Securities and Exchange Commission Approves New Rules for Reporting and Capital-Raising for Smaller Public Companies
NEW OFFERING EXEMPTIONS
The SEC also plans to refine Regulation D in an attempt to conform to the realities of modern marketing practices and technologies without compromising investor protection. Specifically, the SEC will adopt a new exemption from the registration provisions of the Securities Act in creating new Rule 507 of Regulation D. The new exemption would allow most issuers to sell their securities without registration and engage in limited, tombstone-like advertising so long as they sell only to a new category of investors called "Rule 507 qualified purchasers" or "super accredited investors." This new category of investors would include:
1) Individuals with a minimum of $2.5 million in investments; or
2) Individuals with individual annual income of at least $400,000 ($600,000 in the aggregate with a spouse).
Further, institutional investors generally will qualify if they own $10 million in investments. Institutional investors not subject to a monetary threshold to qualify as accredited investors similarly could qualify as Rule 507 qualified purchasers without regard to a monetary threshold. Likewise, any director, executive officer, or general partner of the issuer could qualify as a Rule 507 qualified purchaser without regard to a monetary threshold.
The SEC will also revise the existing requirements for "accredited investors" by creating an alternative way to qualify as an accredited investor. In addition to the current total assets, net worth, and income standards, there will be a new "investments owned" standard of $750,000 for individuals and $5 million for institutions. These revisions will increase the number of investors qualified as accredited investors and increase the pool of capital available to companies that engage in exempt offerings relying on Regulation D. It was also proposed that beginning September 1, 2012, the monetary thresholds for qualifying as an "accredited investor" would be periodically adjusted to reflect inflation.
The proposals would change regulation D further by shortening the integration safe harbor from six months to ninety days and applying uniform "bad boy" disqualification provisions to all Regulation D offerings.
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