Print Friendly, PDF & EmailPrint

Corp Fin has just issued a slew of new and revised CDIs regarding the Securities Act and related rule and forms—primarily Reg A and Reg D. Some are updates that relate back to the 2020 amendments designed to harmonize and simplify the patchwork universe of private offering exemptions. (See this PubCo post.) There are also a few CDIs related to Reg Crowdfunding. And, in a burst of housekeeping, Corp Fin has also withdrawn a number of mostly ancient CDIs. The highlights here are two new CDIs under Rule 502: New Question 256.35 and New Question 256.36.  CDI 256.35 outlines factors that should be used—and how they should be used—in applying a reasonableness standard to assess accredited investor status. CDI 256.36 reflects a new no-action letter describing how, in a high minimum investment offering, an issuer could reasonably conclude that reasonable steps have been taken to verify accredited investor status—new guidance that is expected to simplify the private offering process. The CDIs are summarized below and, for revised CDIs, a ink to the prior version is included.

Securities Act Rules

Rules 251 to 263

  • Revised Question 182.01   An issuer that elects to submit a non-public draft offering statement for staff review pursuant to Rule 252(d) of Reg A before publicly filing its Form 1-A, and elects to make the non-public, draft offering statements public on the EDGARLink Online submissions page of EDGAR at the time it publicly files its Form 1-A would not need to “refile (1) any non-public, draft offering statement previously submitted pursuant to Rule 252(d), or (2) any related, non-public correspondence submitted by or on behalf of the issuers as an exhibit to Part III.” Rather, the issuer “may make its initial non-public draft offering statement and all subsequent non-public amendments publicly available on EDGAR at the time it first publicly files its Form 1-A offering statement by logging into its EDGAR account, accessing the webpage ‘File Regulation A Forms,’ and selecting the link ‘Disseminate Draft Offering Statement.’ The Commission staff, upon completion of the review of the offering statement, will make public on EDGAR all non-public correspondence related to the non-public initial draft offering statement and its amendments.” [Comparison to prior version]
  • Revised Question 182.02 An issuer that elects to submit a non-public draft offering statement for staff review before public filing pursuant to Rule 252(d), and seeks to protect portions of its correspondence relating to its offering statement from public release, would need to, during the review process, request confidential treatment of any information in the related correspondence pursuant to Rule 83, in the same manner it would during a typical review of a registered offering.  That is, it “would submit a redacted copy of the correspondence via EDGAR, with the appropriate legend indicating that it was being submitted pursuant to a confidential treatment request under Rule 83. At the same time, it would submit an unredacted version to the Commission, non-publicly on EDGAR, in the manner required by that rule.  EDGAR does not allow an issuer to publicly disseminate any correspondence on EDGAR. Upon the completion of the review, and after qualification, the Commission staff will make all review correspondence public, including correspondence related to the publicly filed Form 1-A and the DOS, as well as staff comment letters. See also Question 182.01 above.” [Comparison to prior version]
  • Withdrawn Question 182.04  The CDI that was withdrawn provided that a company that was previously required to file reports  under Section 15(d) of the Exchange Act, but that has since suspended its Exchange Act reporting obligation by satisfying the statutory provisions for suspension, is an eligible issuer under Rule 251(b)(2) of Reg A and is not considered to be subject to Section 13 or 15(d) of the Exchange Act for purposes of Rule 251(b)(2) of Reg A.
  • Withdrawn Question 182.06The CDI that was withdrawn provided that a private wholly owned subsidiary of an Exchange Act reporting company parent would be eligible to sell securities pursuant to Reg A, although the Exchange Act reporting company parent could not be a guarantor or co-issuer of the securities of the sub.
  • Revised Question 182.10 State securities law registration and qualification requirements are not preempted with respect to resales of securities purchased in a Tier 2 offering, just because the securities were initially sold in a Tier 2 offering. “Pursuant to Section 18(b)(4)(D)(ii) of the Securities Act, state securities law registration and qualification requirements are only preempted with respect to primary offerings of securities by the issuer or secondary offerings by selling securityholders that are qualified pursuant to Regulation A and offered or sold to qualified purchasers pursuant to a Tier 2 offering. See Securities Act Release No. 9741 (March 25, 2015) (‘In the final rules, a “qualified purchaser” for purposes of Section 18(b)(4)(D)(ii) of the Securities Act includes any person to whom securities are offered or sold in a Tier 2 offering.’ [Emphasis added]. Unless otherwise preempted under Section 18 of the Securities Act, resales of securities purchased in a Tier 2 offering must be registered, or offered or sold pursuant to an exemption from registration, with state securities regulators.” [Comparison to prior version]
  • Withdrawn Question 182.17  The CDI that was withdrawn provided that an issuer in a Tier 2 offering could follow paragraphs (b)(3)-(4) of Part F/S for the age of interim financial statements, or the requirements specified in paragraphs (b)(3)-(4) of Part F/S for financial statements covering both the fiscal year and interim periods.

Reg D Interpretations of General Applicability

Rule 501 — Definitions and Terms Used in Reg D

  • Revised Question 255.33  In considering whether non-US investors are counted for purposes of the limit under Rule 501(e) of 35 non-accredited investors in any 90-calendar-day period for all offerings by an issuer made in reliance on Rule 506(b), as explained in Rule 500(g), the foreign offering is not required to comply with Reg D, including the limit on the number of investors, if the foreign offering meets the safe harbor conditions of Reg S for offerings made outside the US. But if the issuer elects to rely on Reg D for offers and sales to non-U.S. investors, the issuer must count the non-U.S. investors in calculating whether it meets the conditions of Reg D limiting the number of investors.  [Comparison to prior version]

Rule 502 — General Conditions to be Met

  • Withdrawn Question 256.09 The CDI that was withdrawn permitted the use in Reg D offerings of tax basis financials for, in addition to the limited partnership, properties to be acquired and general partners, under certain circumstances.
  • Revised Question 256.27  Under certain circumstances, an issuer, or a person acting on the issuer’s behalf, may communicate information about an offering to persons with whom it does not have a pre-existing, substantive relationship without having that information deemed a general solicitation.  Under Rule 148, issuers may participate in “demo days” or similar events, during which communications about the offering that meet the requirements of Rule 148 are not deemed to constitute general solicitations or general advertising. See also Question 256.33.  In addition, the staff acknowledged that there are “long-standing practices where issuers and persons acting on their behalf are introduced to prospective investors” that form an informal, personal network of sophisticated individuals with experience investing in private offerings, such as “angel investors,” who “share information about offerings through their network and members who have a relationship with a particular issuer may introduce that issuer to other members. Issuers that contact one or more experienced, sophisticated members of the group through this type of referral may be able to rely on those members’ network to establish a reasonable belief that other offerees in the network have the necessary financial experience and sophistication. Whether there has been a general solicitation is a fact-specific determination. In general, the greater the number of persons without financial experience, sophistication or any prior personal or business relationship with the issuer that are contacted by an issuer or persons acting on its behalf through impersonal, non-selective means of communication, the more likely the communications are part of a general solicitation.” [Comparison to prior version]
  • Revised Question 256.33  Demo days and venture fairs do not necessarily constitute a general solicitation for purposes of Rule 502(c).  “Rule 148 provides an exemption from general solicitation or general advertising for communications if made in connection with a seminar or meeting in which more than one issuer participates that is sponsored by a group or entity (such as a university, angel investors, an accelerator, or an incubator) that invites issuers to present their businesses to potential investors with the aim of securing investment, provided that such communications meet the requirements of the rule. The Commission stated that, ‘[b]ecause communications that comply with proposed Rule 148 would not be deemed a general solicitation or general advertising, the limitations on the manner of offering in Rule 502(c) of Regulation D would not apply.’ See Securities Act Release No. 10884 (November 2, 2020). If a demo day or venture fair does not comply with Rule 148, it still may not constitute a general solicitation, depending on the facts and circumstances. See Question 256.27.” [Comparison to prior version]
  • New Question 256.35   The list of methods of verification of accredited investor status in Rule 506(c)(2)(ii) are “non-exclusive and non-mandatory.” Even if an issuer does not satisfy any of the verification safe harbors in Rule 506(c)(2)(ii), an issuer can use other methods, applying the “reasonableness standard directly to the specific facts and circumstances presented by the offering and the investors.” Quoting  Securities Act Release No. 9415, the staff explains that

“‘whether the steps taken are ‘reasonable’ will be an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction. Among the factors that issuers should consider under this facts and circumstances analysis are:

  • the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
  • the amount and type of information that the issuer has about the purchaser; and
  • the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.

These factors should be considered in an interconnected manner, and are intended to help guide an issuer in assessing the reasonable likelihood that a purchaser is an accredited investor—which would, in turn, affect the types of steps that would be reasonable to take to verify a purchaser’s accredited investor status … [T]he more likely it appears that a purchaser qualifies as an accredited investor, the fewer steps the issuer would have to take to verify accredited investor status, and vice versa.’”

  • New Question 256.36  This CDI adverts to a new no-action letter issued yesterday by the staff indicating when an issuer may be able to reasonably conclude, in a Rule 506(c) offering that requires each accredited investor to make a high minimum investment amount in cash, that reasonable steps have been taken to verify accredited investor status, including the issuer’s having no actual knowledge of any facts indicating that any purchaser was not an accredited investor and the issuer’s having confirmed with each purchaser that its investment was not being financed in whole or part with funds from a third party. In the CDI, the staff advised that whether reasonable steps had been taken to verify that a purchaser is an accredited investor “is an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances.”  Still, “[d]epending on the facts and circumstances, the issuer may be able to reasonably conclude that reasonable steps to verify have been taken when an offering requires a high minimum investment amount. The CDI concludes that, “[a]s explained in Securities Act Release No. 9415 (July 10, 2013), ‘if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party.’” See also  Securities Act Release No. 10884 (Nov. 2, 2020).    In the no-action letter, (Latham & Watkins LLP no-action letter (Mar. 12, 2025), the staff agreed that “a high minimum investment amount is a relevant factor in verifying accredited investor status.” The staff noted that the purchaser would provide written representations “as to: (1) their accreditation (under Rule 501(a)(5) or (a)(6) if they are a natural person, or under Rule 501(a)(3), (7), (8), (9) or (12) if they are a legal entity), and (2) the fact that the purchaser’s minimum investment amount (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of each of the purchaser’s equity owners) is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.” In addition, the staff noted the representation that the issuer would have “no actual knowledge of any facts that indicate: that any purchaser is not an accredited investor; or that the minimum investment amount of any purchaser (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of any such equity owner) is financed in whole or in part by any third-party for the specific purpose of making the particular investment in the issuer.” Based on the representations in the letter, the staff agreed that “the issuer could reasonably conclude that it has taken reasonable steps to verify that purchasers of securities sold in an offering under Rule 506(c) of Regulation D are accredited investors.”

Rules 503 and 503T– Filing of Notice of Sales

Rule 504 — Exemption for Limited Offerings and Sales of Securities Not Exceeding $10,000,000

  • Withdrawn Question 258.05 The CDI that was withdrawn explained that the Instruction to paragraph (b)(2) of Rule 504 was designed to demonstrate the operation of the limitation on the aggregate offering price without regard to whether two or more offerings are integrated.

Rule 506 — Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering

  • Withdrawn Question 260.05  The CDI that was withdrawn related to transition guidance regarding whether continuing the offering under the new (in 2013) Rule 506(c) exemption required an amendment to Form D.
  • Withdrawn Question 260.33  The CDI that was withdrawn related to transition guidance as to whether an issuer that decides to continue an offering as a Rule 506(c) offering following the 2013 effective date of the new exemption must verify the accredited investor status of existing investors in the offering.
  • Withdrawn Question 260.34  The CDI that was withdrawn related to transition guidance permitting a change from Rule 506(b) to Rule 506(c) if the issuer has already made sales to non-accredited investors before relying on the Rule 506(c) exemption.

Securities Act Sections 

Securities Act Section 4(2)

  • Revised Section 234.02 Rule 506(b) allows the use of sophisticated investor representatives, but, because of the “safe-harbor character of the rules and because no-action positions generally are unavailable under Section 4(a)(2),” Corp Fin “will not express a view whether the use of a purchaser or offeree representative outside Rule 506(b) is an acceptable method to provide the sophistication requirement of Section 4(a)(2) as construed by the courts and the Commission.” [Comparison to prior version]

Regulation Crowdfunding  

Rule 100: Crowdfunding exemption and requirements

  • Revised Question 100.01  Prior to filing the Form C with the SEC and providing it to the relevant intermediary, subject to certain conditions, an issuer “may communicate orally or in writing at any time prior to filing a Form C in order to determine whether there is any interest in a contemplated securities offering. These communications are deemed to be offers of a security for purposes of the antifraud provisions of the Federal securities laws. Pursuant to Rule 206, the issuer must clearly state that (i) no money or other consideration is being solicited, and if sent, will not be accepted; (ii) no offer to buy securities can be accepted and no part of the purchase price can be received until the offering statement is filed and only through an intermediary’s platform; and (iii) a prospective purchaser’s indication of interest involves no obligation or commitment of any kind. Rule 201(z) requires that the issuer include any Rule 206 solicitation materials with the Form C that is filed with the Commission.” If the issuer is considering an exempt offering of securities, but has not determined the specific exemption from registration, “Rule 241 permits an issuer to make communications orally or in writing, similar to that permitted under Rule 206, to determine whether there is any interest in a contemplated offering of securities, provided legends similar to those detailed above are included.”  In addition, prior to the commencement of a Reg CF offering, an issuer may disseminate information not constituting an offer of securities. To illustrate, “factual business information that does not condition the public mind or arouse public interest in a securities offering is not an offer and may be disseminated widely.” However, the SEC has broadly interpreted the term “offer” and explained that “the publication of information and publicity efforts, made in advance of a proposed financing which have the effect of conditioning the public mind or arousing public interest in the issuer or in its securities constitutes an offer…”  Securities Act Release No. 8591 (July 19, 2005). See also Securities Act Rule 169 and Securities Act Rule C&DI 256.25.  [Comparison to prior version]
  • Revised Question 100.02  The investment limits in Rule 100(a)(2) of Reg CF apply to all non-accredited investors, including non-natural persons.  “Instead of calculating investment limits based on annual income or net worth, a non-natural person calculates the limits based on its revenue or net assets (as of its most recent fiscal year end). Accredited investors are not subject to investment limits in Regulation Crowdfunding offerings.”[Comparison to prior version]

Rule 204: Advertising

  • Revised Question 204.01 While an issuer may advertise the “terms of the offering” under Reg CF, “any such advertising that is made other than through communication channels provided by the intermediary on the intermediary’s platform will be limited to notices that include no more than the information described in Rule 204(b) of Regulation Crowdfunding. ‘Terms of the offering’ is defined to include ‘the amount of securities offered, the nature of the securities, the price of the securities, the closing date of the offering period, the planned use of proceeds, and the issuer’s progress towards its funding target.’ See Instruction to Rule 204.” [Comparison to prior version]

Securities Act Forms 

Form D

  • Withdrawn Question 130.11 The CDI that was withdrawn provided that the 2009 changes to Form D do not require issuers to amend any Form Ds filed on earlier versions of the form.

Posted by Cydney Posner

All Posts