March 5, 2020

SEC Proposes Amendments to Simplify & Harmonize Private Offerings

Yesterday, the SEC issued this 341-page proposing release intended to “simplify, harmonize, and improve certain aspects of the exempt offering framework.”  The SEC’s press release summarizes the changes.  Among other changes, the SEC proposes:

– Revisions to current offering and investment limits for certain exemptions for Reg A, Regulation Crowdfunding and Rule 504 of Reg D

– Amendments relating to offering communications, including:

  • New rule permitting issuers to use generic solicitation of interest materials to “test-the-waters” for an exempt offer of securities prior to determining which exemption it will use
  • Rule amendment permitting Regulation Crowdfunding issuers to “test-the-waters” before filing an offering document with the Commission in a manner similar to Reg A
  • New rule providing that certain “demo day” communications would not be deemed a general solicitation or general advertising

– Amendments to eligibility restrictions in Regulation Crowdfunding and Reg A, which would permit use of certain special purpose vehicles to facilitate investing in Regulation Crowdfunding issuers, and would limit the types of securities that may be offered and sold in reliance on Regulation Crowdfunding

– Changes to the Securities Act integration framework by providing a general principle of integration that looks to the particular facts and circumstances of the offering, and focuses the analysis on whether the issuer can establish that each offering either complies with the registration requirements of the Securities Act, or that an exemption from registration is available for the particular offering

– Four non-exclusive safe harbors from integration

– A change in the financial information that must be provided to non-accredited investors in Rule 506(b) offerings to align with financial information issuers must provide to investors in Reg A offerings

– A new item in the non-exclusive list of verification methods in Rule 506(c)

– Simplification of certain requirements for Reg A offerings

– Harmonization of bad actor disqualification provisions of Reg D, Reg A and Regulation Crowdfunding

The comment period on the proposing release will remain open for 60 days following publication of the release in the Federal Register. It’s hard to say whether these amendments will make everyone happy but with all the confusion caused by the current rules, one would think the amendments will bring some improvement.

SEC Issues COVID-19 Coronavirus Exemptive Order

Yesterday, the SEC took steps to address COVID-19 concerns and issued an unprecedented COVID-19 exemptive order.  The SEC’s order provides publicly traded companies, subject to certain conditions, an additional 45 days to file certain disclosure reports that would’ve otherwise been due between March 1 and April 30, 2020.  Companies seeking to rely on the order, need to furnish a Form 8-K – or 6-K – by the later of March 16th or the original reporting deadline.

The SEC filing relief isn’t available for all companies though as companies seeking to avail themselves to the SEC’s filing relief need to satisfy certain conditions, which are listed in the order and include among other things, a company’s inability to meet its filing deadline due to circumstances relating to COVID-19.  The order also lists the information requirements for the Form 8-K or 6-K.

The order also provides relief for furnishing of proxy and information statements to shareholders “when mail delivery isn’t possible” and the order lists conditions for that relief.

In addition to providing filing relief to certain companies, the SEC’s press release reminds companies of their disclosure obligations:

For example, where a company has become aware of a risk related to the coronavirus that would be material to its investors, it should refrain from engaging in securities transactions with the public and to take steps to prevent directors and officers (and other corporate insiders who are aware of these matters) from initiating such transactions until investors have been appropriately informed about the risk.

When companies do disclose material information related to the impacts of the coronavirus, they are reminded to take the necessary steps to avoid selective disclosures and to disseminate such information broadly. Depending on a company’s particular circumstances, it should consider whether it may need to revisit, refresh, or update previous disclosure to the extent that the information becomes materially inaccurate.

Companies providing forward-looking information in an effort to keep investors informed about material developments, including known trends or uncertainties regarding the coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for this information.

As stated in its press release: the “Commission may extend the time period for the relief, with any additional conditions it deems appropriate, or provide additional relief as circumstances warrant. Companies and their representatives are encouraged to contact SEC staff with questions or matters of particular concern.”

The development of COVID-19 has certainly made this year’s annual meeting season more complicated and has everyone watching for the latest guidance addressing a host of issues.  To help – we’re posting memos about COVID-19 implications in our “Risk Management” Practice Area.

More on “Annual Meetings: Planning for COVID-19 Developments”

Yesterday, I blogged about possible COVID-19 implications for annual shareholders’ meetings and said maybe interest in virtual annual meetings would pick up.  Thanks to Brooke Goodlett of DLA Piper for pointing us to Starbucks.  Just yesterday, Starbucks filed an amendment to its proxy statement changing its annual shareholders’ meeting to a virtual-only meeting.  Last year, Starbucks held an in-person meeting along with a webcast and according to this year’s original proxy statement, the company had been planning for the same format again this year.

Starbucks annual meeting is coming up in just a couple of weeks, so this is a pretty late-breaking development.  It’s worth noting that Starbucks is a Washington company, not Delaware.  DLA Piper’s memo on coronavirus considerations suggests companies consider, to the extent permissible by the company’s charter documents and state law, virtual board and shareholder meetings.

– Lynn Jokela