DealFlow Events has been organizing topical conference events for the institutional financial community for 20 years. Its latest symposium, The Reg A Conference 2023, was held in June. This article recapping conference highlights is third in a series.
The Reg A Conference and its featured presenters acknowledged the current state of the market and came prepared to address those issues with potential solutions as well as examples of successful steps being taken to ameliorate regulatory problems and other obstacles that can add to expenses.
One discussion focused on Blue Sky laws, which regulate securities offerings at the state level concurrently with federal law. This additional layer of compliance can create legal stumbling blocks for some Reg A issuers if their community and investor base grows nationally beyond previously untapped US territories.
Agile Legal’s CEO, Reyner Meikle, and Operations Manager Rebecca Reilly, reviewed the background of Blue Sky and which states are a potential legal landmine for which a Reg A issuer needs to enact preemptive compliance measures before soliciting any investors of record located there.
Among the Blue Sky requirements:
- Some states impose notice filing laws as per Blue Sky laws.
- Some may require a copy of a Form D SEC filing.
- Some require a company to file ahead of the offering, others file post-offering.
- There is no single standard; each state has a different time frame, number of share limits and fee size windows.
- Some states accommodate electronic filing and fee payment; others still require paper filings with a check for payment.
- Tier 2 issuers do not need to register with state securities regulators.
- Broker/Dealer rules – some states require a B/D of record for Blue Sky compliance.
Meikle and Reilly also cited some common mistakes:
- Timing – States differ on the lead time for a Blue Sky compliance filings, which can vary from a week to over a month in advance, and can conflict with a marketing campaign schedule. However, poor timing can trigger a deficiency notice. Regulators cannot regulate the offerings, but they will crack down on the issuer to enforce timing and document compliance.
- Sales and share quantity cap compliance – An insufficient authorization of sufficient sales for a state with variable fees is another potential risk oversight. Underestimating requires an amended filing, as exceeding the cap can trigger a fine. (ex: Texas penalty fine is 3%.)
- Neglecting ongoing obligations: States enforcing different Blue Sky laws will crack down on companies that fail to regularly monitor and supply – a) Renewal filings; b) Sales Reports; and c) Amendments.
Filing Musts: Ensuring Thorough Review of Reg A Applications
One of the biggest challenges to timing a marketing campaign for a Reg A capital raise is in ensuring that no comments come back from the SEC that cause undetermined length delays. Any time comments are returned, the deficiencies in the documentation must be corrected and then resubmitted, with no guarantee as to when approvals or additional comments, which would require yet another re-submission, will follow.
Zachary Fallon, partner and co-founder of Ketsal, and Andrea Caetano, partner, Mitchell Silberburg & Knupp, offered tips and comments as to the changes in Reg A as a result of the revisions from the Jobs Act of 2012, as well as some of the ways to mitigate the delay risks from getting SEC comments instead of approvals.
Noting that 80% of Reg A filings qualify with the SEC without any comments, Caetano and Fallon provided an overview of the disclosure requirements for these offerings, a checklist of essential documents, the general timetable for filing deadlines, and corresponding filing fees.
They covered the history of Jobs Act 2012, which increased Reg A caps from $50 million to $75 million, established the SEC requirement differences between Tier 1 and Tier 2, and other significant changes that have led to a renewed interest in Reg A and its popularity in the digital age.
