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There is one phrase that frequently comes to mind when considering the regulatory environment that we have been living in for a while now: “life comes at you fast.” While we anxiously await the SEC’s next moves on its ambitious rulemaking agenda, it is easy to forget how active the SEC had been in the couple of years leading up to Biden administration. The Commission moved forward with some major changes to its rules regarding capital raising, perhaps most notably the exempt offering harmonization rulemaking that was adopted in November 2020.

If I had to pick one regulatory change from that no-so-distant era that still haunts me to this day, it is the ability for issuers to now broadly test the waters for an upcoming securities offering. Now, you might think that I would embrace such a modern approach to the regulation of capital-raising activities, but remember that I cut my teeth at the SEC where, at the time, we zealously defended the ramparts of Section 5 of the Securities Act, which specifies that any offer or sale of a security is registered with the SEC, exempt from registration or illegal.

My rampart-defending efforts took a pretty big blow with the JOBS Act in 2012, which amended my beloved Section 5 to permit testing the waters for emerging growth companies. Thereafter, the dominos began to fall, with the adoption of Securities Act Rule 163B in 2019, which enables all issuers to engage in testing-the-waters communications with qualified institutional buyers and institutional accredited investors regarding a contemplated registered securities offering prior to, or following, the filing of a registration statement related to such offering. In 2020, the Commission then rolled out an all-encompassing testing-the-waters provision for exempt offerings with the adoption of Securities Act Rule 241, which permits an issuer to use generic solicitation of interest materials to test the waters for an exempt offering of securities prior to determining which exemption it will use for the sale of the securities.

If I have piqued your interest in the testing-the-waters journey, I encourage you to check out the September-October 2021 issue of The Corporate Counsel, where I take you on a test drive of these still relatively new testing-the-waters provisions. Once you have had a chance to read the article, let me know if my grief over the demise of Section 5 as I knew it is misplaced. Please email sales@ccrcorp.com to subscribe to The Corporate Counsel newsletter if you do not not already have access to this important resource.

– Dave Lynn