in         Change in         Change in
                                                       Number of      affect per     burden hours     company hours     professional      professional
             Collection of information                 estimated        current       for current      for current        hours for         costs for
                                                       affected        affected        affected         affected      current affected  current affected
                                                       responses       response        responses        responses         responses         responses
                                                               (A)             (B)     (C) = (A) x  (D) = (C) x 0.75  (E) = (C) x 0.25  (F) = (E) x $400
                                                                                               (B)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 1-A..........................................             204             (2)           (408)             (306)             (102)         ($40,800)
Form C............................................           5,907               1            5907             4,430             1,477          $590,800
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The table below illustrates the incremental change to the total 
annual compliance burden of affected forms, in hours and in costs, as a 
result of the amendments' estimated effect on the number of responses.

          PRA Table 4--Calculation of the Change in Burden Estimates as a Result of Change in Number of Responses Resulting From the Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Current burden                                      Program change
                                                 -------------------------------------------------------------------------------------------------------
            Collection of information                                                                Estimated
                                                  Current annual  Current burden   Current cost     additional     Change in company       Change in
                                                     responses         hours          burden         responses           hours        professional costs
                                                             (A)             (B)             (C)             (D)   (E) = ((B)/(A)) x   (F) = ((C)/(A)) x
                                                                                                                                 (D)                 (D)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 1-A........................................             179          98,396     $13,111,912              25              13,742          $1,932,390
Form C..........................................           5,852         214,928      28,500,000              55               2,020             267,857
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following tables summarize the requested paperwork burden, 
including the estimated total reporting burdens and costs, under the 
amendments. To estimate the new burdens for Form 1-A and Form C 
resulting from the amendments, we add the estimated burden and cost 
changes in PRA Table 3 and PRA Table 4 and have incorporated them into 
PRA Table 5. For example, Column (E) of PRA Table 5 represents the sum 
of column (D) in PRA Table 3 and column (E) in PRA Table 4.

                                                                  PRA Table 5--Requested Paperwork Burden Under the Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Current burden                                  Program change                                  Revised burden
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
            Collection of information                                                                Number of                       Change in
                                                  Current annual  Current burden   Current cost      affected        Change in     professional       Annual       Burden hours     Cost burden
                                                     responses         hours          burden         responses     company hours       costs         responses
                                                             (A)             (B)             (C)             (D)             (E)             (F)             (G)     (H) = (B) +     (I) = (C) +
                                                                                                                                                                             (E)             (F)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Form 1-A........................................             179          98,396     $13,111,912             204          13,436      $1,891,590             204         111,832     $15,003,502
Form C..........................................           5,852         214,928      28,500,000           5,907           6,450         858,657           5,907         221,378      29,358,657
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    PRA Table 6 summarizes the requested paperwork burden for the new 
Regulation D collection of information, including the estimated total 
reporting burdens and costs, under the amendments. The estimates for 
this

[[Page 3588]]

new collection of information include the existing burden estimated for 
Form D, Rule 504(b)(3), and Rule 506(e), as well as other burdens 
resulting from the implementation of Regulation D. For purposes of the 
PRA, we estimate that the new Regulation D collection of information 
will entail a 5 hour compliance burden per response with 26,000 annual 
responses (derived from the current 26,000 annual responses for Form 
D).\737\
---------------------------------------------------------------------------

    \737\ We expect the amendments providing an additional method to 
verify an investor's accredited investor status and increasing the 
offering limit under Rule 504 could lead to additional Rule 506(c) 
or Rule 504 offerings. However, as discussed in Section IV above, 
some of these offerings may be conducted by issuers switching from 
other Regulation D exemptions. Additionally, some of the issuers 
conducting the additional Regulation A or Regulation Crowdfunding 
offerings may be switching from Regulation D offerings. Because it 
is difficult to predict the net impact of the proposed amendments on 
the overall number of Regulation D responses, we are not adjusting 
the current estimate of 26,000 responses at this time.

                  PRA Table 6--Requested Paperwork Burden for the New Collection of Information
----------------------------------------------------------------------------------------------------------------
                                                                  Requested paperwork burden
          Collection of information          -------------------------------------------------------------------
                                                Annual responses       Burden hours            Cost burden
                                                             (A)     (A) x 5 x (0.25)   (A) x 5 x (0.75) x $400
----------------------------------------------------------------------------------------------------------------
Regulation D................................              26,000               32,500               $39,000,000
----------------------------------------------------------------------------------------------------------------

VI. Final Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') \738\ requires the 
Commission, in promulgating rules under Section 553 of the 
Administrative Procedure Act,\739\ to consider the impact of those 
rules on small entities. We have prepared this Final Regulatory 
Flexibility Act Analysis (``FRFA'') in accordance with Section 604 of 
the RFA.\740\ An Initial Regulatory Flexibility Analysis (``IRFA'') was 
prepared in accordance with the RFA and was included in the Proposing 
Release. This FRFA relates to the amendments or additions to the rules 
and forms described in Section II above.
---------------------------------------------------------------------------

    \738\ 5 U.S.C. 601 et seq.
    \739\ 5 U.S.C. 553.
    \740\ 5 U.S.C. 604.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Amendments

    The amendments to the exempt offering framework are intended 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 need for, 
and objectives of, the amendments are discussed in more detail in 
Sections II and IV above.

B. Significant Issues Raised by Public Comment

    In the Proposing Release, we requested comment on all aspects of 
the IRFA, including how the proposed amendments could further lower the 
burden on small entities, the number of small entities that would be 
affected by the proposed amendments, the existence or nature of the 
potential impact of the proposals on small entities discussed in the 
analysis, and how to quantify the impact of the proposed amendments. We 
did not receive any comments specifically addressing the IRFA. However, 
we received a number of comments on the proposed amendments 
generally,\741\ and have considered these comments in developing the 
FRFA.
---------------------------------------------------------------------------

    \741\ See Section II above.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Amendments

    The final amendments will affect issuers that are small entities. 
The RFA defines ``small entity'' to mean ``small business,'' ``small 
organization,'' or ``small governmental jurisdiction.'' \742\ For 
purposes of the RFA, under 17 CFR 230.157, an issuer, other than an 
investment company, is a ``small business'' or ``small organization'' 
if it had total assets of $5 million or less on the last day of its 
most recent fiscal year and is engaged or proposing to engage in an 
offering of securities not exceeding $5 million. Under 17 CFR 270.0-10, 
an investment company, including a business development company, is 
considered to be a small entity if it, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less as of the end of its most recent fiscal 
year.
---------------------------------------------------------------------------

    \742\ 5 U.S.C. 601(6).
---------------------------------------------------------------------------

    The amendments are expected to promote capital formation through 
exempt offerings and create additional flexibility for issuers. Because 
the amendments will affect all issuers conducting offerings exempt from 
registration under the Securities Act, which includes companies not 
subject to ongoing reporting obligations under the Exchange Act, 
Regulation A, or Regulation Crowdfunding, it is difficult to estimate 
the number of issuers that qualify as small entities that would be 
eligible to rely on the amendments.\743\
---------------------------------------------------------------------------

    \743\ In particular, as discussed in Section IV above, due to 
the large number of offerings in reliance on the offering exemptions 
in Regulation D relative to other offering exemptions affected by 
the amendments, most of which are conducted by issuers that are not 
subject to Exchange Act, Regulation A, or Regulation Crowdfunding 
reporting requirements, Regulation D issuers are likely to continue 
to comprise a significant share of the small entities affected by 
the amendments. However, we do not have information on the assets of 
such issuers, which is required for an estimate of small entities 
for purposes of the RFA definition, because this information is not 
required by Form D and because such issuers may not be subject to 
ongoing reporting requirements.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    As noted above, the amendments to the exempt offering framework are 
intended to close gaps and reduce complexities that may impede access 
to capital for issuers. The final amendments apply to small entities to 
the same extent as other entities, irrespective of size, and we expect 
that the nature of any associated benefits and costs to be similar. 
Accordingly, we refer to the discussion of the economic effects on all 
affected parties, including small entities, in Section IV above.\744\ 
Consistent with that discussion, we anticipate that the economic 
benefits and costs likely could vary widely among small entities based 
on a number of factors, such as the nature and conduct of their 
businesses, including their capital raising decisions, which makes it 
difficult to project the economic impact on small entities with 
precision. Compliance with the final amendments may require the use of 
professional skills, including accounting and legal skills.
---------------------------------------------------------------------------

    \744\ We also discuss the estimated compliance burden associated 
with the proposed amendments for purposes of the PRA in Section V 
above.
---------------------------------------------------------------------------

    Many of the final amendments are expected to be of greatest benefit 
to the

[[Page 3589]]

capital raising efforts of small entities that may lack an existing 
network of angel and VC funders and appear to face the greatest 
constraints in obtaining external financing. Examples of this include: 
Amendments to integration principles that are intended to facilitate 
multiple offerings, including offerings with general solicitation; 
amendments expanding investment limits and issuer eligibility under 
Regulation Crowdfunding; amendments tailoring the requirements for non-
accredited investor sales under Rule 506(b); and amendments expanding 
the offering limits for Regulation Crowdfunding, Rule 504, and 
Regulation A. In addition, certain of the rules that we are amending, 
such as Regulation Crowdfunding and Rule 504, have eligibility 
requirements and other restrictions that increase the likelihood that 
such rules will be relied on by small businesses that are seeking to 
raise relatively small amounts of capital without incurring the costs 
of conducting a registered offering.
    Although many of the final amendments are expected to be of 
greatest benefit to the capital raising efforts of small entities, we 
acknowledge that any costs of the amendments borne by the affected 
entities, such as those related to compliance with the amendments, or 
the implementation or restructuring of internal systems needed to 
adjust to the amendments, could have a proportionally greater effect on 
small entities, as they may be less able to bear such costs relative to 
larger entities. For example, the final amendments to the bad actor 
disqualification provisions \745\ could cause some small entities to 
incur additional due diligence costs or modify their offerings to 
reduce the possibility of a disqualifying event (e.g., replacing 
personnel or avoiding the participation of covered persons, other than 
beneficial owners, who are subject, or might become subject, to 
disqualifying events after filing). Similarly, small entities electing 
to use the generic or Regulation Crowdfunding testing-the-waters 
provisions \746\ might incur costs, such as those related to preparing 
the testing-the-waters materials. These potential costs would be borne 
equally by all issuers, regardless of size.
---------------------------------------------------------------------------

    \745\ See supra Section II.G.
    \746\ See supra Section II.B.
---------------------------------------------------------------------------

F. Agency Action To Minimize Effect on Small Entities

    The RFA directs us to consider alternatives that would accomplish 
our stated objectives, while minimizing any significant adverse impact 
on small entities. Accordingly, we considered the following 
alternatives:
     Establishing different compliance or reporting 
requirements that take into account the resources available to small 
entities;
     Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    The final amendments generally simplify, harmonize, and improve 
certain aspects of the exempt offering framework to promote capital 
formation, including for offering exemptions used by and designed 
primarily for small entities. Thus, we do not think it is necessary to 
exempt small entities from all or part of these requirements. As 
discussed in more detail in Sections II and IV above, commenters 
offered, and we considered, various alternatives to the final 
amendments.
    Several of the offering exemptions that we are amending (e.g., 
Regulation A and Regulation Crowdfunding) already contain different 
compliance or reporting requirements that take into account the 
resources of the smaller entities that are likely to use these 
exemptions. In addition, certain amendments clarify, consolidate, or 
simplify compliance and reporting requirements under our rules, which 
should benefit small entities in particular. For example, we are 
amending the financial statement information requirements in Regulation 
D to align them with the disclosure requirements in Regulation A. We 
are also amending Regulation A to simplify compliance, such as by 
providing for the redaction of confidential information in certain 
exhibits, harmonizing the procedures for publicly filing draft 
Regulation A offering statements with those for draft Securities Act 
registration statements, and permitting issuers to incorporate 
previously-filed financial statements by reference into a Regulation A 
offering statement. Finally, we are amending Regulation Crowdfunding 
and rules under the Investment Company Act to help reduce 
administrative complexities that some issuers may encounter under 
Regulation Crowdfunding.
    With respect to using performance rather than design standards, we 
note that several of the amendments concern rules that use principles-
based approaches that are more akin to performance standards. For 
example, we are adopting a general principle of integration that 
requires 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.

VII. Statutory Authority

    The final amendments contained in this release are being adopted 
under the authority set forth in the Securities Act (15 U.S.C. 77a et 
seq.), particularly, Sections 3, 4, 4A, 19, and 28 thereof; the 
Exchange Act (15 U.S.C. 78a et seq.), particularly, Sections 3, 10(b), 
12, 15, 17, 23(a), and 36 thereof; the Investment Company Act (15 
U.S.C. 80a-1 et seq.), particularly Sections 6(c), 8, 24, 30, 38, and 
45; and Pub. L. 112-106, secs. 301-305, 126 Stat. 306 (2012).

List of Subjects

17 CFR Part 227

    Crowdfunding, Reporting and recordkeeping requirements, Securities.

17 CFR Part 229

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 230

    Advertising, Administrative practice and procedure, Confidential 
business information, Investment companies, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 239

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 240

    Administrative practice and procedure, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 249

    Administrative practice and procedure, Brokers, Reporting and 
recordkeeping requirements, Securities.

17 CFR Part 270

    Administrative practice and procedure, Confidential business 
information, Fraud, Investment companies, Life insurance, Reporting and 
recordkeeping requirements, Securities.

17 CFR Part 274

    Administrative practice and procedure, Electronic funds transfer, 
Investment companies, Reporting and recordkeeping requirements, 
Securities.

[[Page 3590]]

Text of Rule Amendments

    In accordance with the foregoing, the Commission amends title 17, 
chapter II, of the Code of Federal Regulations as follows:

PART 227--REGULATION CROWDFUNDING, GENERAL RULES AND REGULATIONS

0
1. The authority citation for part 227 continues to read as follows:

    Authority:  15 U.S.C. 77d, 77d-1, 77s, 77z-3, 78c, 78o, 78q, 
78w, 78mm, and Pub. L. 112-106, secs. 301-305, 126 Stat. 306 (2012).

0
2. Effective January 14, 2021, to March 1, 2023, amend Sec.  227.201 by 
revising paragraph (b)(7) to read as follows:

Sec.  227.100  Crowdfunding exemption and requirements.

* * * * *
    (b) * * *
    (7) Seeks to rely on Sec.  227.201(aa) to conduct an offering on an 
expedited basis due to circumstances relating to coronavirus disease 
2019 (COVID-19), where such offering is initiated between May 4, 2020, 
and February 28, 2021, or seeks to rely on Sec.  227.201(bb), where 
such offering is initiated between March 1, 2021, and August 28, 2022, 
and:
    (i) Was organized and had operations less than six months prior to 
the commencement of the offering; or
    (ii) Sold securities in reliance on section 4(a)(6) of the 
Securities Act and has not complied with the requirements in section 
4A(b) of the Securities Act (15 U.S.C. 77d-1(b)) and the related 
requirements in this part.
* * * * *

0
3. Effective March 15, 2021, further amend Sec.  227.100 by:
0
a. Revising paragraphs (a)(1), (a)(2) introductory text, and paragraphs 
(a)(2)(i) and (ii);
0
b. Revising paragraph (d); and
0
c. Adding paragraph (e).
    The revisions and additions read as follows:

Sec.  227.100  Crowdfunding exemption and requirements.

    (a) * * *
    (1) The aggregate amount of securities sold to all investors by the 
issuer in reliance on section 4(a)(6) of the Securities Act (15 U.S.C. 
77d(a)(6)) during the 12-month period preceding the date of such offer 
or sale, including the securities offered in such transaction, shall 
not exceed $5,000,000;
    (2) Where the purchaser is not an accredited investor (as defined 
in Rule 501 (Sec.  230.501 of this chapter)), the aggregate amount of 
securities sold to such an investor across all issuers in reliance on 
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) during the 
12-month period preceding the date of such transaction, including the 
securities sold to such investor in such transaction, shall not exceed:
    (i) The greater of $2,200, or 5 percent of the greater of the 
investor's annual income or net worth, if either the investor's annual 
income or net worth is less than $107,000; or
    (ii) Ten percent of the greater of the investor's annual income or 
net worth, not to exceed an amount sold of $107,000, if both the 
investor's annual income and net worth are equal to or more than 
$107,000;
* * * * *
    (d) Investor. For purposes of this part, investor means any 
investor or any potential investor, as the context requires. A 
crowdfunding vehicle (as defined in Sec.  270.3a-9 of this chapter) is 
not considered an investor for the purposes of this part.
    (e) Integration with other offerings. To determine whether offers 
and sales should be integrated, see Sec.  230.152 of this chapter.

0
4. Effective January 14, 2021, to September 1, 2021, amend Sec.  
227.201 by:
0
a. Redesignating paragraph (z) as paragraph (aa) and revising it; and
0
b. Adding new reserved paragraph (z).
    The revision reads as follows:

Sec.  227.201   Disclosure requirements.

* * * * *
    (aa) Between May 4, 2020, and February 28, 2021, an issuer may 
initiate an offering intended to be conducted on an expedited basis due 
to circumstances relating to COVID-19. Such issuer:
    (1) Must prominently provide the following information:
    (i) A statement that the offering is being conducted on an 
expedited basis due to circumstances relating to COVID-19 and pursuant 
to the Commission's temporary regulatory COVID-19 relief set out in 
this part;
    (ii) If the issuer is relying on paragraph (aa)(2) of this section 
to omit the information required by paragraph (t) of this section in 
the initial Form C: Offering Statement (Form C) (Sec.  239.900 of this 
chapter) filed with the Commission and provided to investors and the 
relevant intermediary in accordance with Sec.  227.203(a)(1), a 
statement that:
    (A) The financial information that has been omitted is not 
currently available and will be provided by an amendment to the 
offering materials;
    (B) The investor should review the complete set of offering 
materials, including previously omitted financial information, prior to 
making an investment decision; and
    (C) No investment commitments will be accepted until after such 
financial information has been provided; and
    (iii) If the issuer is relying on paragraph (aa)(3) of this section 
to provide financial statement information required by paragraph (t)(1) 
of this section, a statement that financial information certified by 
the principal executive officer of the issuer has been provided instead 
of financial statements reviewed by a public accountant that is 
independent of the issuer; and
    (iv) In lieu of the information required by paragraph (j) of this 
section, a description of the process to complete the transaction or 
cancel an investment commitment, including a statement that:
    (A) Investors may cancel an investment commitment for any reason 
within 48 hours from the time of his or her investment commitment (or 
such later period as the issuer may designate);
    (B) The intermediary will notify investors when the target offering 
amount has been met;
    (C) The issuer may close the offering at any time after it has 
aggregate investment commitments for which the right to cancel pursuant 
to paragraph (aa)(1)(iv)(A) of this section has lapsed that equal or 
exceed the target offering amount (absent a material change that would 
require an extension of the offering and reconfirmation of the 
investment commitment); and
    (D) If an investor does not cancel an investment commitment within 
48 hours from the time of the initial investment commitment, the funds 
will be released to the issuer upon closing of the offering and the 
investor will receive securities in exchange for his or her investment;
    (2) May omit the information required by paragraph (t) of this 
section in the initial Form C: Offering Statement (Form C) (Sec.  
239.900 of this chapter) filed with the Commission and provided to 
investors and the relevant intermediary in accordance with Sec.  
227.203(a)(1) if such information is unavailable at the time of filing, 
but the intermediary may not accept any investment commitments until 
complete information required under paragraph (t) of this section is 
provided through an amendment to the Form C in accordance with Sec.  
227.203(a)(2); and
    (3) May comply with the requirements of paragraph (t)(1) of this 
section instead of paragraph (t)(2) of this section for an offering or 
offerings that, together with all other amounts sold under section 
4(a)(6) of the Securities Act (15 U.S.C.

[[Page 3591]]

77d(a)(6)) within the preceding 12-month period, have, in the 
aggregate, a target offering amount of more than $107,000, but not more 
than $250,000, and financial statements of the issuer that have either 
been reviewed or audited by a public accountant that is independent of 
the issuer are unavailable at the time of filing.
* * * * *

0
5. Effective January 14, 2021, to March 1, 2023, further amend Sec.  
227.201 by adding paragraph (bb) to read as follows:

Sec.  227.201   Disclosure requirements.

* * * * *
    (bb) Between March 1, 2021, and August 28, 2022, an issuer may 
comply with the requirements of paragraph (t)(1) of this section 
instead of paragraph (t)(2) of this section for an offering or 
offerings that, together with all other amounts sold under section 
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) within the 
preceding 12-month period, have, in the aggregate, a target offering 
amount of more than $107,000, but not more than $250,000, and financial 
statements of the issuer that have either been reviewed or audited by a 
public accountant that is independent of the issuer are unavailable at 
the time of filing. Such issuer must prominently provide a statement 
that financial information certified by the principal executive officer 
of the issuer has been provided instead of financial statements 
reviewed by a public accountant that is independent of the issuer.
* * * * *

0
6. Effective March 15, 2021, further amend Sec.  227.201 by:
0
a. Revising the introductory text;
0
b. Removing the word ``and'' from the end of paragraph (x);
0
c. Removing the period from the end of paragraph (y) and adding in its 
place ``; and'';
0
d. Removing the ``Instruction to Sec.  227.201'' from where it appears 
after paragraph (y) and adding it to the end of the section; and
0
e. Adding paragraph (z).
    The revisions and addition read as follows:

Sec.  227.201   Disclosure requirements.

    An issuer offering or selling securities in reliance on section 
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) and in accordance 
with section 4A of the Securities Act (15 U.S.C. 77d-1) and this part, 
and any co-issuer jointly offering or selling securities with such an 
issuer in reliance on the same, must file with the Commission and 
provide to investors and the relevant intermediary the following 
information:
* * * * *
    (z) Any written communication or broadcast script provided in 
accordance with Sec.  227.206 or, if within 30 days of the initial 
filing of the offering statement, Sec.  230.241 of this chapter.
    (aa) Between May 4, 2020, and February 28, 2021, an issuer may 
initiate an offering intended to be conducted on an expedited basis due 
to circumstances relating to COVID-19. Such issuer:
    (1) Must prominently provide the following information:
    (i) A statement that the offering is being conducted on an 
expedited basis due to circumstances relating to COVID-19 and pursuant 
to the Commission's temporary regulatory COVID-19 relief set out in 
this part;
    (ii) If the issuer is relying on paragraph (aa)(2) of this section 
to omit the information required by paragraph (t) of this section in 
the initial Form C: Offering Statement (Form C) (Sec.  239.900 of this 
chapter) filed with the Commission and provided to investors and the 
relevant intermediary in accordance with Sec.  227.203(a)(1), a 
statement that:
    (A) The financial information that has been omitted is not 
currently available and will be provided by an amendment to the 
offering materials;
    (B) The investor should review the complete set of offering 
materials, including previously omitted financial information, prior to 
making an investment decision; and
    (C) No investment commitments will be accepted until after such 
financial information has been provided; and
    (iii) If the issuer is relying on paragraph (aa)(3) of this section 
to provide financial statement information required by paragraph (t)(1) 
of this section, a statement that financial information certified by 
the principal executive officer of the issuer has been provided instead 
of financial statements reviewed by a public accountant that is 
independent of the issuer; and
    (iv) In lieu of the information required by paragraph (j) of this 
section, a description of the process to complete the transaction or 
cancel an investment commitment, including a statement that:
    (A) Investors may cancel an investment commitment for any reason 
within 48 hours from the time of his or her investment commitment (or 
such later period as the issuer may designate);
    (B) The intermediary will notify investors when the target offering 
amount has been met;
    (C) The issuer may close the offering at any time after it has 
aggregate investment commitments for which the right to cancel pursuant 
to paragraph (aa)(1)(iv)(A) of this section has lapsed that equal or 
exceed the target offering amount (absent a material change that would 
require an extension of the offering and reconfirmation of the 
investment commitment); and
    (D) If an investor does not cancel an investment commitment within 
48 hours from the time of the initial investment commitment, the funds 
will be released to the issuer upon closing of the offering and the 
investor will receive securities in exchange for his or her investment;
    (2) May omit the information required by paragraph (t) of this 
section in the initial Form C: Offering Statement (Form C) (Sec.  
239.900 of this chapter) filed with the Commission and provided to 
investors and the relevant intermediary in accordance with Sec.  
227.203(a)(1) if such information is unavailable at the time of filing, 
but the intermediary may not accept any investment commitments until 
complete information required under paragraph (t) of this section is 
provided through an amendment to the Form C in accordance with Sec.  
227.203(a)(2); and
    (3) May comply with the requirements of paragraph (t)(1) of this 
section instead of paragraph (t)(2) of this section for an offering or 
offerings that, together with all other amounts sold under section 
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) within the 
preceding 12-month period, have, in the aggregate, a target offering 
amount of more than $107,000, but not more than $250,000, and financial 
statements of the issuer that have either been reviewed or audited by a 
public accountant that is independent of the issuer are unavailable at 
the time of filing.
* * * * *

0
7. Effective March 15, 2021, amend Sec.  227.203 by revising paragraph 
(a)(1) to read as follows:

Sec.  227.203   Filing requirements and form.

    (a) * * *
    (1) Offering statement. Except as allowed by Sec.  227.206, an 
issuer offering or selling securities in reliance on section 4(a)(6) of 
the Securities Act (15 U.S.C. 77d(a)(6)) and in accordance with section 
4A of the Securities Act (15 U.S.C. 77d-1) and this part, and any co-
issuer jointly offering or selling securities with such an issuer in 
reliance on the same, must file with the Commission and provide to 
investors and the relevant intermediary a Form C: Offering Statement 
(Form C) (Sec.  239.900

[[Page 3592]]

of this chapter) prior to the commencement of the offering of 
securities. An issuer that is both offering or selling securities with 
a co-issuer and separately offering or selling securities on its own 
must file with the Commission and provide to investors and the relevant 
intermediary a separate Form C for such offering. Every Form C must 
include the information required by Sec.  227.201.
* * * * *

0
8. Effective March 15, 2021, amend Sec.  227.204 by:
0
a. Revising paragraphs (a) and (b)(1);
0
b. Adding paragraph (d); and
0
c. Redesignating the Instruction to Sec.  227.204 as paragraph (e) and 
revising it.
    The revisions and addition read as follows:

Sec.  227.204   Advertising.

    (a)(1) An issuer may not, directly or indirectly, advertise the 
terms of an offering made in reliance on section 4(a)(6) of the 
Securities Act (15 U.S.C. 77d(a)(6)), except for oral or written 
communications that meet the requirements of paragraph (b) of this 
section or of Sec.  227.206.
    (2) Instruction to paragraph (a). For purposes of this paragraph 
(a), issuer includes persons acting on behalf of the issuer.
    (b) * * *
    (1) A statement that the issuer is conducting an offering pursuant 
to section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)), the 
name of the intermediary through which the offering is being conducted, 
and information (including a link in any written communications) 
directing the potential investor to the intermediary's platform;
* * * * *
    (d) Notwithstanding the requirement that a notice advertising any 
of the terms of an issuer's offering made in reliance on section 
4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) include no more 
than the information specified in paragraph (b) of this section, an 
issuer conducting an offering in reliance on Regulation Crowdfunding 
concurrently with another offering that discloses the terms of the 
Regulation Crowdfunding offering in the disclosure document for the 
other offering will not be deemed to have exceeded these disclosure 
limitations if the disclosure document for the other offering satisfies 
all the other requirements of this section. If the disclosure document 
for the other offering is filed on the Commission's Electronic Data 
Gathering and Retrieval System (EDGAR), the link required by paragraph 
(b)(1) may not be a live hyperlink.
    (e) Instruction to Sec.  227.204. For purposes of this section, 
terms of the offering means the amount of securities offered, the 
nature of the securities, the price of the securities, the closing date 
of the offering period, the planned use of proceeds and the issuer's 
progress toward meeting its funding target.

0
9. Effective March 15, 2021, add Sec.  227.206 to subpart B to read as 
follows:

Sec.  227.206   Solicitations of interest and other communications.

    (a) Solicitation of interest. At any time before the filing of an 
offering statement, an issuer may communicate orally or in writing to 
determine whether there is any interest in a contemplated securities 
offering. Such communications are deemed to be an offer of a security 
for sale for purposes of the antifraud provisions of the Federal 
securities laws. No solicitation or acceptance of money or other 
consideration, nor of any commitment, binding or otherwise, from any 
person is permitted until the offering statement is filed.
    (b) Conditions. The communications must:
    (1) State that no money or other consideration is being solicited, 
and if sent in response, will not be accepted;
    (2) State that no offer to buy the securities can be accepted and 
no part of the purchase price can be received until the offering 
statement is filed and only through an intermediary's platform; and
    (3) State that a person's indication of interest involves no 
obligation or commitment of any kind.
    (c) Indications of interest. Any written communication under this 
section may include a means by which a person may indicate to the 
issuer that such person is interested in a potential offering. This 
issuer may require the name, address, telephone number, and/or email 
address in any response form included pursuant to this paragraph (c).

0
10. Effective January 14, 2021, to March 1, 2023, add paragraph (e) to 
Sec.  227.301 to read as follows:

Sec.  227.301  Measures to reduce risk of fraud.

* * * * *
    (e) Have a reasonable basis for believing that an issuer seeking to 
initiate an offering of securities between March 1, 2021, and August 
28, 2022, in reliance on section 4(a)(6) of the Securities Act through 
the intermediary's platform that is relying on Sec.  227.201(bb) and 
that has previously sold securities in reliance on section 4(a)(6) of 
the Securities Act has complied with the requirements in section 4A(b) 
of the Act (15 U.S.C. 77d1(b)) and the related requirements in this 
part. In satisfying the requirement in this paragraph (e), an 
intermediary may rely on the representations of the issuer concerning 
compliance with the requirements in this paragraph (e) unless the 
intermediary has reason to question the reliability of those 
representations.

Sec.  227.303   [Amended]

0
11. Effective January 14, 2021, until September 1, 2021, amend Sec.  
227.303 by:
0
a. Removing ``Sec.  227.201(z)(1)'' from paragraph (g)(1)(i) and adding 
in its place ``Sec.  227.201(aa)(1)''; and
0
b. Removing ``Sec.  227.201(z)(3)'' from paragraph (g)(1)(iii) and 
adding in its place ``Sec.  227.201(aa)(3)''.

Sec.  227.304   [Amended]

0
12. Effective January 14, 2021, until September 1, 2021, amend Sec.  
227.304 by removing ``Sec.  227.201(z)'' from paragraph (e)(2)(i) and 
adding in its place ``Sec.  227.201(aa)''.

0
13. Effective March 15, 2021, amend Sec.  227.503 by revising 
paragraphs (a), adding an Instruction to paragraph (a), and revising 
paragraph (b)(3) to read as follows:

Sec.  227.503  Disqualification provisions.

    (a) Disqualification events. No exemption under section 4(a)(6) of 
the Securities Act (15 U.S.C. 77d(a)(6)) shall be available for a sale 
of securities if the issuer; any predecessor of the issuer; any 
affiliated issuer; any director, officer, general partner or managing 
member of the issuer; any beneficial owner of 20 percent or more of the 
issuer's outstanding voting equity securities, calculated on the basis 
of voting power; any promoter connected with the issuer in any capacity 
at the time of filing, any offer after filing, or such sale; any person 
that has been or will be paid (directly or indirectly) remuneration for 
solicitation of purchasers in connection with such sale of securities; 
or any general partner, director, officer or managing member of any 
such solicitor:
    (1) Has been convicted, within 10 years before the filing of the 
offering statement or such sale (or five years, in the case of issuers, 
their predecessors and affiliated issuers), of any felony or 
misdemeanor:
    (i) In connection with the purchase or sale of any security;
    (ii) Involving the making of any false filing with the Commission; 
or
    (iii) Arising out of the conduct of the business of an underwriter, 
broker, dealer, municipal securities dealer,

[[Page 3593]]

investment adviser, funding portal or paid solicitor of purchasers of 
securities;
    (2) Is subject to any order, judgment or decree of any court of 
competent jurisdiction, entered within five years before the filing of 
the information required by section 4A(b) of the Securities Act (15 
U.S.C. 77d-1(b)) or such sale that, at the time of such filing or sale, 
restrains or enjoins such person from engaging or continuing to engage 
in any conduct or practice:
    (i) In connection with the purchase or sale of any security;
    (ii) Involving the making of any false filing with the Commission; 
or
    (iii) Arising out of the conduct of the business of an underwriter, 
broker, dealer, municipal securities dealer, investment adviser, 
funding portal or paid solicitor of purchasers of securities;
    (3) Is subject to a final order of a State securities commission 
(or an agency or officer of a State performing like functions); a State 
authority that supervises or examines banks, savings associations or 
credit unions; a State insurance commission (or an agency or officer of 
a state performing like functions); an appropriate Federal banking 
agency; the U.S. Commodity Futures Trading Commission; or the National 
Credit Union Administration that:
    (i) At the time of the filing of the information required by 
section 4A(b) of the Securities Act (15 U.S.C. 77d-1(b)) or such sale, 
bars the person from:
    (A) Association with an entity regulated by such commission, 
authority, agency or officer;
    (B) Engaging in the business of securities, insurance or banking; 
or
    (C) Engaging in savings association or credit union activities; or
    (ii) Constitutes a final order based on a violation of any law or 
regulation that prohibits fraudulent, manipulative or deceptive conduct 
entered within ten years before such filing of the offering statement 
or such sale;
    (iii) Instruction to paragraph (a)(3). Final order shall mean a 
written directive or declaratory statement issued by a Federal or State 
agency, described in this paragraph (a)(3), under applicable statutory 
authority that provides for notice and an opportunity for hearing, 
which constitutes a final disposition or action by that Federal or 
State agency.
    (4) Is subject to an order of the Commission entered pursuant to 
section 15(b) or 15B(c) of the Exchange Act (15 U.S.C. 78o(b) or 78o-
4(c)) or section 203(e) or (f) of the Investment Advisers Act of 1940 
(15 U.S.C. 80b-3(e) or (f)) that, at the time of the filing of the 
information required by section 4A(b) of the Securities Act (15 U.S.C. 
77d-1(b)) or such sale:
    (i) Suspends or revokes such person's registration as a broker, 
dealer, municipal securities dealer, investment adviser or funding 
portal;
    (ii) Places limitations on the activities, functions or operations 
of such person; or
    (iii) Bars such person from being associated with any entity or 
from participating in the offering of any penny stock;
    (5) Is subject to any order of the Commission entered within five 
years before the filing of the information required by section 4A(b) of 
the Securities Act (15 U.S.C. 77d-1(b)) or such sale that, at the time 
of such filing or sale, orders the person to cease and desist from 
committing or causing a violation or future violation of:
    (i) Any scienter-based anti-fraud provision of the Federal 
securities laws, including without limitation section 17(a)(1) of the 
Securities Act (15 U.S.C. 77q(a)(1)), section 10(b) of the Exchange Act 
(15 U.S.C. 78j(b)) and 17 CFR 240.10b-5, section 15(c)(1) of the 
Exchange Act (15 U.S.C. 78o(c)(1)) and section 206(1) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-6(1)) or any other rule or 
regulation thereunder; or
    (ii) Section 5 of the Securities Act (15 U.S.C. 77e);
    (6) Is suspended or expelled from membership in, or suspended or 
barred from association with a member of, a registered national 
securities exchange or a registered national or affiliated securities 
association for any act or omission to act constituting conduct 
inconsistent with just and equitable principles of trade;
    (7) Has filed (as a registrant or issuer), or was or was named as 
an underwriter in, any registration statement or Regulation A (17 CFR 
230.251 through 230.263) offering statement filed with the Commission 
that, within five years before the filing of the information required 
by section 4A(b) of the Securities Act (15 U.S.C. 77d-1(b)) or such 
sale, was the subject of a refusal order, stop order, or order 
suspending the Regulation A exemption, or is, at the time of such 
filing or sale, the subject of an investigation or proceeding to 
determine whether a stop order or suspension order should be issued; or
    (8) Is subject to a United States Postal Service false 
representation order entered within five years before the filing of the 
information required by section 4A(b) of the Securities Act (15 U.S.C. 
77d-1(b)) or such sale, or is, at the time of such filing or sale, 
subject to a temporary restraining order or preliminary injunction with 
respect to conduct alleged by the United States Postal Service to 
constitute a scheme or device for obtaining money or property through 
the mail by means of false representations.
    Instruction to paragraph (a): With respect to any beneficial owner 
of 20 percent or more of the issuer's outstanding voting equity 
securities, calculated on the basis of voting power, the issuer is 
required to determine whether a disqualifying event has occurred only 
as of the time of filing of the offering statement and not from the 
time of such sale.
    (b) * * *
    (3) If, before the filing of the information required by section 
4A(b) of the Securities Act (15 U.S.C. 77d-1(b)) or such sale, the 
court or regulatory authority that entered the relevant order, judgment 
or decree advises in writing (whether contained in the relevant 
judgment, order or decree or separately to the Commission or its staff) 
that disqualification under paragraph (a) of this section should not 
arise as a consequence of such order, judgment or decree; or
* * * * *

0
14. Effective March 15, 2021, add Sec.  227.504 to read as follows:

Sec.  227.504   Definition of ``qualified purchaser''.

    For purposes of section 18(b)(3) of the Securities Act [15 U.S.C. 
77r(b)(3)], a ``qualified purchaser'' means any person to whom 
securities are offered or sold pursuant to an offering under Sec. Sec.  
227.100 through 227.504 (Regulation Crowdfunding).

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

0
15. The authority citation for part 229 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1, 78o, 78u-
5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 
80a-37, 80a-38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; 
sec. 953(b), Pub. L. 111-203, 124 Stat. 1904 (2010); and sec. 
102(c), Pub. L. 112-106, 126 Stat. 310 (2012).
* * * * *

0
16. Effective March 15, 2021, amend Sec.  229.601 by revising paragraph 
(b)(2)(ii)

[[Page 3594]]

and paragraph (b)(10)(iv), to read as follows:

Sec.  229.601   (Item 601) Exhibits.

* * * * *
    (b) * * *
    (2) * * *
    (ii) The registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph (b)(2) of this section if 
the registrant customarily and actually treats that information as 
private or confidential and if the omitted information is not material. 
If it does so, the registrant should mark the exhibit index to indicate 
that portions of the exhibit or exhibits have been omitted and include 
a prominent statement on the first page of the redacted exhibit that 
certain identified information has been excluded from the exhibit 
because it is both not material and is the type that the registrant 
treats as private or confidential. The registrant also must include 
brackets indicating where the information is omitted from the filed 
version of the exhibit. If requested by the Commission or its staff, 
the registrant must promptly provide on a supplemental basis an 
unredacted copy of the exhibit and its materiality and privacy or 
confidentiality analyses. Upon evaluation of the registrant's 
supplemental materials, the Commission or its staff may require the 
registrant to amend its filing to include in the exhibit any previously 
redacted information that is not adequately supported by the 
registrant's analyses. The registrant may request confidential 
treatment of the supplemental material submitted under this paragraph 
(b)(2)(ii) pursuant to Sec.  200.83 of this chapter while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it if the registrant complies with the procedures 
outlined in Sec.  230.418 or 240.12b-4 of this chapter.
* * * * *
    (10) * * *
    (iv) The registrant may redact specific provisions or terms of 
exhibits required to be filed by this paragraph (b)(10) if the 
registrant customarily and actually treats that information as private 
or confidential and if the omitted information is not material. If it 
does so, the registrant should mark the exhibit index to indicate that 
portions of the exhibit or exhibits have been omitted and include a 
prominent statement on the first page of the redacted exhibit that 
certain identified information has been excluded from the exhibit 
because it is both not material and is the type that the registrant 
treats as private or confidential. The registrant also must include 
brackets indicating where the information is omitted from the filed 
version of the exhibit. If requested by the Commission or its staff, 
the registrant must promptly provide on a supplemental basis an 
unredacted copy of the exhibit and its materiality and privacy or 
confidentiality analyses. Upon evaluation of the registrant's 
supplemental materials, the Commission or its staff may require the 
registrant to amend its filing to include in the exhibit any previously 
redacted information that is not adequately supported by the 
registrant's analyses. The registrant may request confidential 
treatment of the supplemental material submitted under this paragraph 
(b)(10)(iv) pursuant to Sec.  200.83 of this chapter while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it if the registrant complies with the procedures 
outlined in Sec.  230.418 or 240.12b-4 of this chapter.
* * * * *

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
17. The authority citation for part 230 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h, 
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Pub. L. 112-106, sec. 201(a), sec. 401, 126 
Stat. 313 (2012), unless otherwise noted.
* * * * *
    Section 230.502 is also issued under 15 U.S.C. 80a-8, 80a-29, 
80a-30.
* * * * *

0
18. Effective March 15, 2021, amend Sec.  230.147 by revising paragraph 
(g), removing the Instruction to paragraph (g), and removing paragraph 
(h).
    The revisions read as follows:

Sec.  230.147  Intrastate offers and sales.

* * * * *
    (g) Integration with other offerings. To determine whether offers 
and sales should be integrated, refer to Sec.  230.152.

0
19. Effective March 15, 2021, amend Sec.  230.147A by revising 
paragraph (g), removing the Instruction to paragraph (g), and removing 
paragraph (h).
    The revisions read as follows:

Sec.  230.147A   Intrastate sale exemption.

* * * * *
    (g) Integration with other offerings. To determine whether offers 
and sales should be integrated, refer to Sec.  230.152.

0
20. Effective March 15, 2021, add Sec.  230.148 to read as follows:

Sec.  230.148   Exemption from general solicitation or general 
advertising.

    (a) A communication will not be deemed to constitute general 
solicitation or general advertising if made in connection with a 
seminar or meeting in which more than one issuer participates that is 
sponsored by a college, university, or other institution of higher 
education, State or local government or instrumentality thereof, 
nonprofit organization, or angel investor group, incubator, or 
accelerator, provided that:
    (1) No advertising for the seminar or meeting references a specific 
offering of securities by the issuer;
    (2) The sponsor of the seminar or meeting does not:
    (i) Make investment recommendations or provide investment advice to 
attendees of the event;
    (ii) Engage in any investment negotiations between the issuer and 
investors attending the event;
    (iii) Charge attendees of the event any fees, other than reasonable 
administrative fees;
    (iv) Receive any compensation for making introductions between 
event attendees and issuers or for investment negotiations between such 
parties; and
    (v) Receive any compensation with respect to the event that would 
require registration of the sponsor as a broker or a dealer under the 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) or an 
investment adviser under the Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.);
    (3) The type of information regarding an offering of securities by 
the issuer that is communicated or distributed by or on behalf of the 
issuer in connection with the event is limited to a notification that 
the issuer is in the process of offering or planning to offer 
securities, the type and amount of securities being offered, the 
intended use of proceeds of the offering, and the unsubscribed amount 
in an offering; and
    (4) If the event allows attendees to participate virtually, rather 
than in person, online participation in the event is limited to:
    (i) Individuals who are members of, or otherwise associated with 
the sponsor organization;
    (ii) Individuals that the sponsor reasonably believes are 
accredited investors; or
    (iii) Individuals who have been invited to the event by the sponsor 
based on industry or investment-related experience reasonably selected 
by the sponsor in good faith and disclosed in the public communications 
about the event.

[[Page 3595]]

    (5) For purposes of this paragraph, the term ``angel investor 
group'' means a group of accredited investors that holds regular 
meetings and has defined processes and procedures for making investment 
decisions, either individually or among the membership of the group as 
a whole, and is neither associated nor affiliated with brokers, 
dealers, or investment advisers.
    (b) [Reserved]

0
21. Effective March 15, 2021, revise Sec.  230.152 to read as follows:

Sec.  230.152   Integration.

    This section provides a general principle of integration and non-
exclusive safe harbors from integration of registered and exempt 
offerings. Because of the objectives of this section and the policies 
underlying the Act, the provisions of this section will not have the 
effect of avoiding integration for any transaction or series of 
transactions that, although in technical compliance with the section, 
is part of a plan or scheme to evade the registration requirements of 
the Act.
    (a) General principle of integration. If the safe harbors in 
paragraph (b) of this section 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 
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 Act, 
or that an exemption from registration is available for the particular 
offering. In making this determination:
    (1) For an exempt offering prohibiting general solicitation, 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; and
    (2) For two or more concurrent exempt offerings permitting general 
solicitation, in addition to satisfying the requirements of the 
particular exemption relied on, 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 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.
    (b) Safe harbors. No integration analysis under paragraph (a) of 
this section is required, if any of the following non-exclusive safe 
harbors apply:
    (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 Sec.  230.152(a)(1) shall apply.
    (2) Offers and sales made in compliance with Sec.  230.701, 
pursuant to an employee benefit plan, or in compliance with Sec. Sec.  
230.901 through 230.905 (Regulation S) will not be integrated with 
other offerings;
    (3) An offering for which a registration statement under the Act 
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 made only to qualified institutional buyers 
and institutional accredited investors; 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; or
    (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.
    (c) Commencement of an offering. For purposes of this section, an 
offering of securities will be deemed to be commenced at the time of 
the first offer of securities in the offering by the issuer or its 
agents. The following non-exclusive list of factors should be 
considered in determining when an offering is deemed to be commenced. 
Pursuant to the requirements for registered and exempt offerings, an 
issuer or its agents may commence an offering in reliance on:
    (1) Section 230.241, on the date the issuer first made a generic 
offer soliciting interest in a contemplated securities offering for 
which the issuer had not yet determined the exemption under the Act 
under which the offering of securities would be conducted;
    (2) Section 15 U.S.C. 77d(a)(2) (Section 4(a)(2)), Sec. Sec.  
230.501 through 230.508 (Regulation D), or Sec.  230.147, or Sec.  
230.147A (Rules 147 or 147A), on the date the issuer first made an 
offer of its securities in reliance on these exemptions;
    (3) Sections 230.251 through 230.263 (Regulation A), on the earlier 
of the date the issuer first made an offer soliciting interest in a 
contemplated securities offering in reliance on Sec.  230.255, or the 
public filing of a Form 1-A offering statement;
    (4) Sections 227.100 through 227.503 of this chapter (Regulation 
Crowdfunding), on the earlier of the date the issuer first made an 
offer soliciting interest in a contemplated securities offering in 
reliance on Sec.  227.206 of this chapter, or the public filing of a 
Form C offering statement; and
    (5) A registration statement filed under the Act, in the case of:
    (i) A continuous offering that will commence promptly on the date 
of initial effectiveness, on the date the issuer first filed its 
registration statement for the offering with the Commission; or
    (ii) A delayed offering, on the earliest date on which the issuer 
or its agents commenced public efforts to offer and sell the 
securities, which could be evidenced by the earlier of:
    (A) The first filing of a prospectus supplement with the Commission 
describing the delayed offering; or
    (B) The issuance of a widely disseminated public disclosure, such 
as a press release, confirming the commencement of the delayed 
offering.

    Note 1 to paragraph (c)(5):  Offers by the issuer, or persons 
acting on behalf of the issuer, limited exclusively to qualified 
institutional buyers and institutional accredited investors, 
including those that would qualify for the safe harbor in Sec.  
230.163B, will not be considered the commencement of a registered 
offering for purposes of this section.

    (d) Termination or completion of an offering. For purposes of this 
section, the termination or completion of an offering is deemed to have 
occurred when the issuer and its agents cease efforts to make further 
offers to sell the issuer's securities under such offering. The 
following non-exclusive list of factors should be considered in 
determining when an offering is deemed to be terminated or completed 
including for offerings made in reliance on:

[[Page 3596]]

    (1) Section 4(a)(2), Regulation D, or Rules 147 or 147A, on the 
later of the date:
    (i) The issuer entered into a binding commitment to sell all 
securities to be sold under the offering (subject only to conditions 
outside of the investor's control); or
    (ii) The issuer and its agents ceased efforts to make further 
offers to sell the issuer's securities under such offering;
    (2) Regulation A, on:
    (i) The withdrawal of an offering statement under Sec.  230.259(a);
    (ii) The filing of a Sec.  239.94 of this chapter (Form 1-Z) with 
respect to a Tier I offering under Sec.  230.257(a);
    (iii) The declaration by the Commission that the offering statement 
has been abandoned under Sec.  230.259(b); or
    (iv) The date, after the third anniversary of the date the offering 
statement was initially qualified, on which Sec.  230.251(d)(3)(i)(F) 
prohibits the issuer from continuing to sell securities using the 
offering statement, or any earlier date on which the offering 
terminates by its terms;
    (3) Regulation Crowdfunding, on the deadline of the offering 
identified in the offering materials pursuant to Sec.  227.201(g) of 
this chapter, or indicated by the Regulation Crowdfunding intermediary 
in any notice to investors delivered under Sec.  227.304(b) of this 
chapter; and
    (4) A registration statement filed under the Act:
    (i) On the withdrawal of the registration statement after an 
application is granted or deemed granted under Sec.  230.477;
    (ii) On the filing of a prospectus supplement or amendment to the 
registration statement indicating that the offering, or particular 
delayed offering in the case of a shelf registration statement, has 
been terminated or completed;
    (iii) On the entry of an order of the Commission declaring that the 
registration statement has been abandoned under Sec.  230.479;
    (iv) On the date, after the third anniversary of the initial 
effective date of the registration statement, on which Sec.  
230.415(a)(5) prohibits the issuer from continuing to sell securities 
using the registration statement, or any earlier date on which the 
offering terminates by its terms; or
    (v) Any other factors that indicate that the issuer has abandoned 
or ceased its public selling efforts in furtherance of the offering, or 
particular delayed offering in the case of a shelf registration 
statement, which could be evidenced by:
    (A) The filing of a Current Report on Form 8-K; or
    (B) The issuance of a widely disseminated public disclosure by the 
issuer, or its agents, informing the market that the offering, or 
particular delayed offering, in the case of a shelf registration 
statement, has been terminated or completed.

    Note 2 to paragraph (d)(4): A particular delayed offering may be 
deemed terminated or completed, even though the issuer's shelf 
registration statement may still have an aggregate amount of 
securities available to offer and sell in a later delayed offering.

Sec.  230.155  [Removed and reserved]

0
22. Effective March 15, 2021, remove and reserve Sec.  230.155.

0
23. Effective March 15, 2021, add Sec.  230.241 before the undesignated 
center heading ``Regulation A--Conditional Small Issues Exemption'' to 
read as follows:

Sec.  230.241   Solicitations of interest.

    (a) Solicitation of interest. At any time before making a 
determination as to the exemption from registration under the Act under 
which an offering of securities will be conducted, an issuer or any 
person authorized to act on behalf of an issuer may communicate orally 
or in writing to determine whether there is any interest in a 
contemplated offering of securities exempt from registration under the 
Act. Such communications are deemed to be an offer of a security for 
sale for purposes of the antifraud provisions of the Federal securities 
laws. No solicitation or acceptance of money or other consideration, 
nor of any commitment, binding or otherwise, from any person is 
permitted until the issuer makes a determination as to the exemption to 
be relied on and the offering, meeting the requirements of the 
exemption, is commenced.
    (b) Conditions. The communications must state that:
    (1) The issuer is considering an offering of securities exempt from 
registration under the Act, but has not determined a specific exemption 
from registration the issuer intends to rely on for the subsequent 
offer and sale of the securities;
    (2) No money or other consideration is being solicited, and if sent 
in response, will not be accepted;
    (3) No offer to buy the securities can be accepted and no part of 
the purchase price can be received until the issuer determines the 
exemption under which the offering is intended to be conducted and, 
where applicable, the filing, disclosure, or qualification requirements 
of such exemption are met; and
    (4) A person's indication of interest involves no obligation or 
commitment of any kind.
    (c) Indications of interest. Any written communication under this 
section may include a means by which a person may indicate to the 
issuer that such person is interested in a potential offering. The 
issuer may require the name, address, telephone number, and/or email 
address in any response form included pursuant to this paragraph (c).

0
24. Effective March 15, 2021, amend Sec.  230.251 by revising 
paragraphs (a)(2), (b)(7), and (c), and removing the Instruction to 
paragraph (c) to read as follows:

Sec.  230.251   Scope of exemption.

* * * * *
    (a) * * *
    (2) Tier 2. Offerings pursuant to Sec. Sec.  230.251 through 
230.263 (Regulation A) in which the sum of the aggregate offering price 
and aggregate sales does not exceed $75,000,000, including not more 
than $22,500,000 offered by all selling securityholders that are 
affiliates of the issuer (``Tier 2 offerings'').
* * * * *
    (b) * * *
    (7) Has filed with the Commission all reports required to be filed, 
if any, pursuant to Sec.  230.257 or pursuant to section 13 or 15(d) of 
the Exchange Act (15 U.S.C. 78m or 15 U.S.C. 78o) during the two years 
before the filing of the offering statement (or for such shorter period 
that the issuer was required to file such reports); and
* * * * *
    (c) Integration with other offerings. To determine whether offers 
and sales should be integrated, see Sec.  230.152.
* * * * *

Sec.  230.255   [Amended]

0
25. Effective March 15, 2021, amend Sec.  230.255 by removing paragraph 
(e).

0
26. Effective March 15, 2021, amend Sec.  230.259 by revising paragraph 
(b) to read as follows:

Sec.  230.259   Withdrawal or abandonment of offering statements.

* * * * *
    (b) Abandonment. When an offering statement, or a post-
qualification amendment to such statement, has been on file with the 
Commission for nine months without amendment and has not become 
qualified, the Commission may, in its discretion, declare the offering 
statement or post-qualification amendment abandoned. If the offering 
statement has been amended, or if the post-qualification amendment has 
been amended, the nine-month period shall

[[Page 3597]]

be computed from the date of the latest amendment.

0
27. Effective March 15, 2021, amend Sec.  230.262 by revising paragraph 
(a), adding an Instruction to paragraph (a), and revising paragraph 
(b)(3) to read as follows:

Sec.  230.262  Disqualification provisions.

    (a) Disqualification events. No exemption under Sec. Sec.  230.251 
through 230.263 (Regulation A) shall be available for a sale of 
securities if the issuer; any predecessor of the issuer; any affiliated 
issuer; any director, executive officer, other officer participating in 
the offering, general partner or managing member of the issuer; any 
beneficial owner of 20 percent or more of the issuer's outstanding 
voting equity securities, calculated on the basis of voting power; any 
promoter connected with the issuer in any capacity at the time of 
filing, any offer after qualification, or such sale; any person that 
has been or will be paid (directly or indirectly) remuneration for 
solicitation of purchasers in connection with such sale of securities; 
any general partner or managing member of any such solicitor; or any 
director, executive officer or other officer participating in the 
offering of any such solicitor or general partner or managing member of 
such solicitor:
    (1) Has been convicted, within 10 years before the filing of the 
offering statement or such sale (or five years, in the case of issuers, 
their predecessors and affiliated issuers), of any felony or 
misdemeanor:
    (i) In connection with the purchase or sale of any security;
    (ii) Involving the making of any false filing with the Commission; 
or
    (iii) Arising out of the conduct of the business of an underwriter, 
broker, dealer, municipal securities dealer, investment adviser or paid 
solicitor of purchasers of securities;
    (2) Is subject to any order, judgment or decree of any court of 
competent jurisdiction, entered within five years before the filing of 
the offering statement or such sale that, at the time of such filing or 
such sale, restrains or enjoins such person from engaging or continuing 
to engage in any conduct or practice:
    (i) In connection with the purchase or sale of any security;
    (ii) Involving the making of any false filing with the Commission; 
or
    (iii) Arising out of the conduct of the business of an underwriter, 
broker, dealer, municipal securities dealer, investment adviser or paid 
solicitor of purchasers of securities;
    (3) Is subject to a final order (as defined in Sec.  230.261) of a 
State securities commission (or an agency or officer of a State 
performing like functions); a State authority that supervises or 
examines banks, savings associations, or credit unions; a State 
insurance commission (or an agency or officer of a State performing 
like functions); an appropriate Federal banking agency; the U.S. 
Commodity Futures Trading Commission; or the National Credit Union 
Administration that:
    (i) At the time of the filing of the offering statement or such 
sale, bars the person from:
    (A) Association with an entity regulated by such commission, 
authority, agency, or officer;
    (B) Engaging in the business of securities, insurance or banking; 
or
    (C) Engaging in savings association or credit union activities; or
    (ii) Constitutes a final order based on a violation of any law or 
regulation that prohibits fraudulent, manipulative, or deceptive 
conduct entered within ten years before such filing of the offering 
statement or such sale;
    (4) Is subject to an order of the Commission entered pursuant to 
section 15(b) or 15B(c) of the Securities Exchange Act of 1934 (15 
U.S.C. 78o(b) or 78o-4(c)) or section 203(e) or (f) of the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-3(e) or (f)) that, at the time of 
the filing of the offering statement or such sale:
    (i) Suspends or revokes such person's registration as a broker, 
dealer, municipal securities dealer or investment adviser;
    (ii) Places limitations on the activities, functions or operations 
of such person; or
    (iii) Bars such person from being associated with any entity or 
from participating in the offering of any penny stock;
    (5) Is subject to any order of the Commission entered within five 
years before the filing of the offering statement or such sale that, at 
the time of such filing or sale, orders the person to cease and desist 
from committing or causing a violation or future violation of:
    (i) Any scienter-based anti-fraud provision of the Federal 
securities laws, including without limitation section 17(a)(1) of the 
Securities Act of 1933 (15 U.S.C. 77q(a)(1)), section 10(b) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78j(b)) and 17 CFR 240.10b-
5, section 15(c)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(c)(1)) and section 206(1) of the Investment Advisers Act of 1940 
(15 U.S.C. 80b-6(1)), or any other rule or regulation thereunder; or
    (ii) Section 5 of the Securities Act of 1933 (15 U.S.C. 77e).
    (6) Is suspended or expelled from membership in, or suspended or 
barred from association with a member of, a registered national 
securities exchange or a registered national or affiliated securities 
association for any act or omission to act constituting conduct 
inconsistent with just and equitable principles of trade;
    (7) Has filed (as a registrant or issuer), or was or was named as 
an underwriter in, any registration statement or offering statement 
filed with the Commission that, within five years before the filing of 
the offering statement or such sale, was the subject of a refusal 
order, stop order, or order suspending the Regulation A exemption, or 
is, at the time of such filing or such sale, the subject of an 
investigation or proceeding to determine whether a stop order or 
suspension order should be issued; or
    (8) Is subject to a United States Postal Service false 
representation order entered within five years before the filing of the 
offering statement or such sale, or is, at the time of such filing or 
such sale, subject to a temporary restraining order or preliminary 
injunction with respect to conduct alleged by the United States Postal 
Service to constitute a scheme or device for obtaining money or 
property through the mail by means of false representations.
    Instruction to paragraph (a): With respect to any beneficial owner 
of 20 percent or more of the issuer's outstanding voting equity 
securities, calculated on the basis of voting power, the issuer is 
required to determine whether a disqualifying event has occurred only 
as of the time of filing of the offering statement and not from the 
time of such sale.
    (b) * * *
    (3) If, before the filing of the offering statement or the relevant 
sale, the court or regulatory authority that entered the relevant 
order, judgment or decree advises in writing (whether contained in the 
relevant judgment, order or decree or separately to the Commission or 
its staff) that disqualification under paragraph (a) of this section 
should not arise as a consequence of such order, judgment or decree; or
* * * * *

0
28. Effective March 15, 2021, amend Sec.  230.500 by revising paragraph 
(g) to read as follows:

Sec.  230.500   Use of Regulation D.

* * * * *

[[Page 3598]]

    (g) Securities offered and sold outside the United States in 
accordance with Sec. Sec.  230.901 through 230.905 (Regulation S) need 
not be registered under the Act. See Release No. 33-6863. Regulation S 
may be relied on for such offers and sales even if coincident offers 
and sales are made in accordance with Regulation D inside the United 
States. See Sec.  230.152(b)(2). Thus, for example, persons who are 
offered and sold securities in accordance with Regulation S would not 
be counted in the calculation of the number of purchasers under 
Regulation D. Similarly, proceeds from such sales would not be included 
in the aggregate offering price. The provisions of this paragraph (g), 
however, do not apply if the issuer elects to rely solely on Regulation 
D for offers or sales to persons made outside the United States. See 
Sec. Sec.  230.502(a) and 230.152.

0
29. Effective March 15, 2021, amend Sec.  230.502 by:
0
a. Revising paragraph (a);
0
b. Removing the Note following paragraph (a);
0
c. Revising paragraph (b)(2)(i)(B); and
0
d. Adding paragraph (b)(2)(viii).
    The revisions and addition read as follows:

Sec.  230.502   General conditions to be met.

* * * * *
    (a) Integration. To determine whether offers and sales should be 
integrated, see Sec.  230.152.
    (b) * * *
    (2) * * *
    (i) * * *
    (B) Financial statement information--(1) Offerings up to 
$20,000,000. The financial statement information required by paragraph 
(b) of Part F/S of Form 1-A. Such financial statement information must 
be prepared in accordance with generally accepted accounting principles 
in the United States (US GAAP). If the issuer is a foreign private 
issuer, such financial statements must be prepared in accordance with 
either US GAAP or International Financial Reporting Standards (IFRS) as 
issued by the International Accounting Standards Board (IASB). If the 
financial statements comply with IFRS, such compliance must be 
explicitly and unreservedly stated in the notes to the financial 
statements and if the financial statements are audited, the auditor's 
report must include an opinion on whether the financial statements 
comply with IFRS as issued by the IASB.
    (2) Offerings over $20,000,000. The financial statement information 
required by paragraph (c) of Part F/S of Form 1-A (referenced in Sec.  
239.90 of this chapter). If the issuer is a foreign private issuer, 
such financial statements must be prepared in accordance with either US 
GAAP or IFRS as issued by the IASB. If the financial statements comply 
with IFRS, such compliance must be explicitly and unreservedly stated 
in the notes to the financial statements and the auditor's report must 
include an opinion on whether the financial statements comply with IFRS 
as issued by the IASB.
* * * * *
    (viii) At a reasonable time prior to the sale of securities to any 
purchaser that is not an accredited investor in a transaction under 
Sec.  230.506(b), the issuer shall provide the purchaser with any 
written communication or broadcast script used under the authorization 
of Sec.  230.241 within 30 days prior to such sale.
* * * * *

0
30. Effective March 15, 2021, amend Sec.  230.504 by:
0
a. Revising the section heading;
0
b. Revising paragraph (b)(2); and
0
c. Revising Instruction to paragraph (b)(2).
    The revisions read as follows:

Sec.  230.504   Exemption for limited offerings and sales of securities 
not exceeding $10,000,000.

* * * * *
    (b) * * *
    (2) Offering limit. The aggregate offering price for an offering of 
securities under this Sec.  230.504, as defined in Sec.  230.501(c), 
shall not exceed $10,000,000, less the aggregate offering price for all 
securities sold within the 12 months before the start of and during the 
offering of securities under this Sec.  230.504 or in violation of 
section 5(a) of the Securities Act.
    Instruction to paragraph (b)(2): If a transaction under Sec.  
230.504 fails to meet the limitation on the aggregate offering price, 
it does not affect the availability of this Sec.  230.504 for the other 
transactions considered in applying such limitation. For example, if an 
issuer sold $10,000,000 of its securities on June 1, 2021, under this 
Sec.  230.504 and an additional $500,000 of its securities on December 
1, 2021, this Sec.  230.504 would not be available for the later sale, 
but would still be applicable to the June 1, 2021, sale.
* * * * *

0
31. Effective March 15, 2021, amend Sec.  230.506 by:
0
a. Revising paragraph (b)(2)(i) and republishing the note to paragraph 
(b)(2)(i);
0
b. Amending paragraph (c)(2)(ii)(B)(2) by removing the word ``or'' from 
the end of the paragraph;
0
c. Revising paragraph (c)(2)(ii)(C)(4) by removing the period from the 
end of paragraph and adding in its place a semicolon;
0
d. Revising paragraph (c)(2)(ii)(D) by removing the period from the end 
of the paragraph and adding ``; or'' in its place;
0
e. Adding paragraph (c)(2)(ii)(E) before the Instructions to paragraph 
(c)(2)(ii)(A) through (D) of this section; and
0
f. Removing the text ``(A) through (D) of this section'' from the 
heading to Instructions to paragraph (c)(2)(ii)(A) through (D) of this 
section, and republishing it.
    The revisions and addition read as follows:

Sec.  230.506   Exemption for limited offers and sales without regard 
to dollar amount of offering.

* * * * *
    (b) * * *
    (2) * * *
    (i) Limitation on number of purchasers. 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.

    Note 1 to paragraph (b)(2)(i):  See Sec.  230.501(e) for the 
calculation of the number of purchasers and Sec.  230.502(a) for 
what may or may not constitute an offering under paragraph (b) of 
this section.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (E) In regard to any person that the issuer previously took 
reasonable steps to verify as an accredited investor in accordance with 
this paragraph (c)(2)(ii), so long as the issuer is not aware of 
information to the contrary, obtaining a written representation from 
such person at the time of sale that he or she qualifies as an 
accredited investor. A written representation under this method of 
verification will satisfy the issuer's obligation to verify the 
person's accredited investor status for a period of five years from the 
date the person was previously verified as an accredited investor.
    Instructions to paragraph (c)(2)(ii): * * *
* * * * *

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

0
32. The authority citation for part 239 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m,78n, 78o(d), 78o-7 note, 78u-5, 78w(a), 78ll,

[[Page 3599]]

78mm, 80a-2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 
80a-29, 80a-30, and 80a-37; and sec. 107, Pub. L. 112-106, 126 Stat. 
312, unless otherwise noted.
* * * * *

0
33. Amend Form S-6 (referenced in Sec.  239.16) by revising Additional 
Instruction 3 of ``Instructions as to Exhibits'' to read as follows:

    Note: The text of Form S-6 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form S-6

* * * * *

Instructions as to Exhibits

* * * * *
    Additional Instructions:
* * * * *
    3. The registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph (9) of section IX of Form N-
8B-2 (Exhibits) if the registrant customarily and actually treats that 
information as private or confidential and if the omitted information 
is not material. If it does so, the registrant should mark the exhibit 
index to indicate that portions of the exhibit have been omitted and 
include a prominent statement on the first page of the redacted exhibit 
that certain identified information has been excluded from the exhibit 
because it is both not material and the type that the registrant treats 
as private or confidential. The registrant also must include brackets 
indicating where the information is omitted from the filed version of 
the exhibit. If requested by the Commission or its staff, the 
registrant must promptly provide on a supplemental basis an unredacted 
copy of the exhibit and its materiality and privacy or confidentiality 
analyses. Upon evaluation of the registrant's supplemental materials, 
the Commission or its staff may require the registrant to amend its 
filing to include in the exhibit any previously redacted information 
that is not adequately supported by the registrant's analyses. The 
registrant may request confidential treatment of the supplemental 
material submitted under this Instruction 3 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the registrant complies with the procedures 
outlined in Rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
34. Amend Form N-14 (referenced in Sec.  239.23) by revising 
Instruction 3 to Item 16 to read as follows:

    Note:  The text of Form N-14 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-14

* * * * *

Item 16. Exhibits

* * * * *
    Instructions:
* * * * *
    3. The registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph (13) of this Item if the 
registrant customarily and actually treats that information as private 
or confidential and if the omitted information is not material. If it 
does so, the registrant should mark the exhibit index to indicate that 
portions of the exhibit have been omitted and include a prominent 
statement on the first page of the redacted exhibit that certain 
identified information has been excluded from the exhibit because it is 
both not material and the type that the registrant treats as private or 
confidential. The registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the registrant's supplemental materials, the 
Commission or its staff may require the registrant to amend its filing 
to include in the exhibit any previously redacted information that is 
not adequately supported by the registrant's analyses. The registrant 
may request confidential treatment of the supplemental material 
submitted under this Instruction 3 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the registrant complies with the procedures 
outlined in Rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
35. Amend Form 1-A (referenced in Sec.  239.90) by:
0
a. Revising General Instruction I;
0
b. Revising General Instruction III(a);
0
c. Revising paragraph 13 of Part III, Item 17;
0
d. Removing and reserving paragraph 16 of Part III, Item 17;
0
e. Adding paragraph 99 of Part III, Item 17; and
0
f. Adding an instruction at the end of Part III, Item 17.
    The revisions and additions read as follows:

    Note:  The text of Form 1-A does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 1-A

Regulation A Offering Statement Under the Securities Act of 1933

General Instructions

I. Eligibility Requirements for Use of Form 1-A.

    This Form is to be used for securities offerings made pursuant to 
Regulation A (17 CFR 230.251 et seq.). Careful attention should be 
directed to the terms, conditions and requirements of Regulation A, 
especially Rule 251, because the exemption is not available to all 
issuers or for every type of securities transaction. Further, the 
aggregate offering price and aggregate sales of securities in any 12-
month period is strictly limited to $20 million for Tier 1 offerings 
and $75 million for Tier 2 offerings, including no more than $6 million 
offered by all selling securityholders that are affiliates of the 
issuer for Tier 1 offerings and $22.5 million by all selling 
securityholders that are affiliates of the issuer for Tier 2 offerings. 
Please refer to Rule 251 of Regulation A for more details.
* * * * *

III. Incorporation by Reference and Cross-Referencing

* * * * *
    (a) The use of incorporation by reference and cross-referencing in 
Part II of this Form:
    (1) Is limited to the following items:
    (A) Items 2-14 of Part II and Part F/S if following the Offering 
Circular format;
    (B) Items 3-11 of Form S-1 if following the Part I of Form S-1 
format; or
    (C) Items 3-28, and 30 of Form S-11 if following the Part I of Form 
S-11 format;
    (2) May only incorporate by reference previously submitted or filed 
financial statements if the issuer meets the following requirements:
    (A) the issuer has filed with the Commission all reports and other 
materials required to be filed, if any, pursuant to Rule 257 (Sec.  
230.257) or by Sections 13(a), 14 or 15(d) of the Securities Exchange 
Act of 1934 during

[[Page 3600]]

the preceding 12 months (or for such shorter period that the issuer was 
required to file such reports and other materials);
    (B) the issuer makes the financial statement information that is 
incorporated by reference pursuant to this item readily available and 
accessible on a website maintained by or for the issuer; and
    (C) the issuer must state that it will provide to each holder of 
securities, including any beneficial owner, a copy of the financial 
statement information that have been incorporated by reference in the 
offering statement upon written or oral request, at no cost to the 
requester, and provide the issuer's website address, including the 
uniform resource locator (URL) where the incorporated financial 
statements may be accessed.
* * * * *

Part III--Exhibits

* * * * *

Item 17. Description of Exhibits

* * * * *
    13. ``Testing-the-waters'' materials--Any written communication or 
broadcast script used under the authorization of Rule 241 within 30 
days of the initial filing of the offering statement, and any written 
communication or broadcast script used under the authorization of Rule 
255. Materials used under the authorization of Rule 255 need not be 
filed if they are substantively the same as materials previously filed 
with the offering statement.
* * * * *
    16. RESERVED
* * * * *
    99. Additional exhibits--Any additional exhibits which the issuer 
may wish to file, which must be so marked as to indicate clearly the 
subject matters to which they refer.
* * * * *
    Instruction to Item 17:
    The issuer may redact information from exhibits required to be 
filed by this Item if disclosure of such information would constitute a 
clearly unwarranted invasion of personal privacy (e.g., disclosure of 
bank account numbers, social security numbers, home addresses, and 
similar information). In addition, the issuer may redact specific 
provisions or terms of exhibits required to be filed by paragraph 6 or 
7 of this Item, if the issuer customarily and actually treats that 
information as private or confidential and if the omitted information 
is not material. If it does so, the issuer should mark the exhibit 
index to indicate that portions of the exhibit have been omitted and 
include a prominent statement on the first page of the redacted exhibit 
that certain identified information has been excluded from the exhibit 
because it is both not material and is the type that the registrant 
treats as private or confidential. The issuer also must include 
brackets indicating where the information is omitted from the filed 
version of the exhibit. If requested by the Commission or its staff, 
the issuer must promptly provide on a supplemental basis an unredacted 
copy of the exhibit and its materiality and privacy or confidentiality 
analyses. Upon evaluation of the issuer's supplemental materials, the 
Commission or its staff may require the issuer to amend its filing to 
include in the exhibit any previously redacted information that is not 
adequately supported by the issuer's analyses. The issuer may request 
confidential treatment of the supplemental material submitted under 
paragraphs 6 or 7 pursuant to Rule 83 (Sec.  200.83 of this chapter) 
while it is in the possession of the Commission or its staff. After 
completing its review of the supplemental information, the Commission 
or its staff will return or destroy it if the registrant complies with 
the procedures outlined in Rule 418 (Sec.  230.418 of this chapter).
* * * * *

0
36. Amend Form C (referenced in Sec.  239.900) by:
0
a. Adding items to the Cover Page after ``website of the Issuer,''
0
b. Revising General Instruction I;
0
c. Revising Instruction 1 to the Signature;
0
d. Revising the introductory paragraphs in the Optional Question and 
Answer Format for an Offering Statement; and
0
e. Revising Question 11 in the Optional Question and Answer Format for 
an Offering Statement.
    The addition and revisions read as follows:

    Note:  The text of Form C does not, and this amendment will not, 
appear in the Code of Federal Regulations.

Form C

Under the Securities Act of 1933

* * * * *
Is there a co-issuer? __ yes __ no. If yes,
Name of co-issuer:-----------------------------------------------------
Legal status of co-issuer:
Form:------------------------------------------------------------------
Jurisdiction of Incorporation/Organization:----------------------------
Date of organization:--------------------------------------------------
Physical address of co-issuer:-----------------------------------------
Website of co-issuer:--------------------------------------------------
* * * * *

General Instructions

I. Eligibility Requirements for Use of Form C

    This Form shall be used for the offering statement, and any related 
amendments and progress reports, required to be filed by any issuer 
offering or selling securities in reliance on the exemption in 
Securities Act Section 4(a)(6) and in accordance with Section 4A and 
Regulation Crowdfunding (Sec.  227.100 et seq.). The term ``issuer'' 
includes any co-issuer jointly offering or selling securities with an 
issuer in reliance on the exemption in Securities Act Section 4(a)(6) 
and in accordance with Securities Act Section 4A and Regulation 
Crowdfunding (Sec.  227.100 et seq.). This Form also shall be used for 
an annual report required pursuant to Rule 202 of Regulation 
Crowdfunding (Sec.  227.202) and for the termination of reporting 
required pursuant to Rule 203(b)(2) of Regulation Crowdfunding (Sec.  
227.203(b)(2)). Careful attention should be directed to the terms, 
conditions and requirements of the exemption.
* * * * *

Signatures

* * * * *
    Instructions. The form shall be signed by the issuer, its principal 
executive officer or officers, its principal financial officer, its 
controller or principal accounting officer and at least a majority of 
the board of directors or persons performing similar functions. If 
there is a co-issuer, the form shall also be signed by the co-issuer, 
its principal executive officer or officers, its principal financial 
officer, its controller or principal accounting officer and at least a 
majority of the board of directors or persons performing similar 
functions.
* * * * *

Optional Question and Answer Format for an Offering Statement

    Respond to each question in each paragraph of this part. Set forth 
each question and any notes, but not any instructions thereto, in their 
entirety. If disclosure in response to any question is responsive to 
one or more other questions, it is not necessary to repeat the 
disclosure. If a question or series of questions is inapplicable or the 
response is available elsewhere in the Form, either State that it is 
inapplicable, include a cross-reference to the responsive disclosure, 
or omit the question or series of questions. The term ``issuer'' in 
these questions and answers includes any ``co-issuer'' jointly offering 
or selling securities with the issuer in reliance on the exemption in 
Securities

[[Page 3601]]

Act Section 4(a)(6) and in accordance with Securities Act Section 4A 
and Regulation Crowdfunding (Sec.  227.100 et seq.). Any information 
provided with respect to the issuer should also be separately provided 
with respect to any co-issuer. If you are seeking to rely on the 
Commission's temporary rules to initiate an offering between May 4, 
2020, and February 28, 2021, intended to be conducted on an expedited 
basis due to circumstances relating to coronavirus disease 2019 (COVID-
19), you will likely need to provide additional or different 
information than described in questions 2, 12, and 29. If you are 
seeking to rely on the Commission's temporary Rule 201(bb) for an 
offering initiated between March 1, 2021, and August 28, 2022, you will 
likely need to provide additional or different information than 
described in questions 2 and 29. When preparing responses to such 
questions, please carefully review temporary Rules 100(b)(7), 201(aa), 
201(bb), and 304(e) and tailor your responses to those requirements as 
applicable.
    Be very careful and precise in answering all questions. Give full 
and complete answers so that they are not misleading under the 
circumstances involved. Do not discuss any future performance or other 
anticipated event unless you have a reasonable basis to believe that it 
will actually occur within the foreseeable future. If any answer 
requiring significant information is materially inaccurate, incomplete 
or misleading, the Company, its management and principal shareholders 
may be liable to investors based on that information.
* * * * *
    11. (a) Did the issuer make use of any written communication or 
broadcast script for testing the waters either (i) under the 
authorization of Rule 241 within 30 days of the initial filing of the 
offering statement, or (ii) under the authorization of Rule 206? If so, 
provide copies of the materials used.
    (b) How will the issuer complete the transaction and deliver 
securities to the investors?
* * * * *

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
37. The authority citation for part 240 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq.; and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; and 
Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 
secs. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
38. Effective March 15, 2021, amend Sec.  240.12g-6 by
0
a. Revising the section heading; and
0
b. Revising paragraph (a) introductory text.
    The revisions read as follows:

Sec.  240.12g-6  Exemption for securities issued pursuant to section 
4(a)(6) of the Securities Act of 1933 or Regulation Crowdfunding.

    (a) For purposes of determining whether an issuer is required to 
register a security with the Commission pursuant to section 12(g)(1) of 
the Act (15 U.S.C. 78l(g)(1)), the definition of held of record shall 
not include securities issued pursuant to the offering exemption under 
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) or 
Sec. Sec.  227.100 through 227.504 (Regulation Crowdfunding) by an 
issuer that:
* * * * *

0
39. Effective March 15, 2021, amend Sec.  240.12g5-1 by
0
a. Revising paragraph (a)(2); and
0
b. Adding paragraph (a)(9).
    The revision and addition read as follows:

Sec.  240.12g5-1   Definition of securities ``held of record''.

    (a) * * *
    (2) Except as specified in paragraph (a)(9) of this section, 
securities identified as held of record by a corporation, a 
partnership, a trust whether or not the trustees are named, or other 
organization shall be included as so held by one person.
* * * * *
    (9) For purposes of determining whether a crowdfunding issuer, as 
defined in Sec.  270.3a-9(b)(1) of this chapter, or a crowdfunding 
vehicle, as defined in Sec.  270.3a-9(b)(2) of this chapter, is 
required to register a class of equity securities with the Commission 
pursuant to section 12(g)(1) of the Act, both the crowdfunding issuer 
and the crowdfunding vehicle:
    (i) May exclude securities issued by a crowdfunding vehicle, as 
defined in Sec.  270.3a-9(b)(2) of this chapter, in an offering under 
Sec. Sec.  227.100 through 227.504 (Regulation Crowdfunding) in which 
the crowdfunding vehicle and the crowdfunding issuer are deemed to be 
co-issuers under the Securities Act (15 U.S.C. 77a et seq.) and that 
are held by natural persons; and
    (ii) Shall include securities issued by a crowdfunding vehicle, as 
defined in Sec.  270.3a-9(b)(2) of this chapter, in an offering under 
Regulation Crowdfunding in which the crowdfunding vehicle and the 
crowdfunding issuer are deemed to be co-issuers under the Securities 
Act and that are held by investors that are not natural persons.
* * * * *

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
40. The authority citation for part 249 continues to read, in part, as 
follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b), Pub. L. 111-203, 124 
Stat. 1904; Sec. 102(a)(3), Pub. L. 112-106, 126 Stat. 309 (2012); 
Sec. 107, Pub. L. 112-106, 126 Stat. 313 (2012), and Sec. 72001, 
Pub. L. 114-94, 129 Stat. 1312 (2015), unless otherwise noted.
    Section 240.220f is also issued under secs. 3(a), 202, 208, 302, 
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745.
* * * * *
    Section 249.308 is also issued under 15 U.S.C. 80a-29 and 80a-
37.
* * * * *

0
41. Amend Form 20-F (referenced in Sec.  249.220f) by revising the 
second, third, and fourth paragraphs following instruction 4.(a)(ii) 
under ``Instructions as to Exhibits,'' and prior to the note, to read 
as follows:

    Note: The text of Form 20-F does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 20-F

* * * * *

Instructions as to Exhibits

* * * * *
    4. (a) * * *
    (ii) completes a transaction that had the effect of causing it to 
cease being a public shell company.
    The only contracts that must be filed are those to which the 
registrant or a subsidiary of the registrant is a party or has 
succeeded to a party by assumption or assignment or in which the 
registrant or such subsidiary has a beneficial interest.
    The registrant may redact specific provisions or terms of exhibits 
required to be filed by this Form 20-F if the registrant customarily 
and actually treats that information as private or confidential and if 
the omitted information is not material. If it does so, the registrant 
should mark the exhibit index to indicate that portions of the exhibit 
or exhibits have been omitted and include a prominent statement on

[[Page 3602]]

the first page of the redacted exhibit that certain identified 
information has been excluded from the exhibit because it is both not 
material and is the type that the registrant treats as private or 
confidential. The registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the registrant's supplemental materials, the 
Commission or its staff may require the registrant to amend its filing 
to include in the exhibit any previously redacted information that is 
not adequately supported by the registrant's analyses. The registrant 
may request confidential treatment of the supplemental material 
submitted under this instruction pursuant to Rule 83 (Sec.  200.83 of 
this chapter) while it is in the possession of the Commission or its 
staff. After completing its review of the supplemental information, the 
Commission or its staff will return or destroy it if the registrant 
complies with the procedures outlined in Rules 418 or 12b-4 (Sec.  
230.418 or Sec.  240.12b-4).
* * * * *

0
42. Amend Form 8-K (referenced in Sec.  249.308) by revising 
Instruction 6 under Item 1.01 to read as follows:

    Note:  The text of Form 8-K does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form 8-K

* * * * *

Information To Be Included in the Report

Section 1--Registrant's Business and Operations

Item 1.01 Entry Into a Material Definitive Agreement

* * * * *
    Instructions.
* * * * *
    6. To the extent a material definitive agreement is filed as an 
exhibit under this Item 1.01, the registrant may redact specific 
provisions or terms of the exhibit if the registrant customarily and 
actually treats that information as private or confidential and if the 
omitted information is not material, provided that the registrant 
intends to incorporate by reference this filing into its future 
periodic reports or registration statements, as applicable, in 
satisfaction of Item 601(b)(10) of Regulation S-K. If it does so, the 
registrant should mark the exhibit index to indicate that portions of 
the exhibit have been omitted and include a prominent statement on the 
first page of the redacted exhibit that certain identified information 
has been excluded from the exhibit because it is both not material and 
is the type that the registrant treats as private or confidential. The 
registrant also must include brackets indicating where the information 
is omitted from the filed version of the exhibit. If requested by the 
Commission or its staff, the registrant must promptly provide on a 
supplemental basis an unredacted copy of the exhibit and its 
materiality and privacy or confidentiality analyses. Upon evaluation of 
the registrant's supplemental materials, the Commission or its staff 
may require the registrant to amend its filing to include in the 
exhibit any previously redacted information that is not adequately 
supported by the registrant's analyses. The registrant may request 
confidential treatment of the supplemental material submitted under 
this instruction pursuant to Rule 83 (Sec.  200.83) while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it if the registrant complies with the procedures 
outlined in Rules 418 or 12b-4 (Sec.  230.418 or Sec.  240.12b-4).
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

0
43. The authority citation for part 270 continues to read in part as 
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, 80a-39, 
and Pub. L. 111-203, sec. 939A, 124 Stat. 1376 (2020), unless 
otherwise noted.
* * * * *

0
44. Effective March 15, 2021, add Sec.  270.3a-9 to read as follows:

Sec.  270.3a-9  Crowdfunding vehicle.

    (a) Notwithstanding section 3(a) of the Act, a crowdfunding vehicle 
will be deemed not to be an investment company if the vehicle:
    (1) Is organized and operated for the sole purpose of directly 
acquiring, holding, and disposing of securities issued by a single 
crowdfunding issuer and raising capital in one or more offerings made 
in compliance with Sec. Sec.  227.100 through 227.504 (Regulation 
Crowdfunding);
    (2) Does not borrow money and uses the proceeds from the sale of 
its securities solely to purchase a single class of securities of a 
single crowdfunding issuer;
    (3) Issues only one class of securities in one or more offerings 
under Regulation Crowdfunding in which the crowdfunding vehicle and the 
crowdfunding issuer are deemed to be co-issuers under the Securities 
Act (15 U.S.C. 77a et seq.);
    (4) Receives a written undertaking from the crowdfunding issuer to 
fund or reimburse the expenses associated with its formation, 
operation, or winding up, receives no other compensation, and any 
compensation paid to any person operating the vehicle is paid solely by 
the crowdfunding issuer;
    (5) Maintains the same fiscal year-end as the crowdfunding issuer;
    (6) Maintains a one-to-one relationship between the number, 
denomination, type and rights of crowdfunding issuer securities it owns 
and the number, denomination, type and rights of its securities 
outstanding;
    (7) Seeks instructions from the holders of its securities with 
regard to:
    (i) The voting of the crowdfunding issuer securities it holds and 
votes the crowdfunding issuer securities only in accordance with such 
instructions; and
    (ii) Participating in tender or exchange offers or similar 
transactions conducted by the crowdfunding issuer and participates in 
such transactions only in accordance with such instructions;
    (8) Receives, from the crowdfunding issuer, all disclosures and 
other information required under Regulation Crowdfunding and the 
crowdfunding vehicle promptly provides such disclosures and other 
information to the investors and potential investors in the 
crowdfunding vehicle's securities and to the relevant intermediary; and
    (9) Provides to each investor the right to direct the crowdfunding 
vehicle to assert the rights under State and Federal law that the 
investor would have if he or she had invested directly in the 
crowdfunding issuer and provides to each investor any information that 
it receives from the crowdfunding issuer as a shareholder of record of 
the crowdfunding issuer.
    (b) For purposes of this section:
    (1) Crowdfunding issuer means a company that seeks to raise capital 
as a co-issuer with a crowdfunding vehicle in an offering that complies 
with all of the requirements under section 4(a)(6) of the Securities 
Act (15 U.S.C. 77d(a)(6)) and Regulation Crowdfunding.
    (2) Crowdfunding vehicle means an issuer formed by or on behalf of 
a crowdfunding issuer for the purpose of conducting an offering under 
section 4(a)(6) of the Securities Act (15 U.S.C. 77d(a)(6)) as a co-
issuer with the

[[Page 3603]]

crowdfunding issuer, which offering is controlled by the crowdfunding 
issuer.
    (3) Regulation Crowdfunding means the regulations set forth in 
Sec. Sec.  227.100 through 227.504 of this chapter.

PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1934

0
45. The authority citation for part 274 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m, 
78n, 78o(d), 80a-8, 80a-24, 80a-26, 80a-29, and Pub. L. 111-203, 
sec. 939A, 124 Stat. 1376 (2010), unless otherwise noted.
* * * * *

0
46. Amend Form N-5 (referenced in Sec. Sec.  239.24 and 274.5) by 
revising Instruction 3 in ``Instructions as to Exhibits'' to read as 
follows:

    Note:  The text of Form N-5 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-5

Registration Statement of Small Business Investment Company Under the 
Securities Act of 1933 and the Investment Company Act of 1940 *

* * * * *

Instructions as to Exhibits

* * * * *
    Instructions:
* * * * *
    3. The registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph 9 of this Item if the 
registrant customarily and actually treats that information as private 
or confidential and if the omitted information is not material. If it 
does so, the registrant should mark the exhibit index to indicate that 
portions of the exhibit have been omitted and include a prominent 
statement on the first page of the redacted exhibit that certain 
identified information has been excluded from the exhibit because it is 
both not material and the type that the registrant treats as private or 
confidential. The registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the registrant's supplemental materials, the 
Commission or its staff may require the registrant to amend its filing 
to include in the exhibit any previously redacted information that is 
not adequately supported by the registrant's analyses. The registrant 
may request confidential treatment of the supplemental material 
submitted under this Instruction 3 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the registrant complies with the procedures 
outlined in Rule 418 under the Securities Act of 1933 [17 CFR 230.418].
* * * * *

0
47. Amend Form N-1A (referenced in Sec. Sec.  239.15A and 274.11A) by:
0
a. Amending the last sentence of Instruction 2 to Item 28 by removing 
``registrant'' and adding in its place ``Registrant'';
0
b. Amending Instruction 3 to Item 28 by removing ``registrant'' and 
adding in its place ``Registrant''; and
0
c. Revising Instruction 4 to Item 28.
    The revision reads as follows:

    Note:  The text of Form N-1A does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-1A

* * * * *

Item 28. Exhibits

* * * * *

Instructions

* * * * *
    4. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph (h) of this Item if the 
Registrant customarily and actually treats that information as private 
or confidential and if the omitted information is not material. If it 
does so, the Registrant should mark the exhibit index to indicate that 
portions of the exhibit have been omitted and include a prominent 
statement on the first page of the redacted exhibit that certain 
identified information has been excluded from the exhibit because it is 
both not material and the type that the Registrant treats as private or 
confidential. The Registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the Registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the Registrant's supplemental materials, the 
Commission or its staff may require the registrant to amend its filing 
to include in the exhibit any previously redacted information that is 
not adequately supported by the Registrant's analyses. The Registrant 
may request confidential treatment of the supplemental material 
submitted under this Instruction 4 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the Registrant complies with the procedures 
outlined in rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
48. Amend Form N-2 (referenced in Sec. Sec.  239.14 and 274.11a-1) by:
0
a. Amending the last sentence of Instruction 4 to Item 25.2 by removing 
``registrant'' and adding in its place ``Registrant'';
0
b. Amending Instruction 5 to Item 25.2 by removing ``registrant'' and 
adding in its place ``Registrant''; and
0
c. Revising Instruction 6 to Item 25.2.
    The revision reads as follows:

    Note:  The text of Form N-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-2

* * * * *

Item 25. Financial Statements and Exhibits

* * * * *
    2. Exhibits:
* * * * *

Instructions

* * * * *
    6. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraph k. of this Item if the 
Registrant customarily and actually treats that information as private 
or confidential and if the omitted information is not material. If it 
does so, the Registrant should mark the exhibit index to indicate that 
portions of the exhibit have been omitted and include a prominent 
statement on the first page of the redacted exhibit that certain 
identified information has been excluded from the exhibit because it is 
both not material and the type that the Registrant treats as private or 
confidential. The Registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the Registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and

[[Page 3604]]

privacy or confidentiality analyses. Upon evaluation of the 
Registrant's supplemental materials, the Commission or its staff may 
require the Registrant to amend its filing to include in the exhibit 
any previously redacted information that is not adequately supported by 
the Registrant's analyses. The Registrant may request confidential 
treatment of the supplemental material submitted under this Instruction 
6 pursuant to Rule 83 of the Commission's Organizational Rules [17 CFR 
200.83] while it is in the possession of the Commission or its staff. 
After completing its review of the supplemental information, the 
Commission or its staff will return or destroy it, if the Registrant 
complies with the procedures outlined in Rule 418 under the Securities 
Act [17 CFR 230.418].
* * * * *

0
49. Amend Form N-3 (referenced in Sec. Sec.  239.17a and 274.11b) by 
revising Instruction 5 to Item 29(b) to read as follows:

    Note:  The text of Form N-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-3

* * * * *

Item 29. Financial Statements and Exhibits

* * * * *
    (b) Exhibits:
* * * * *

Instructions

* * * * *
    5. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraphs (9) and (11) of this Item 
if the Registrant customarily and actually treats that information as 
private or confidential and if the omitted information is not material. 
If it does so, the Registrant should mark the exhibit index to indicate 
that portions of the exhibit have been omitted and include a prominent 
statement on the first page of the redacted exhibit that certain 
identified information has been excluded from the exhibit because it is 
both not material and the type that the Registrant treats as private or 
confidential. The Registrant also must include brackets indicating 
where the information is omitted from the filed version of the exhibit. 
If requested by the Commission or its staff, the Registrant must 
promptly provide on a supplemental basis an unredacted copy of the 
exhibit and its materiality and privacy or confidentiality analyses. 
Upon evaluation of the Registrant's supplemental materials, the 
Commission or its staff may require the Registrant to amend its filing 
to include in the exhibit any previously redacted information that is 
not adequately supported by the Registrant's analyses. The Registrant 
may request confidential treatment of the supplemental material 
submitted under this Instruction 5 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the Registrant complies with the procedures 
outlined in Rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
50. Amend Form N-4 (referenced in Sec. Sec.  239.17b and 274.11c) by 
revising Instruction 5 to Item 24(b) to read as follows:

    Note:  The text of Form N-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-4

* * * * *

Item 24. Financial Statements and Exhibits

* * * * *
    (b) Exhibits:
* * * * *
    Instructions
* * * * *
    5. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraphs (7) and (8) of this Item if 
the Registrant customarily and actually treats that information as 
private or confidential and if the omitted information is not material. 
If it does so, the Registrant should mark the exhibit index to indicate 
that portions of the exhibit or exhibits have been omitted and include 
a prominent statement on the first page of the redacted exhibit that 
certain identified information has been excluded from the exhibit 
because it is both not material and the type that the Registrant treats 
as private or confidential. The Registrant also must include brackets 
indicating where the information is omitted from the filed version of 
the exhibit. If requested by the Commission or its staff, the 
Registrant must promptly provide on a supplemental basis an unredacted 
copy of the exhibit and its materiality and privacy or confidentiality 
analyses. Upon evaluation of the Registrant's supplemental materials, 
the Commission or its staff may require the Registrant to amend its 
filing to include in the exhibit any previously redacted information 
that is not adequately supported by the Registrant's analyses. The 
Registrant may request confidential treatment of the supplemental 
material submitted under this Instruction 5 pursuant to Rule 83 of the 
Commission's Organizational Rules [17 CFR 200.83] while it is in the 
possession of the Commission or its staff. After completing its review 
of the supplemental information, the Commission or its staff will 
return or destroy it, if the Registrant complies with the procedures 
outlined in Rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
51. Amend Form N-6 (referenced in Sec. Sec.  239.17c and 274.11d) by 
revising Instruction 3 to Item 26 to read as follows:

    Note:  The text of Form N-6 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-6

* * * * *

Item 26. Exhibits

* * * * *
    Instructions:
* * * * *
    3. The Registrant may redact specific provisions or terms of 
exhibits required to be filed by paragraphs (g) and (j) of this Item if 
the Registrant customarily and actually treats that information as 
private. If it does so, the Registrant should mark the exhibit index to 
indicate that portions of the exhibit have been omitted and include a 
prominent statement on the first page of the redacted exhibit that 
certain identified information has been excluded from the exhibit 
because it is both not material and the type that the Registrant treats 
as private or confidential. The Registrant also must include brackets 
indicating where the information is omitted from the filed version of 
the exhibit. If requested by the Commission or its staff, the 
Registrant must promptly provide on a supplemental basis an unredacted 
copy of the exhibit and its materiality and privacy or confidentiality 
analyses. Upon evaluation of the Registrant's supplemental materials, 
the Commission or its staff may require the Registrant to amend its 
filing to include in the exhibit any previously redacted information 
that is not adequately supported by the Registrant's analyses. The 
Registrant may request confidential treatment of the supplemental 
material submitted under this Instruction 3 pursuant to rule 83 of the 
Commission's

[[Page 3605]]

Organizational Rules [17 CFR 200.83] while it is in the possession of 
the Commission or its staff. After completing its review of the 
supplemental information, the Commission or its staff will return or 
destroy it, if the Registrant complies with the procedures outlined in 
rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

0
52. Amend Form N-8B-2 (referenced in Sec.  274.12) by revising 
Instruction 3 to ``IX Exhibits'' to read as follows:

    Note: The text of Form N-8B-2 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

Form N-8B-2

Registration Statement of Unit Investment Trusts Which Are Currently 
Issuing Securities

* * * * *

IX

Exhibits

* * * * *
    Instructions:
* * * * *
    3. The registrant may redact specific provisions or terms of 
exhibits required to be filed by A(9) if the registrant customarily and 
actually treats that information as private. If it does so, the 
registrant should mark the exhibit index to indicate that portions of 
the exhibit have been omitted and include a prominent statement on the 
first page of the redacted exhibit that certain identified information 
has been excluded from the exhibit because it is both not material and 
the type that the registrant treats as private or confidential. The 
registrant also must include brackets indicating where the information 
is omitted from the filed version of the exhibit. If requested by the 
Commission or its staff, the registrant must promptly provide on a 
supplemental basis an unredacted copy of the exhibit and its 
materiality and privacy or confidentiality analyses. Upon evaluation of 
the registrant's supplemental materials, the Commission or its staff 
may require the registrant to amend its filing to include in the 
exhibit any previously redacted information that is not adequately 
supported by the registrant's analyses. The registrant may request 
confidential treatment of the supplemental material submitted under 
this Instruction 3 pursuant to rule 83 of the Commission's 
Organizational Rules [17 CFR 200.83] while it is in the possession of 
the Commission or its staff. After completing its review of the 
supplemental information, the Commission or its staff will return or 
destroy it, if the registrant complies with the procedures outlined in 
rule 418 under the Securities Act [17 CFR 230.418].
* * * * *

    By the Commission.

    Dated: November 2, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-24749 Filed 1-13-21; 8:45 am]
BILLING CODE 8011-01-P