On April 8, Commissioner Aguilar and Commissioner Stein spoke at the North American Securities Administrators Association conference.

Commissioner Aguilar noted in his remarks that “Regulation A-plus remains a work in progress, and no one can say what the ultimate outcome will be.”  The Commissioner went on to note that a workable exemption would “attract issuers that might otherwise choose more opaque exemptions for their capital-raising needs.”  Indeed, in Rule 506 offerings to accredited investors, there are no disclosure requirements, no investment limit, and no ongoing reporting obligations.  The proposed Reg A+ framework provides enhanced investor protections that should mitigate any concerns; however, the debate regarding pre-emption continues.

Even with coordinated review, an issuer faced with a range of capital-raising alternatives, will not choose a Tier 2 offering if state review is necessary.  Tier 2 offerings are unlikely to be “local” in nature.   Statements of Policy applied by state regulators have not been updated in a meaningful way and are inconsistent with practices in “public” offerings.

A Tier 2 Reg A+ offering will have more in common with a public offering than with a private placement.  Many states require that each investor in their state sign a subscription agreement.  Of course, in a registered offering that clears and settles through DTC and is sold by a broker-dealer, individual subscription agreements generally are not used.  A recent state review triggered comments from examiners inquiring about the rules of DTC, and requested more information about Cede & Co, DTC’s nominee, as well as about the “officers, directors and purpose/role of Cede & Co.”  Presumably, Tier 2 Reg A+ offerings will clear through DTC.  These are the just examples of speed bumps that do little to add to investor protection.

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