Confirmation Of The Obvious: GAO Publishes Reg A Report

Author:Ms Anna Pinedo
Profession:Morrison & Foerster LLP

The JOBS Act directed the GAO to undertake a study concerning the factors impeding greater use of currently Regulation A. The GAO study examines trends in Regulation A offerings, noting that the number of offerings increased from 1992 through 1997. This increase followed the SEC's changes to the offering ceiling for Regulation A offerings from $1.5 million to $5 million. Since 1997, however, the number of Regulation A offerings has declined. The study notes that issuers have tended to favor Regulation D offerings. The report cites a number of factors that likely have contributed to the lack of interest in using Regulation A for capital-raising. For example, the report cites the delays associated with the SEC review of Regulation A offering statements (whereas an issuer faces no disclosure requirements in connection with a Regulation 506 offering made to accredited investors) and, of course, the time-consuming and expensive process for complying with state securities laws. The report details a number of significant advantages associated with Regulation D offerings.

The report does lead one to consider the relative attractiveness of various offering alternatives.

For example, if an issuer (not a reporting company) is prepared to make its offering available only to (verified) accredited investors, the issuer soon will be able to solicit and will not have specific disclosure requirements. Of course, the securities sold in the Rule 506 Regulation D offering will be restricted. No limit on dollars that can be raised.

If the issuer completes one or many such offerings, provided it stays below the new 12g threshold, it will not be required to furnish periodic information to the SEC.

An issuer that is not a reporting company might undertake crowdfunding offerings, through a funding portal or a broker-dealer, to investors meeting certain standards, but then the issuer must comply with certain disclosure requirements in connection with the offering, and also be subject to ongoing albeit limited information requirements. The securities sold in the crowdfunding offering will be restricted. The dollar amounts...

To continue reading