Yesterday I spoke about Regulation A+ on a panel at the National Press Club in Washington, D.C. One topic was whether offerings under Regulation A+ would be “integrated” with other offerings, including offerings under Title II.
The word “integration” describes a legal concept in U.S. securities laws, where two offerings that the issuer intends to keep separate are treated as one offering instead. For example, I raise $1 million in an offering under Rule 506(b), where I admit 19 non-accredited investors. Needing more money, I start another offering under Rule 506(b) a month later – and for the same project – and admit 23 more non-accredited investors. Wrong! The SEC says those two offerings are “integrated” and now I’ve exceeded the limit of 35 non-accredited investors.
Today, entrepreneurs can raise money under Title II Crowdfunding only from accredited investors. Under Regulation A+ they’ll be able to raise money from non-accredited investors as well, vastly expanding the potential investor base. Unlike a Title II offering, however, where accredited investors can invest an unlimited amount, an investor in a Regulation A+ offering, accredited or non-accredited, will be limited to investing 10% of his or her income or net worth.
The question naturally arises, why not do a Regulation A+ offering for non-accredited investors while at the same time doing a Title II offering for accredited investors, thus maximizing the amount raised from everyone?
The answer, unfortunately, is integration. The two offerings would be treated as one, and they would both fail as a result.
But along with that bad news, the integration rules under the proposed-but-not-adopted Regulation A+ regulations offer good news as well:
- A Regulation A+ offering will not be integrated with an offering that came first. Thus, I can raise money in a Title II offering, accepting an unlimited amount from accredited investors, and the day after that offering ends conduct a Regulation A+ offering for non-accredited investors.
- A Regulation A+ offering will not be integrated with an offering to foreign investors under Regulation S. The two can happen simultaneously.
- A Regulation A+ offering will not be integrated with an offering that begins more than six months after the Regulation A+ offering ends.
- A Regulation A+ offering will not be integrated with a Title III offering, even if they happen at the same time.
Another takeaway from the conference is that the SEC plans to finalize the proposed regulations under Regulation A+ by the end of the year (this year). Issuers and portals, get ready.
Questions? Contact Mark Roderick at Flaster/Greenberg PC.