November 3, 2020

SEC Simplifies Exempt Offering Framework!

Following its open meeting yesterday, the SEC announced that it adopted amendments to simplify & harmonize the private offering framework. The Commission had proposed these rules in March following a concept release last summer. Here are highlights from the SEC’s Fact Sheet about what the amendments do:

– Establish a new integration framework that provides a general principle that looks to the particular facts and circumstances of two or more offerings – 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. The amendments also provide 4 non-exclusive safe-harbors from integration.

– Increase the offering limits for Reg A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits

– Set clear and consistent rules governing certain offering communications, including permitting certain “test-the-waters” and “demo day” activities

– Harmonize certain disclosure and eligibility requirements and bad actor disqualification provisions

As has become the norm, the amendments were adopted by a 3-2 vote, with Commissioners Hester Peirce and Elad Roisman saying the rules don’t go far enough, and Commissioners Allison Herren Lee and Caroline Crenshaw saying that the rules strip away investor protections and were adopted without adequate data. Here’s a link to all of the statements from the Commissioners and SEC Chair Jay Clayton.

The amendments will go effective 60 days after publication in the Federal Register, except for the extension of the temporary Regulation Crowdfunding provisions, which will be effective upon publication in the Federal Register. Publication often takes about a month – so if that’s the case, that would put us in the February time frame for this new private offering regime.

We’ll be updating our “Reg D Handbook” for these new rules as well as the changes to the accredited investor definition that go effective next month. We’ll also be posting memos in our “Private Placements” Practice Area.

New PPP “Loan Necessity Questionnaire” – 10 Days to Respond!

The Small Business Administration published a notice last week that it would release a new “loan necessity questionnaire” – Form 3509. If your company borrowed $2 million or more from the Paycheck Protection Program, you’ll need to complete the form to show the necessity of the borrowings – and it’ll be due within 10 business days of receiving it from your lender.

Although copies of the Form are popping up online, this Kaplan blog points out that the SBA website hasn’t posted an official version. This McDermott memo gives an overview of the information that borrowers will be expected to provide and suggests that they start collecting supporting documentation, given that the time frame for responding will be short.

Sustainability Reporting: XBRL Coming Soon?

PwC is working with SASB to translate its sustainability reporting standards into an XBRL taxonomy, according to this “Accounting Today” article – and the charge is being led by former SEC Chief Accountant Wes Bricker. The “Big 4” accounting firms definitely see an opportunity in ESG. As I blogged a couple of months ago on the Proxy Season Blog, they’re also working together to develop a set of common metrics for reporting.

Sure, common metrics and even XBRL could be helpful to investors, but I think the biggest opportunity here is to use this “alphabet soup” to create our very own, modern take on the “Mickey Mouse Club” song: S-A-S-B, X-B-R-L, E-S-G, M-O-U-S-E! Who’s with me?

Liz Dunshee