Regulation S allows a U.S. company to sell debt or equity securities to foreign investors under the following conditions:
- The issuer must reasonably believe that the investors are offshore.
- The issuer may not engage in any “direct selling efforts” in the U.S.
- For debt securities, sales to U.S. persons are prohibited for 40 days. For equity securities, the period is increased to one year.
- Various legends and Bylaw provisions are required to enforce the prohibition on U.S. sales.
(Careful readers will note that none of these requirements is geared toward protecting the foreign investors. Instead, all of the requirements are geared toward ensuring the the securities are sold only to foreigners. As a U.S. regulatory agency, the SEC simply has no jurisdictional mandate to protect foreign investors.)
Three features make Regulation S especially useful for Crowdfunding portals and issuers:
- A Regulation S offering may be conducted using general solicitation and advertisement, i.e., through Crowdfunding.
- A Regulation S offering to foreign investors may be conducted concurrently with a Regulation D offering to U.S. investors, even for the same securities.
- Under Regulation S, the issuer can be indifferent as to whether foreign investors are accredited.
That’s not the end of it, of course. Other countries have their own securities laws and their own SEC’s, and a U.S. issuer must comply with those rules as well.
Questions? Contact Mark Roderick at Flaster/Greenberg PC.