Updated Compliance & Disclosure Interpretations address Regulation A filing requirements

The SEC’s Division of Corporation Finance on March 31, 2017, updated its Compliance & Disclosure Interpretations (C&DIs) to address the filing requirements for securities offerings using Regulation A under the Securities Act of 1933.

In the update to Compliance & Disclosure Interpretations: Securities Act Rules, the SEC staff seeks to clarify several technical issues surrounding the Reg A exemption, which was overhauled as part of the JOBS Act.

C&DIs are presented in a question and answer format. Several of the questions in the most recent update surround the particulars of Form 1-A, a registration statement used in connection with Reg A offerings.

Regulation A allows privately held companies to conduct small scale public offerings of as much as $50 million, with a lighter accounting and disclosure load than a full-fledged initial public offering. The exemption provides two variants: “Tier one” offerings can run as high as $20 million, but are subject to state “blue sky” securities regulations. “Tier two” offerings of as much as $50 million are exempt from blue sky requirements, but are subject to more stringent federal disclosure requirements.

Prior to the JOBS Act, Reg A offerings were limited to $5 million and were subject to state regulations. In 2015, the SEC issued its JOBS Act-mandate revamp in Release No. 33-9741, Amendments to Regulation A.

One question in the C&DI update asks whether an issuer that qualifies for a tier two offering statement but withdraws it before selling any securities can suspend its reporting obligation by filing a Form 1-Z, even if it has not previously filed an annual report. A Form 1-Z exit report is used by a Reg A issuer to suspend its filing duties.

The SEC said it would not object to an issuer suspending its reporting obligation using Form 1-Z in cases where the offering is validly withdrawn before any sales occur and before the filing of an annual report under Regulation A or the Securities Exchange Act of 1934.

Another entry asks whether an issuer qualifying a Regulation A offering statement is required to file a tax opinion as an exhibit to Form 1-A. The SEC answered that filing a tax opinion as an exhibit is not required, although an issuer may choose to do so.

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