By: Jim Verdonik
Founder of Innovate Capital Law
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The most controversial issues related to new Regulation A+ relate to state securities laws.
Issuers, their legal counsel and investment bankers wanted all Regulation A+ offerings to be exempt from state registration.
State securities administrators wanted all Regulation A+ offerings to be subject to state registration.
The SEC compromised by exempting Tier 2 Regulation A+ offerings from state registration laws, but the SEC did not extend the same protection to Tier 1 Regulation A+ offerings.
There are two likely results of this compromise:
· Many issuers who raise less than $20 million (and so could choose to be governed by the Tier 1 rules) will choose to be governed by the Tier 2 rules.
· Other issuers will continue to do Rule 506 offerings, which are except from state registration laws.
Let's explore why people are likely to make these choices.
Regulation A+ offerings involve conducting a general solicitation. General solicitations (a/k/a public offerings) are regulated by both state and Federal securities laws.
Compliance with Federal law doesn't always constitute compliance with state law. Compliance with the laws of one state doesn't always mean you comply with the laws of all states.
How do state laws apply to Regulation A+ offerings?
- Regulation A+ gives you an exemption from registration of the offering at the Federal level like in a Rule 506 offering or a Federal registered offering of securities by an issuer listed on a national securities exchange.
- The Tier 2 of Regulation A+ pre-empts state registration laws.
- The Tier 2 pre-emption of state registration does not apply to state anti-fraud rules or to certain post-closing notices and filing fees many states require.
- Tier 1 of Regulation A+ does not preempt state registration laws.
- Regulation A+ does not preempt state broker-dealer, salesmen or investment adviser laws that may adversely impact issuers who use unregistered intermediaries.
- More than one state law may apply. Generally, the laws of the issuer's home state and every state where offers or sales are made applies to securities offerings.