Regulators Cast a More Watchful Eye on Securities Offerings

Private securities offerings may become subject to further regulatory scrutiny under an information-sharing agreement signed Feb. 17, 2017, by the U.S. Securities and Exchange Commission (SEC) and the North American Securities Administrators Association (NASAA), which represents state securities administrators.
According to the SEC, the pact between it and NASAA will make it easier to monitor the effectiveness of registration exemptions for small businesses seeking to raise capital through websites and social media, or “crowdfunding.” Federal and state securities regulators also expect it will bolster their efforts to fight fraud by companies misusing provisions of the Jumpstart Our Business Startups Act (JOBS Act) that aim to simplify the way private companies sell interests and raise capital.

Current rules provide flexibility, access

Under current rules passed pursuant to the JOBS Act and other recent regulatory amendments, companies have more flexibility than ever before to engage in intrastate offers through websites and social media without having to get pre-approval (i.e., register) their offerings with the federal or state governments.
The JOBS Act expanded the Regulation A+ (Reg A) exemption to allow companies to raise up to $50 million through Tier 2 offerings, up from the previous $5 million limit. Reg A Tier 1 offerings are capped at $20 million. The Act also lifted the ban on advertising — called “general solicitation” — for private offerings restricted to verified accredited investors, and authorized equity crowdfunding (also known as Regulation Crowdfunding or “Reg CF”) through registered funding portals for mom-and-pop investors, all of which have enabled issuers of securities to more freely market their offerings online.
The JOBS Act and subsequent amendments to other securities exemption rules are intended to provide greater access to capital for entrepreneurs who may have had trouble obtaining capital through other means.

Acting SEC chairman lauds agreement

“This memorandum of understanding will allow commission staff and NASAA to share information about their observations of the various securities offering exemptions available to companies at the state and federal level,” SEC Acting Chairman Michael S. Piwowar was quoted by Law 360, a LexisNexis Company.
Piwowar was joined in signing the memorandum of understanding (MOU) by Mike Rothman, Minnesota Commissioner of Commerce and President of NASAA.
“This agreement will strengthen collaboration among state and federal securities regulators to help expand small-business investment opportunities while also protecting investors,” Rothman said. “Ongoing dialogue is essential to carry out our responsibilities going forward. With this MOU in place, we have an opportunity to share information that will bolster our efforts to support small business capital formation and prevent fraud.”

Is somebody talking about you?

Bottom line, however, is that if you’re a syndicator, the feds and states may now be talking to each other about you! It’s possible we’ll see an uptick in enforcement actions starting this year against issuers of private placement offerings in the wake of this new deal.

At Syndication Attorneys, PLLC, we will be happy to discuss your investing goals with you. You can schedule a free, 30-minute consultation by clicking this link.


Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!

About Syndication Attorneys

We are NOT your stereotypical law firm. We don’t believe in simply taking your money, handing you a stack of technical, often-incomprehensible legal documents and then bidding you good luck and good-bye. At Syndication Attorneys PLLC, we are committed to your success – not just with the project at hand, but your continuing success in business and investing. We are your long-term legal team.

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Are you ready to raise private capital?

At Syndication Attorneys LLC, we are committed to your success – book a consultation with one of our team members today!