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    \419\ See, e.g., B. Andrews, et al. Letter; CfPA Letter; SEC
SBCFAC Letter; Geraci Law Letter; Letter from Crowdfund Capital
Advisors dated May 29, 2020 (``CCA Letter'') (suggesting that
increasing the offering limit will reduce the cost of capital and
permit larger, more stable and lower risk issuers to use the
exemption); Silicon Prairie Letter; Letter from Social Enterprise
Investments, Inc. dated May 31, 2020 (``SEI Letter''); Netcapital
Letter; Carta Letter; Republic Letter; NextSeed Letter; Chamber of
Digital Commerce Letter; SAF Letter; Engine Letter; Raise Green &
New Haven Comm. Solar Letter; InnaMed, et al. Letter; SeedInvest
Letter; Crowdwise Letter; Letter from Mark Roderick dated May 31,
2020 (``M. Roderick Letter''); Letter from Representative Patrick
McHenry dated June 8, 2020 (``Rep. McHenry Letter''); and Sen.
Toomey Letter. See also 2019 OASB Annual Report, at 41 (suggesting
that the Commission ensure that dollar amount caps used in
exemptions are ``tied to expressed marketplace needs for capital and
provide flexibility for future review and adjustment'') and 47
(specifically supporting an increase offering cap for Regulation
Crowdfunding offerings, stating an increase ``would allow companies
to raise meaningful early-stage capital using crowdfunding rather
than limiting companies' options to a narrower set of exemptions'');
and AOIP Letter (suggesting the Commission immediately increase the
Regulation Crowdfunding limit in response to the COVID-19 pandemic).
    \420\ See, e.g., B. Andrews, et al. Letter; Letter from Stuart
Halperin dated Mar. 27, 2020; Letter from Kevin Wolf dated Mar. 27,
2020; and AOIP Letter.
    \421\ See, e.g., CCA Letter; J. Clarke Letter; SEI Letter;
Netcapital Letter; Republic Letter; Engine Letter; Raise Green & New
Haven Comm. Solar Letter; InnaMed, et al. Letter; and Sen. Toomey
Letter. Some commenters further suggested indexing these new higher
amounts for inflation. See, e.g., Carta Letter; and Sen. Toomey
Letter.
    \422\ See, e.g., CfPA Letter (recommending funding portals be
required to certify that they have reviewed a campaign for
compliance prior to posting it on their platform); and M. Roderick
Letter (recommending additional disclosure regarding target offering
amounts).
    \423\ See, e.g., Silicon Prairie Letter (recommending relaxing
the financial information requirements for offerings under $1
million); CrowdCheck Letter (supporting a micro-offering tier below
$25,000); Nextseed Letter (recommending a micro-offering tier below
$250,000); R. Campbell Letter (recommending eliminating the burden
of ongoing reporting requirements for small crowdfunding offerings);
Honeycomb Letter; Letter from MainVest, Inc. dated May 7, 2020
(recommending the requirement for reviewed financials not apply for
offerings under $500,000); Raise Green & New Haven Comm. Solar
Letter; M. Roderick Letter (supporting raising the threshold for
reviewed financial statements to at least $350,000); CfPA Letter
(recommending financial disclosures are only be required to be
provided to the extent that they are ``material to an understanding
of the issuer, its business and the securities being offered'') and
Sen. Toomey Letter (supporting tailored auditing requirements). See
also 2019 OASB Annual Report, at 48 (recommending the Commission
reevaluate Regulation Crowdfunding's disclosure obligations, and
specifically suggesting that ``reporting requirements could be
simplified for companies raising under $250,000''). But see Better
Markets Letter (expressing concern about the temporary Regulation
Crowdfunding relief).
    \424\ See Form Letter Type A.
---------------------------------------------------------------------------

    Some commenters expressed concern or opposition to increasing the
offering limit.\425\ A number of these commenters suggested that there
is not compelling evidence of the need for an increase or that more
information is needed to determine whether such an increase is
appropriate.\426\ Some of these commenters expressed concern that the
proposals would expand the private markets at the expense of the public
markets.\427\ Other commenters expressed concern with compliance by
issuers under Regulation Crowdfunding \428\ and the Commission's
authority to increase the limit.\429\ One commenter recommended that if
the Commission raises the threshold above the statutory limit, it
should make clear the basis of its authority and the status of
securities issued under the increased offering limit under State
securities laws, such as whether those securities are ``covered
securities'' under Section 18 of the Securities Act.\430\
---------------------------------------------------------------------------

    \425\ See, e.g., Letter from Bridget Richardson dated Mar. 31,
2020 (``B. Richardson Letter''); Letter from Jeffrey Marks, Alliance
Legal Partners, Inc. dated Apr. 17, 2020 (``J. Marks Letter''); CII
Letter; Md. St. Bar Assoc. Letter; AFREF Letter; Morningstar Letter
(noting a lack of investment advice such as from a broker or
investment adviser that investors might have access to with regard
to an investment in a public company); Better Markets Letter; CFA
Letter; R. Rutkowski Letter; CrowdCheck Letter (noting compliance
failures and recommending any increase be coupled with a robust
enforcement program); and CFA Institute Letter.
    \426\ See, e.g., CII Letter; CFA Letter; CFA Institute Letter;
B. Richardson Letter; and Md. St. Bar Assoc. Letter.
    \427\ See, e.g., Better Markets Letter; CFA Letter; CFA
Institute Letter; and R. Rutkowski Letter. See also J. Marks Letter
(suggesting that larger offerings are appropriately subject to
additional Commission oversight); CFA Letter; and CFA Institute
Letter (suggesting that the amendments will be detrimental to retail
investors by providing them greater access to the least attractive
private offerings).
    \428\ See, e.g., ABA Letter (suggesting that the Commission
should be satisfied that the crowdfunding requirements are being
complied with before increasing the limits); CFA Letter (contending
that the Commission has a responsibility to examine non-compliance
in crowdfunding markets and remedy those deficiencies before
expanding the exemption); and CrowdCheck Letter.
    \429\ See, e.g., Better Markets Letter; and CFA Letter. See also
Mercatus Center Letter. Although the Mercatus Center Letter in
particular was received one business day before the publicly-noticed
open meeting at which the Commission would consider these amendments
[Pub. L. 94-409] and long after the expiration of the comment
period, the issues regarding our use of exemptive authority,
including the questions raised in that letter, have been carefully
considered. As noted above, Section 28 of the Securities Act gives
the Commission broad authority to ``conditionally or unconditionally
exempt any person . . . or any class or classes of persons . . .
from any provision or provisions of'' the Securities Act and rules
or regulations issued thereunder ``to the extent that such exemption
is necessary or appropriate in the public interest, and is
consistent with the protection of investors.'' 15 U.S.C. 77z-3. We
believe that exempting additional classes of transactions above the
statutory threshold in Section 4(a)(6) is in the public interest and
consistent with the protection of investors for the reasons
discussed below, and is thus consistent with the plain language of
Section 28. In reaching this determination, we have been informed by
the staff's experience administering Regulation Crowdfunding since
2015, the 2019 Regulation Crowdfunding Report, and the feedback of
numerous market participants in recent years, including in response
to the Concept Release. Section 28 was intended to provide
flexibility to the Commission to respond to precisely these sorts of
market developments. See Rule 701--Exempt Offerings Pursuant to
Compensatory Arrangements, Release No. 33-7645 (Feb. 25, 1999)
(noting that, in enacting the National Securities Markets
Improvement Act of 1996, Congress expected the Commission to use its
new authority under Section 28, among other things, to raise the
offering limit for Rule 701 compensatory offerings beyond the
statutorily prescribed limit of $5 million). We thus view these
amendments as appropriate and well within our statutory authority.
    \430\ See ABA Letter.
---------------------------------------------------------------------------

    Commenters that addressed the issue generally supported amending
the rules to remove the investment limits for accredited investors
\431\ and to use the greater of annual income or net worth in
calculating investment limits for non-accredited investors.\432\ Some
commenters, however, opposed removing the investment limits for
accredited investors,\433\ or increasing the investment limits for non-
accredited

investors.\434\ Some commenters supporting the amendment suggested
requiring verification of accredited investor status,\435\ while others
were against verification standards.\436\ One commenter supporting the
amendments to the investment limits also expressly supported not
adjusting or increasing Regulation Crowdfunding's financial statement
requirements.\437\
---------------------------------------------------------------------------

    \431\ See, e.g., ABA Letter; B. Andrews, et al. Letter; SEC
SBCFAC Letter; SEI Letter; Netcapital Letter; Carta Letter; Republic
Letter; NextSeed Letter; Chamber of Digital Commerce Letter; Engine
Letter; Raise Green & New Haven Comm. Solar Letter; Morningstar
Letter; InnaMed, et al. Letter; Crowdwise Letter; Rep. McHenry
Letter; Honeycomb Letter; M. Roderick Letter; and Ketsal Letter. See
also CrowdCheck Letter (supporting removing the limits if the
investor protections in Regulation A are replicated in Regulation
Crowdfunding); and AOIP Letter (suggesting the Commission
immediately remove the investment limits for accredited investor in
response to the COVID-19 pandemic). See also 2019 OASB Annual
Report, at 48.
    \432\ See, e.g., ABA Letter; Letter from Regulated Funding
Portal Industry Association dated Mar. 6, 2020; B. Andrews, et al.
Letter; SEC SBCFAC Letter; CCA Letter; Silicon Prairie Letter
(recommending further simplification of the threshold and use of a
``certified investor'' designation); SEI Letter; Netcapital Letter;
Carta Letter; Republic Letter; NextSeed Letter; Chamber of Digital
Commerce Letter; Engine Letter; Raise Green & New Haven Comm. Solar
Letter (recommending increasing the limit); InnaMed, et al. Letter.;
Crowdwise Letter; CrowdCheck Letter; CfPA Letter (recommending all
investors be permitted to invest $2,200 per transaction); and Ketsal
Letter. Some of these commenters recommended applying the limits on
a per offering basis. See, e.g., Crowdwise Letter; InnaMed, et al.
Letter; Silicon Prairie Letter; and Republic Letter. See also AOIP
Letter (suggesting the Commission immediately use the greater of
annual income or net worth in response to the COVID-19 pandemic, and
also suggesting the limits be applicable on a per offering basis).
    \433\ See, e.g., Letter from Jason Pampena dated May 22, 2020
(``J. Pampena Letter'') (expressing concern that removing the
investment limits for accredited investors will reduce investment
opportunities for non-accredited investors).
    \434\ See, e.g., CII Letter; and Morningstar Letter
(recommending a cautious approach to changing the investment limit
standards and expressing concern that there is limited investment
advice for these investors). See also NASAA Letter; and CFA Letter
(generally opposing the amendments).
    \435\ See, e.g., J. Clarke Letter; and Raise Green & New Haven
Comm. Solar Letter.
    \436\ See, e.g., Honeycomb Letter (supporting self-
verifications).
    \437\ See ABA Letter.
---------------------------------------------------------------------------

c. Final Amendments
    Based on our consideration of the available data, the staff's 2019
Regulation Crowdfunding Report, and the feedback that we received on
the Concept Release, the Proposing Release and from Small Business
Forums \438\ and the Small Business Capital Formation Advisory
Committee, and in order to facilitate use of Regulation Crowdfunding
for capital raising, we are amending the rules as proposed: (1) To
raise the issuer offering limits in Regulation Crowdfunding; and (2) to
remove or increase the investment limits by no longer applying those
limits to accredited investors and allowing investors to rely on the
greater of their income or net worth in calculating their investment
limit.\439\ We are raising the offering limit in Regulation
Crowdfunding from $1.07 million to $5 million and are adjusting the
investment limits in reliance on the general exemptive authority under
Securities Act Section 28.\440\ We believe that reliance on Section 28
to raise the offering limit is an appropriate use of our exemptive
authority because the amendments will extend the exemption under
Section 4(a)(6) of the Securities Act to additional classes of
transactions (i.e., those that would cause the aggregate amount sold to
all investors by the issuer in the 12 months preceding the transaction
to be greater than $1 million,\441\ but not more than $5 million, and
those involving accredited investors who invest above the statutory
investment limits).\442\ We are also extending certain temporary rules
relating to the financial statement requirements for Regulation
Crowdfunding.
---------------------------------------------------------------------------

    \438\ See 2017 Forum Report; 2018 Forum Report; 2019 Forum
Report; and 2020 Forum Report.
    \439\ We are not, as some commenters recommended, preempting
State securities law regulation of secondary trading of securities
issued in Regulation Crowdfunding offerings. We believe this
recommendation merits careful consideration and an opportunity for
market participants to receive notice and comment on a specific
proposal.
    \440\ Securities Act Section 4(a)(6) currently sets the maximum
offering limit at $1.07 million ($1.0 million adjusted to reflect
changes in the CPI). See 15 U.S.C. 77d(a)(6) and 15 U.S.C. 77d-1(h).
See also Rule 100(a)(1) of Regulation Crowdfunding.
    \441\ As adjusted for inflation pursuant to Section 4A(h) of the
Securities Act [15 U.S.C. 77d-1(h)].
    \442\ In contrast, the change to permit non-accredited investors
to base their investment limit on the ``greater of'' rather than the
``lesser of'' their income or net worth is a discretionary choice
that we are making to carry out the statutory exemption. See Section
302(c) of the JOBS Act; Section 19(a) of the Securities Act [15
U.S.C. 77s(a)]. In the proposing and adopting releases for
Regulation Crowdfunding, the Commission noted the statutory
ambiguity in Section 4(a)(6)(B) of the Securities Act as to
application of the investment limits. See Crowdfunding Adopting
Release, at Section II.A.2. After considering the comments received,
the Commission adopted a ``lesser of'' standard in Regulation
Crowdfunding. In light of our experience with Regulation
Crowdfunding since its adoption in 2015, and concerns raised that
the existing limits may be hampering the utility of the exemption,
however, the Commission proposed to apply a less restrictive
approach by using the ``greater of'' standard instead of the
``lesser of'' standard. As discussed below, we are adopting the
``greater of'' standard.
---------------------------------------------------------------------------

    Currently, securities issued pursuant to the exemption under
Section 4(a)(6) are deemed to be ``covered securities'' and thus the
offer and sale of such securities by an issuer are not subject to State
securities law registration and qualification requirements pursuant to
Section 18 of the Securities Act. Nevertheless, in light of questions
raised by commenters and in order to provide certainty with respect to
the status of the exemption and the coverage of Section 18 of the
Securities Act, we are adding new 17 CFR 227.504 to Regulation
Crowdfunding to provide that for purposes of Section 18(b)(3) of the
Securities Act, a ``qualified purchaser'' means any person to whom
securities are offered or sold pursuant to an offering under Regulation
Crowdfunding.\443\ As securities offered and sold to qualified
purchasers also are ``covered securities'' under Section 18 of the
Securities Act, this amendment should remove any doubt that State
securities law registration and qualification requirements do not apply
to securities offered and sold under Regulation Crowdfunding, as
amended.
---------------------------------------------------------------------------

    \443\ We believe it is appropriate to define ``qualified
purchaser'' to include any person to whom securities are offered and
sold pursuant to an offering under Regulation Crowdfunding. Defining
qualified purchaser in this manner is consistent with the public
interest because it would provide certainty as to the application of
State securities law registration and qualification requirements. We
also believe that offerings conducted pursuant to Regulation
Crowdfunding, similar to Tier 2 offerings under Regulation A, are
likely to be more national in nature. Furthermore, significant and
appropriate investor protections would continue to apply, including
intermediary requirements and the eligibility, disclosure, and
ongoing reporting requirements for issuers, as discussed below. For
similar reasons, we are also amending 17 CFR 240.12g-6 (``Rule 12g-
6'') to provide clarity with respect to the continuing application
of that rule's conditional exemption from Section 12(g) for
securities issued pursuant to Regulation Crowdfunding.
---------------------------------------------------------------------------

    While approximately 2,000 offerings were initiated pursuant to
Regulation Crowdfunding in the approximately three and a half years
from the time the exemption first became available through December 31,
2019, market participants have expressed concern that the vitality of
the market and the number of offerings is being constrained by the
$1.07 million offering limit.\444\ As we noted in the Proposing
Release, the current offering limits may not reflect current capital
raising trends.\445\ Commenters further suggested that start-ups and
small businesses seeking to raise between $1 million and $5 million
need to spend ``additional time and expense pursuing other exempt
offering types'' in addition to Regulation Crowdfunding in order to
meet their funding needs, as the existing offering limits in Regulation
Crowdfunding are insufficient to meet those needs.\446\ We believe that
permitting larger offerings under Regulation Crowdfunding may encourage
more issuers to use the exemption and could lower the offering costs
per dollar raised,\447\ which would make the exemption a more efficient
capital raising option for smaller issuers. At the same time, we do not
believe that raising the offering limit would expand the private market
at the expense of the public market. As discussed in Section IV.A
below, Regulation Crowdfunding represents a relatively small segment of
the private offering market, and issuers that raise capital pursuant to
the exemption tend to be at a much earlier stage of development than
those that conduct a traditional initial public offering. Thus, we
anticipate these offerings will have only a marginal impact on the
number of registered offerings.
---------------------------------------------------------------------------

    \444\ See, e.g., InnaMed Letter; SeedInvest Letter; and Letter
from J. Vinokur, dated May 1, 2020.
    \445\ See Proposing Release, at note 231 (citing to 2019 OASB
Annual Report, which noted companies are seeking increased capital
to fund early-stage operations finding that the average seed funding
increased from $1.3 million in 2010 to $5.7 million in 2018).
    \446\ See, e.g., SeedInvest Letter; and InnaMed Letter.
    \447\ See, e.g., CCA Letter.
---------------------------------------------------------------------------

    We also believe that existing Regulation Crowdfunding requirements,
including the intermediary requirements and the eligibility,
disclosure, and ongoing reporting requirements for issuers will
continue to

provide appropriate investor protections at this higher offering limit.
We acknowledge the concerns raised by commenters about the increased
offering limit in light of questions regarding issuer compliance with
existing Regulation Crowdfunding requirements. As discussed in more
detail in Section II.B.2 above, we remind issuers and intermediaries in
Regulation Crowdfunding offerings of their obligation to comply with
the terms of the exemption and the serious consequences that may result
from a failure to do so. At this time, we do not believe additional
disclosure or other requirements on issuers or intermediaries is
appropriate, or would necessarily be effective in addressing these
compliance concerns.\448\ Commission staff will continue to work with
FINRA to assess issuer and intermediary compliance with the
requirements of Regulation Crowdfunding.
---------------------------------------------------------------------------

    \448\ We note, for example, that one commenter recommended we
require a certification from an intermediary that it has reviewed a
campaign for compliance prior to posting it on their platform. See
CfPA Letter. However, intermediaries are already required to have a
reasonable basis for believing that an issuer seeking to offer and
sell securities through the intermediary's platform complies with
requirements of Regulation Crowdfunding.
---------------------------------------------------------------------------

    For these reasons, we continue to believe that it is necessary and
appropriate in the public interest and consistent with the protection
of investors to raise the Regulation Crowdfunding offering limit as
proposed.
    In response to commenters who recommended that we adjust the
financial statement requirements or permanently adopt the temporary
relief with respect to the financial statement review
requirements,\449\ we are extending certain provisions of the temporary
final rules for an additional 18 months so that they will apply to
offerings initiated under Regulation Crowdfunding between May 4, 2020,
and August 28, 2022.\450\
---------------------------------------------------------------------------

    \449\ See, e.g., Silicon Prairie Letter (recommending relaxing
the financial information requirements for offerings under $1
million); Nextseed Letter (highlighting the ability under the
temporary relief to raise up to $250,000 without need for CPA-
reviewed financials and recommending the Commission make the
temporary relief provisions permanent as a micro-offering tier below
$250,000); Honeycomb Letter (noting that the current financial
statement thresholds and disclosure requirements impose additional
costs on issuers without providing material benefit to investors--
particularly for small businesses raising under $250,000.); Letter
from MainVest, Inc. dated May 7, 2020 (recommending the requirement
for reviewed financials not apply for offerings under $500,000); and
Letter from Republic dated Aug. 22, 2020 (recommending that the
Commission permanently adopt the temporary relief or extend the
relief for at least 12 months). See also 2019 OASB Annual Report, at
48 (recommending the Commission reevaluate Regulation Crowdfunding's
disclosure obligations, and specifically suggesting that ``reporting
requirements could be simplified for companies raising under
$250,000'').
    \450\ These amendments will be effective upon publication in the
Federal Register and will expire on March 1, 2023. We find that
there is good cause for the amendments to be effective immediately
upon publication because a delay in implementation would
substantially undermine the relief provided by the temporary rules
and could exacerbate the existing challenges faced by many small
businesses in need of capital to continue their operations. We also
note that these temporary amendments grant an exemption or relieve a
restriction. See 5 U.S.C. 553(d)(1) and (3).
---------------------------------------------------------------------------

    Specifically, we are adopting new temporary Rule 201(bb) to extend
the relief provided by existing temporary 17 CFR 227.201(z)(3), which
applies to an eligible issuer in an offering or offerings that,
together with all other amounts sold in Regulation Crowdfunding
offerings within the preceding 12-month period, have, in the aggregate,
a target offering amount of more than $107,000, but not more than
$250,000. Such an issuer may provide financial statements of the issuer
and certain information from the issuer's Federal income tax returns,
both certified by the principal executive officer, in accordance with
17 CFR 227.201(t)(1) (``Rule 201(t)(1)''), instead of the financial
statements reviewed by a public accountant that is independent of the
issuer that would otherwise be required by 17 CFR 227.201(t)(2) (``Rule
201(t)(2)''). This temporary relief will apply only if reviewed or
audited financial statements of the issuer are not otherwise available.
In connection with the extension of this provision, we are also
extending the disclosure requirement currently required by existing
temporary 17 CFR 227.201(z)(1)(iii),\451\ which requires an issuer
relying on the temporary rule to provide prominent disclosure that
financial information certified by the principal executive officer of
the issuer has been provided instead of financial statements reviewed
by a public accountant that is independent of the issuer.\452\ We are
also extending the enhanced eligibility requirements of temporary 17
CFR 227.100(b)(7)(i) and 17 CFR 227.100(b)(7)(ii).\453\
---------------------------------------------------------------------------

    \451\ As part of these amendments, we have added a new provision
to Rule 201 to be designated as Rule 201(z), therefore we are
renumbering existing Rule 201(z) as Rule 201(aa). See Section
II.B.2.b.
    \452\ We are temporarily amending the introductory paragraphs to
the section of Form C entitled ``Optional Question & Answer Format
for an Offering Statement'' to include a reminder to issuers relying
on these temporary rules to review and tailor their responses to
certain questions in the Form C appropriately.
    \453\ To rely on the temporary rules, issuers must meet the
existing eligibility criteria and also cannot have been organized
and cannot have been operating for less than six months prior to the
commencement of the offering. In addition, an issuer that has sold
securities in a Regulation Crowdfunding offering in the past must
have complied with the requirements in 15 U.S.C. 77d-1(b) (``Section
4A(b)'') of the Securities Act and the related rules. In connection
with the amendment to extend the eligibility criteria, we are making
a related amendment to Rule 301, consistent with current temporary
Rule 301(d), to require that an intermediary involved in an offering
by an issuer that is relying on the temporary relief must have a
reasonable basis for believing that the issuer has complied with the
requirements of Section 4A(b) and the related requirements of
Regulation Crowdfunding in prior offerings. For this requirement,
the intermediary may reasonably rely on the representations of the
issuer concerning compliance with these requirements unless the
intermediary has reason to question the reliability of those
representations.
---------------------------------------------------------------------------

    We believe that this extension of these portions of the temporary
final rules is appropriate, particularly in light of the significant
challenges for small businesses that COVID-19 continues to present. We
continue to believe that a securities offering under Regulation
Crowdfunding may be an attractive fundraising option for some small
businesses at this time, particularly as a means of allowing an issuer
to make use of the internet to reach out to its customers or members of
its local community as potential investors as well as to existing
investors. We understand that the temporary final rules have been well
received to date and have proven effective for some issuers to raise
capital under the current conditions, and we have received positive
feedback from market participants with respect to the benefits of
current temporary Rule 201(z)(3). The extension of these provisions of
the temporary final rules also will provide us with the opportunity to
analyze the use of the exemption and gather additional feedback from
issuers, investors and other market participants as we consider its
benefits and whether to adopt the provision on a permanent basis.
    We are not adjusting, on either a temporary or permanent basis the
financial statement requirements for offerings over $535,000. We have
seen no evidence to indicate that investors should receive less
information in offerings under Regulation Crowdfunding at this level,
and continue to believe that the current requirements provide important
information to investors. Offerings of more than $535,000 up to the
increased $5 million offering limit will be subject to the financial
statement requirements of 17 CFR 230.201(t)(3). We believe that this
standard, which (1) requires the provision of audited financial
statements similar to the requirements for other exempt offerings with
higher

offering limits, and (2) currently applies to issuers offering more
than $535,000 of their securities, is sufficient for offerings subject
to the increased $5 million offering limit.
    We are amending the rules as proposed to remove or increase the
investment limits for investors in Regulation Crowdfunding
offerings.\454\ First, we are amending the rules to no longer apply any
investment limits to accredited investors. Commenters generally
supported increasing the investment limits of accredited
investors.\455\ In addition, the 2018 Small Business Forum recommended
that the Commission increase the investment limits for all
investors,\456\ and the 2017, 2018, and 2019 Small Business Forums, the
SEC Small Business Capital Formation Advisory Committee, and the 2017
Treasury Report all recommended that the investment limits not apply to
accredited investors, who face no such limits under other
exemptions.\457\
---------------------------------------------------------------------------

    \454\ Consistent with the current approach to investment limits,
an issuer may rely on efforts that an intermediary is required to
undertake in order to determine that the investor is an accredited
investor, or that the aggregate amount of securities purchased by an
investor does not cause the investor to exceed the investment
limits, provided that the issuer does not have knowledge that the
investor has exceeded, or will exceed, the investment limits as a
result of purchasing securities in the issuer's offering. See
Instruction 3 to 17 CFR 270.100(a)(2) of Regulation Crowdfunding.
    \455\ See supra note 431. Only one commenter expressed a
specific concern regarding increasing the investment limits of
accredited investors. See J. Pampena Letter. We believe, however,
that rather than decreasing investment opportunities for non-
accredited investors, permitting more investment by accredited
investors may lead to a more robust market for offerings under
Regulation Crowdfunding, which would provide more and better
opportunities for non-accredited investors.
    \456\ See 2018 Forum Report.
    \457\ See, e.g., 2017 Treasury Report, at 41; 2018 Forum Report;
2017 Forum Report, at 17; Recommendation of the SEC Small Business
Capital Formation Advisory Committee regarding Regulation
Crowdfunding (Dec. 13, 2019), available at https://www.sec.gov/spotlight/sbcfac/recommendation-regulation-crowdfunding.pdf. See
also Final Report of the 2015 SEC Government-Business Forum on Small
Business Capital Formation (Nov. 2015), available at https://www.sec.gov/info/smallbus/gbfor34.pdf (recommending increasing the
investment limit for accredited investors). In conjunction with
removing the investment limits for individual accredited investors,
the 2018 Small Business Forum recommended verification of accredited
investor status.
---------------------------------------------------------------------------

    When the Commission considered investment limits for Tier 2
Regulation A offerings, it determined that such limitations were
unnecessary for accredited investors because these individuals satisfy
certain criteria that suggest they are capable of protecting themselves
in transactions that are exempt from registration under the Securities
Act.\458\ For similar reasons, we believe that investment limits for
accredited investors under Regulation Crowdfunding are
unnecessary.\459\ Accordingly, we believe it is appropriate in the
public interest and consistent with the protection of investors to
treat accredited investors under Regulation Crowdfunding in the same
manner as other exempt offerings.
---------------------------------------------------------------------------

    \458\ See 2015 Regulation A Release, at note 145 and
accompanying text.
    \459\ While a few commenters suggested that we add an accredited
investor verification requirement, we believe that a verification
requirement is unnecessary. See, e.g., J. Clarke Letter; and Raise
Green & New Haven Comm. Solar Letter. In making this determination,
we note that there is no accredited investor verification
requirement with respect to investors participating in Regulation A
or other exempt offerings outside of offerings seeking to rely on
Rule 506(c) and that Regulation Crowdfunding, like Regulation A,
layers in additional protections for investors, such as required
reporting and the use of intermediaries, that are not provided to
investors in offerings relying on Rule 506(c).
---------------------------------------------------------------------------

    Second, we are amending the Regulation Crowdfunding calculation
method for the investment limits for non-accredited investors to allow
them to rely on the greater of their annual income or net worth.
Currently, Regulation Crowdfunding imposes a limit that is the lesser
of a percentage of the investor's annual income or net worth subject to
an absolute maximum of $107,000.\460\ Some market participants
recommended basing the limits on the greater of the investor's net
worth or income, noting that the accredited investor definition only
requires the investor to meet either the net worth or the income
standard.\461\ Commenters on the proposal also generally supported
increasing these investment limits.\462\
---------------------------------------------------------------------------

    \460\ Rule 100(a)(2) of Regulation Crowdfunding is based on the
requirement in Section 4(a)(6) that provides an exemption where the
aggregate amount sold to an investor by an issuer does not exceed a
given percentage of the annual income or net worth of such investor.
The statutory language does not expressly provide that the investor
use the lesser of annual income or net worth.
    \461\ See supra note 457.
    \462\ See supra note 432. While one commenter expressed concern
about raising the investment limits for non-accredited investors and
recommended that the Commission undertake any such changes
cautiously, we believe that making this incremental change
appropriately allows investors greater flexibility in making choices
relating to their investments and risk tolerance choices, while
still retaining substantial loss limitation standards through a
consistent approach to investment limits across Regulation A and
Regulation Crowdfunding. See Morningstar Letter.
---------------------------------------------------------------------------

    When adopting Regulation Crowdfunding, the Commission considered
whether to use a ``greater of'' or ``lesser of'' standard for the
exemption's investment limits and determined to use the ``lesser of''
standard at that time due to concerns about investors incurring
unaffordable losses.\463\ By contrast, when the Commission considered
investment limits for Tier 2 Regulation A offerings, it determined to
permit investors to look to a percentage of the greater of their annual
income or net worth.\464\ At that time, the Commission indicated that
limiting the amount of securities that a non-accredited investor can
purchase in a particular Tier 2 offering should help to mitigate
concerns that such investors may not be able to absorb the potential
loss of the investment and that a limitation based on a percentage of
the greater of such investor's net worth/net assets and annual income/
revenue is generally consistent with similar maximum investment
limitations placed on investors in Title III of the JOBS Act and would
help set a loss limitation standard in such offerings.\465\ The
amendment conforms Regulation Crowdfunding with Tier 2 of Regulation A
and applies a consistent approach to limiting potential losses
investors may incur in offerings conducted in reliance on the two
exemptions. In light of our experience with Regulation Crowdfunding
since its adoption and the concerns that the existing investment limits
may be hampering the utility of the exemption, we believe it is
appropriate to use this less restrictive approach. Additionally, this
change provides investors with more flexibility in making their
investment decisions. Moreover, we are not aware of evidence since
Regulation Crowdfunding's adoption to indicate this market requires a
more stringent approach to investment limits than other exemptive
regimes.\466\
---------------------------------------------------------------------------

    \463\ See Crowdfunding Adopting Release, at Section II.A.2.c.
    \464\ See 17 CFR 230.251(d)(2)(i)(C)(2); and 2015 Regulation A
Release, at Section II.B.4.
    \465\ See Section 301 of the JOBS Act; and 2015 Regulation A
Release, at notes 161 and 162 and accompanying text.
    \466\ See 2019 Regulation Crowdfunding Report, at Section
III.C.3.
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F. Regulation Crowdfunding and Regulation A Eligibility

    The Commission's exempt offering framework includes specific
eligibility restrictions excluding certain types of entities or
activities by issuers that apply to both Regulation A \467\ and

Regulation Crowdfunding.\468\ While Regulation Crowdfunding does not
restrict the types of securities eligible to be sold under the
exemption, the types of securities eligible for sale under Regulation A
are limited to equity securities, debt securities, and securities
convertible or exchangeable to equity interests, including any
guarantees of such securities.\469\ The Commission proposed to amend
Regulation Crowdfunding:
---------------------------------------------------------------------------

    \467\ See 17 CFR 230.251(b). Regulation A is not available to:
Issuers that are organized in or have their principal place of
business outside of the United States or Canada; investment
companies registered or required to be registered under the
Investment Company Act or business development companies; blank
check companies; issuers of fractional undivided interests in oil or
gas rights, or similar interests in other mineral rights; issuers
that are required to, but that have not, filed with the Commission
the ongoing reports required by the rules under Regulation A during
the two years immediately preceding the filing of a new offering
statement (or for such shorter period that the issuer was required
to file such reports); issuers that are or have been subject to an
order by the Commission denying, suspending, or revoking the
registration of a class of securities pursuant to Section 12(j) of
the Exchange Act that was entered within five years before the
filing of the offering statement; or issuers subject to ``bad
actor'' disqualification under 15 CFR 230.262.
    \468\ Section 4A specifically excludes: Non-U.S. issuers;
issuers that are required to file reports under Exchange Act Section
13(a) or 15(d); certain investment companies; and other issuers that
the Commission, by rule or regulation, determines appropriate. See
15 U.S.C. 77d-1. Regulation Crowdfunding further excludes: Issuers
disqualified under disqualification provisions that are
substantially similar to those in 17 CFR 230.506(d) (``Rule
506(d)''); issuers that have failed to comply with the annual
reporting requirements under Regulation Crowdfunding during the two
years immediately preceding the filing of the offering statement;
and blank check companies. See 17 CFR 227.100(b).
    \469\ See 17 CFR 230.261 (``Rule 261''). Regulation A also
specifically excludes asset-backed securities. See Rule 251
(providing that only ``eligible securities'' can be offered or sold
under Regulation A); and Rule 261 (defining ``eligible
securities''). An asset-backed security generally means a security
that is primarily serviced by the cash flows of a discrete pool of
receivables or other financial assets, either fixed or revolving,
that by their terms convert into cash within a finite time period,
plus any rights or other assets designed to assure the servicing or
timely distributions of proceeds to the security holders. See 17 CFR
229.1101(c).
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     To permit the use of certain special purpose vehicles to
facilitate investing in Regulation Crowdfunding issuers; and
     To limit the securities eligible to be sold under
Regulation Crowdfunding.
    The Commission additionally proposed to amend Regulation A to
exclude Exchange Act registrants that are delinquent in their Exchange
Act reporting obligations from relying on the exemption.
1. Regulation Crowdfunding Eligible Issuers
    Section 4A(f)(3) of the Securities Act prohibits investment
companies, as defined in the Investment Company Act (or companies that
are excluded from the definition of an investment company under section
3(b) or 3(c) of the Investment Company Act), from using the Regulation
Crowdfunding exemption. When adopting Regulation Crowdfunding, the
Commission did not create, as suggested by some commenters, an
exception to this statutory prohibition that would have allowed a
single purpose fund organized to invest in, or lend money to, a single
company, to use Regulation Crowdfunding.\470\ As a result, issuers may
not use special purpose vehicles that invest in a single company
(``SPVs'') that are investment companies (or companies that are
excluded from the definition of an investment company under section
3(b) or 3(c) of the Investment Company Act) to conduct Regulation
Crowdfunding offerings. Investors purchasing securities in an offering
under Regulation Crowdfunding thus must hold the securities in their
own name, which can create certain practical impediments to issuers'
use of Regulation Crowdfunding. For example, we understand that a large
number of investors on an issuer's capitalization table can be
unwieldy, creating administrative complexities and potentially impeding
future financing.\471\
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    \470\ See Crowdfunding Adopting Release, at 71397. In explaining
its decision, the Commission stated that the primary purpose of
Section 4(a)(6) is to facilitate capital formation by early stage
companies that might not otherwise have access to capital, and
expressed its belief that investment companies did not constitute
the type of issuer that Section 4(a)(6) and Regulation Crowdfunding
were intended to benefit. Id.
    \471\ See Concept Release, at Section II.F.1.a. See also
Proposing Release, at note 323 and accompanying text (noting that
commenters on the Concept Release stated that it can be difficult to
obtain consent or approval from hundreds of investors as it relates
to governance issues, strategic decisions, and later financing
rounds).
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to add a new exclusion under the Investment
Company Act for limited-purpose crowdfunding vehicles (``crowdfunding
vehicles''). Proposed Rule 3a-9 under the Investment Company Act would
exclude from the definition of ``investment company'' under that Act a
crowdfunding vehicle that meets certain conditions designed to require
that it function as a conduit for investors to invest in a business
that seeks to raise capital through a crowdfunding vehicle.\472\ As a
result, Section 4A(f)(3) of the Securities Act would not preclude an
SPV that meets this definition of a crowdfunding vehicle from relying
on Regulation Crowdfunding.
---------------------------------------------------------------------------

    \472\ See proposed Rule 3a-9(a). A crowdfunding vehicle
complying with the proposed rule would not be an investment company
as defined in the Investment Company Act or an entity that is
excluded from the definition of investment company by section 3(b)
or section 3(c) of that Act, and would therefore not be precluded
from relying on Regulation Crowdfunding by Section 4A(f)(3) of the
Securities Act. See 17 CFR 227.100(b)(3).
---------------------------------------------------------------------------

    In proposing this exclusion, the Commission expressed its belief
that proposed Rule 3a-9 would be consistent with the intent of Section
4(a)(6) because it would not be aimed at allowing investment companies
or similar issuers to raise capital, but rather, solely at facilitating
crowdfunding offerings by eligible issuers, and under the proposed
rule, a crowdfunding vehicle would serve merely as a conduit for
investors to invest in a single underlying issuer and would not have a
separate business purpose. The proposed crowdfunding vehicle was
intended to allow investors in the vehicle to achieve the same economic
exposure, voting power, and ability to assert State and Federal law
rights, and receive the same disclosures under Regulation Crowdfunding,
as if they had invested directly in the underlying issuer in an
offering made under Regulation Crowdfunding. The proposed approach also
would allow an eligible issuer (``crowdfunding issuer'') to maintain a
simplified capitalization table and, by reducing the administrative
complexities associated with a large and diffuse shareholder base, may
encourage crowdfunding issuers to offer voting rights, or other terms
not currently offered as frequently to investors.\473\
---------------------------------------------------------------------------

    \473\ See Proposing Release, at note 328.
---------------------------------------------------------------------------

    Proposed Rule 3a-9 defined a crowdfunding issuer as a company that
seeks to raise capital as a co-issuer in an offering with a
crowdfunding vehicle that complies with all of the requirements under
Section 4(a)(6) of the Securities Act and Regulation Crowdfunding.\474\
The Commission also proposed to define a crowdfunding vehicle as an
issuer \475\ formed by or on behalf of a crowdfunding issuer for the
purpose of conducting an offering under Section 4(a)(6) of the
Securities Act as a co-issuer with the crowdfunding issuer, which
offering would be controlled by the crowdfunding issuer. The proposed
limitations on the nature and scope of the crowdfunding vehicle's
activities were designed to ensure that

the crowdfunding vehicle would function as a means for the crowdfunding
issuer to raise capital rather than as an independent investment
vehicle that would be subject to regulation under the Investment
Company Act.
---------------------------------------------------------------------------

    \474\ As co-issuers, the crowdfunding issuer and crowdfunding
vehicle would be jointly relying on Regulation Crowdfunding for the
combined offering of the crowdfunding issuer's securities and the
crowdfunding vehicle's securities to the investors. See, e.g., 17
CFR 230.140. The crowdfunding issuer would also rely on Regulation
Crowdfunding, and the Form C filed in connection with the offering
of the crowdfunding vehicle's securities, for the offering of its
securities to the crowdfunding vehicle.
    \475\ Under the Investment Company Act, an issuer means every
person who issues or proposes to issue any security, or has
outstanding any security which it has issued. See 15 U.S.C. 80-
2(a)(22).
---------------------------------------------------------------------------

    The proposed rule included several conditions for crowdfunding
vehicles intended to address specific investor protection concerns
raised by a vehicle that acts as a conduit for investments in a
crowdfunding issuer.\476\ Specifically, under the proposed rule, the
crowdfunding vehicle:
---------------------------------------------------------------------------

    \476\ See generally proposed Rule 3a-9(a) for the proposed
conditions.
---------------------------------------------------------------------------

     Must be organized and operated for the sole purpose of
acquiring, holding, and disposing of securities issued by a single
crowdfunding issuer and raising capital in one or more offerings made
in compliance with Regulation Crowdfunding;
     Would not be permitted to borrow money and would be
required to use the proceeds of the securities it sells solely to
purchase a single class of securities of a single crowdfunding issuer;
     Would be permitted to issue only one class of securities
in one or more offerings under Regulation Crowdfunding in which the
crowdfunding vehicle and the crowdfunding issuer are deemed to be co-
issuers under the Securities Act;
     Would be required to obtain a written undertaking from the
crowdfunding issuer to fund or reimburse the expenses associated with
the crowdfunding vehicle's formation, operation, or winding up, and the
crowdfunding vehicle would not be permitted to receive other
compensation, and any compensation paid to any person operating the
vehicle would be required to be paid solely by the crowdfunding issuer;
     Would be required to maintain the same fiscal year end as
the crowdfunding issuer, and maintain a one-to-one relationship between
the number, denomination, type and rights of crowdfunding issuer
securities it owns and the number, denomination, type and rights of its
securities outstanding;
     Would be required to vote the crowdfunding issuer
securities, and participate in tender or exchange offers or similar
transactions, only in accordance with instructions from the investors
in the crowdfunding vehicle;
     Would receive all of the disclosures and other information
required under Regulation Crowdfunding from the crowdfunding issuer and
would then be required promptly to provide such disclosures and
information to the investors and potential investors in the
crowdfunding vehicle's securities and to the relevant intermediary; and
     Would be required to provide to each investor the right to
direct the crowdfunding vehicle to assert the rights under State and
Federal law that the investor would have if he or she had invested
directly in the crowdfunding issuer and provide each investor any
information that it receives from the crowdfunding issuer as a
shareholder of record of the crowdfunding issuer.
    Under the proposal, the crowdfunding issuer and the crowdfunding
vehicle would be co-issuers under the Securities Act, meaning each
would be deemed to be the maker of any statements by the crowdfunding
vehicle and any material misstatements or omissions with respect to the
offering.\477\ As co-issuers, the crowdfunding issuer and the
crowdfunding vehicle would be required to jointly file a Form C,
providing all of the required Form C disclosure with respect to (i) the
offer and sale of the crowdfunding issuer's securities to the
crowdfunding vehicle and (ii) the offer and sale of the crowdfunding
vehicle's securities to investors.\478\
---------------------------------------------------------------------------

    \477\ See, e.g., 17 CFR 230.140. The crowdfunding vehicle's
business would consist only of the purchase of securities of the
crowdfunding issuer, and it would use the sale of its own securities
to make such purchases of securities of the crowdfunding issuer.
    \478\ The Commission proposed to amend Rule 201 of Regulation
Crowdfunding and Form C to require disclosure about the co-issuer in
the offering statement. Because the crowdfunding vehicle would only
be acting as a conduit for the crowdfunding issuer, we did not
believe that the individual investment limitations under Regulation
Crowdfunding should apply to transfer of the securities from the
crowdfunding issuer to the crowdfunding vehicle. In addition, the
amount of securities issued by the crowdfunding issuer to the
crowdfunding vehicle would not reduce the amount of securities that
could be offered and sold to the investors in the crowdfunding
vehicle for purposes of the offering limit in Rule 100(a) of
Regulation Crowdfunding.
---------------------------------------------------------------------------

    Finally, the Commission specifically considered, but did not
propose, requiring that a registered investment adviser manage the
crowdfunding vehicle. The Commission stated that it did not propose
this requirement because of concerns that it could make the
crowdfunding vehicle more than a conduit to hold the securities of the
crowdfunding issuer and because of questions regarding economic
feasibility.\479\
---------------------------------------------------------------------------

    \479\ See Proposing Release, at Section II.F.1.
---------------------------------------------------------------------------

b. Comments
    Commenters generally supported permitting crowdfunding issuers to
use crowdfunding vehicles,\480\ while a few commenters were
opposed.\481\ One commenter stated that crowdfunding vehicles would
help issuers manage the large number of direct investors that can
result from an offering under Regulation Crowdfunding and provide
smaller investors with more leverage to negotiate better terms and
protections.\482\ Another commenter stated that SPVs may make
crowdfunding safer and more profitable for investors, which could
attract more capital and thereby offer more opportunities for
startups.\483\
---------------------------------------------------------------------------

    \480\ See, e.g., Wefunder Letter; SEC SBCFAC Letter; CCA Letter;
J. Clarke Letter; SEI Letter; NextSeed Letter; W. Hubbard Letter;
Engine Letter; Raise Green & New Haven Comm. Solar Letter; D. Burton
Letter; Rep. McHenry Letter; CrowdCheck Letter; and ABA Letter. See
also 2019 OASB Annual Report, at 48.
    \481\ See CII Letter; and CFA Letter (stating that allowing the
use of SPVs ``would further undermine transparency of private
offerings and further erode incentives private companies have to
become public companies once they have acquired a large and widely
dispersed shareholder base.'').
    \482\ See ABA Letter. See also J. Clarke Letter (stating that
the proposal would encourage issuers to offer voting rights to
investors).
    \483\ See Engine Letter.
---------------------------------------------------------------------------

SPV Structure
    Several commenters, while supportive of allowing crowdfunding
issuers to use SPVs, questioned whether the proposed crowdfunding
vehicle was structured appropriately.\484\ Some commenters stated that
the proposed structure was too prescriptive and costly, with little
benefit to either investors or issuers.\485\ For example, one commenter
stated that investing through an SPV may have tax implications for
certain investments and administrative burdens related to how the SPV
is structured.\486\
---------------------------------------------------------------------------

    \484\ See e.g., Wefunder Letter; CrowdCheck Letter; Crowdwise
Letter; and D. Burton Letter.
    \485\ See Wefunder Letter; D. Burton Letter; and CrowdCheck
Letter.
    \486\ See Crowdwise Letter (stating that the proposed approach
would create a Schedule K-1 burden for issuers with respect to SPVs
organized as limited liability companies, and disadvantage investors
by disqualifying them from certain preferential tax treatment).
---------------------------------------------------------------------------

    Several commenters proposed alternative structures. One commenter
suggested that an exempt reporting adviser (``ERA'') should be able to
form SPVs.\487\ This commenter also stated that an appropriately
structured SPV should include a compensated lead investor associated
with the ERA.\488\

Other commenters suggested that a crowdfunding vehicle should be
managed by a registered investment adviser, ERA, or ``compensated
administrator'' with a fiduciary duty to investors.\489\ Some
commenters stated that the Commission would need to address certain
issues before a registered investment adviser would be interested in
participating in this market, such as compliance with the Custody
Rule.\490\ Other commenters opposed requiring a registered investment
adviser to manage the SPV,\491\ with one commenter stating that the
associated costs might deter small-medium enterprises, community
groups, or women- and minority-owned businesses from utilizing an
SPV.\492\ One commenter suggested that a funding portal would be better
situated to manage a crowdfunding vehicle due to the vehicle's small
size.\493\ Another commenter stated that many small investors do not
want to spend time reading legal documents to authorize corporate
actions and would rather authorize a lead investor to make such
decisions.\494\ Finally, one commenter suggested using an ``SEC-
registered transfer agent'' as a custodian, with the ``portal entity''
paying all associated costs.\495\
---------------------------------------------------------------------------

    \487\ See Wefunder Letter. The commenter also requested guidance
from the Commission that, in the absence of an ERA-advised SPV
structure, an SPV would be permitted to hire a registered investment
adviser that does not custody securities and that is permitted to
charge performance fees to Regulation Crowdfunding investors,
provided that certain conditions are met.
    \488\ An ERA is an investment adviser that qualifies for the
exemption from registration under Section 203(l) of the Advisers Act
because it is an adviser solely to one or more venture capital
funds, or under 17 CFR 275.203(m)-1 because it is an adviser solely
to private funds and has assets under management in the United
States of less than $150 million. See Exemptions for Advisers to
Venture Capital Funds, Private Fund Advisers With Less Than $150
Million in Assets Under Management, and Foreign Private Advisers,
Release No. IA-3222 (June 22, 2011) [76 FR 39646 (July 6, 2011)].
This commenter stated that the Commission should create a ``new
class'' of ERAs that are exempt from registration for an
``investment adviser to one or more crowdfunding vehicles'' that
would be able to receive incentive compensation (and share such
compensation with a lead investor), and as such not be subject to
the audit requirement under 17 CFR 275.206(4)-2 (the ``Custody
Rule''), which would otherwise make the arrangement uneconomical.
See Wefunder Letter.
    \489\ See CrowdCheck Letter; NextSeed Letter (stating that a
registered investment adviser or ERA could ensure all legal,
regulatory and tax requirements of operating the vehicle are
fulfilled); and NASAA Letter (stating rule should require the SPV be
managed by a registered investment adviser or another fiduciary
manager).
    \490\ See CrowdCheck Letter; and Wefunder Letter.
    \491\ See J. Clarke Letter; W. Hubbard Letter; and Raise Green &
New Haven Comm. Solar. Letter.
    \492\ See Raise Green & New Haven Comm. Solar Letter.
    \493\ See id.
    \494\ See Wefunder Letter.
    \495\ See id.
---------------------------------------------------------------------------

SPV Conditions
    Most commenters generally supported permitting crowdfunding issuers
to use crowdfunding vehicles but suggested certain modifications to the
proposed conditions.\496\ For example, two commenters stated that they
supported the proposed conditions and restrictions designed to require
the crowdfunding vehicle act as a conduit for investors to invest in a
single crowdfunding issuer.\497\ One of these commenters also supported
the required redemption of the crowdfunding vehicle's securities upon a
liquidity event at the crowdfunding issuer level.\498\ However, another
commenter stated that the rule should not limit the number of issuers
in which a crowdfunding vehicle can invest.\499\ Similarly, several
commenters stated that the rule should permit investment advisers to
form funds for non-accredited investors that invest in multiple
crowdfunding issuers.\500\ Additionally, commenters suggested allowing
crowdfunding vehicles to issue more than one class of securities.\501\
---------------------------------------------------------------------------

    \496\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New
Haven Comm. Solar Letter; CrowdCheck Letter; and SEI Letter.
    \497\ See J. Clarke Letter; and W. Hubbard Letter.
    \498\ See W. Hubbard Letter.
    \499\ See SEI Letter.
    \500\ See Hubbard Letter; Raise Green & New Haven Comm. Solar
Letter (noting that this approach would decrease investors' risk by
spreading their capital over multiple offerings and increase the
ease with which an issuer could raise capital, as it would be
``directed from one investment adviser and could be done in a
recurrent fashion.''); and CrowdCheck Letter.
    \501\ See Raise Green & New Haven Comm. Solar Letter (also
opposing requiring a crowdfunding vehicle to redeem or offer to
repurchase its securities if there is a liquidity event at the
crowdfunding issuer level and the requirement in the proposal that
the crowdfunding issuer pay the costs of the crowdfunding vehicle);
and W. Hubbard Letter. But see CrowdCheck Letter (stating that
crowdfunding vehicles do not need to have multiple classes of
securities since they are likely to be formed as series limited
liability companies).
---------------------------------------------------------------------------

    Commenters were generally supportive of the proposed conditions
intended to provide investors in the crowdfunding vehicle the same
economic exposure, voting power, and Regulation Crowdfunding
disclosures as if the investors had invested directly in the
crowdfunding issuers, but some suggested certain modifications.\502\
Some commenters also supported deeming the crowdfunding vehicle and the
crowdfunding issuer to be co-issuers for purposes of the Securities
Act.\503\ One commenter also suggested that over time the Commission
should lessen the rule's restrictions.\504\
---------------------------------------------------------------------------

    \502\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New
Haven Comm. Solar Letter; and CrowdCheck Letter.
    \503\ See Raise Green & New Haven Comm. Solar Letter; and
CrowdCheck Letter.
    \504\ See W. Hubbard Letter.
---------------------------------------------------------------------------

    One commenter supported requiring crowdfunding vehicles to maintain
a one-to-one relationship between the crowdfunding issuer securities it
owns and the crowdfunding vehicle securities outstanding to provide
investors in the crowdfunding vehicle the same economic exposure as
they had invested directly in the crowdfunding issuer.\505\ Other
commenters opposed this one-to-one requirement.\506\
---------------------------------------------------------------------------

    \505\ See J. Clarke Letter.
    \506\ See CrowdCheck letter (stating that exact replication of
rights is not possible since a crowdfunding issuer may be a
corporation, an LLC or a limited partnership formed under the laws
of any State or territory, while the crowdfunding vehicle will have
to be a pass-through entity); and Raise Green & New Haven Comm.
Solar Letter.
---------------------------------------------------------------------------

    Commenters generally supported the proposal's requirement that the
crowdfunding vehicle be required to seek instructions from its
investors to vote the crowdfunding issuer securities it holds, and to
participate in tender or exchange offers or similar transactions
conducted by the crowdfunding issuer.\507\ One commenter opposed this
requirement, and asked the Commission to fully articulate what actions
the SPV will take on behalf of its investors or, alternatively, to
adopt a principles-based rule that would require the SPV to take all
actions directed by its investors collectively.\508\ One commenter
suggested that the crowdfunding vehicle should automatically vote with
the majority to simplify the voting process.\509\ Other commenters
stated that the rule should also address appraisal rights and allow for
proxies.\510\
---------------------------------------------------------------------------

    \507\ See J. Clarke Letter; W. Hubbard Letter; Raise Green & New
Haven Comm. Solar Letter; and CrowdCheck Letter.
    \508\ See NASAA Letter.
    \509\ See J Clarke Letter.
    \510\ See W. Hubbard Letter; and Raise Green & New Haven Comm.
Solar Letter.
---------------------------------------------------------------------------

    Commenters generally supported the proposed rule's disclosure
requirements.\511\ One commenter stated that the disclosures would
improve compliance with ongoing reporting requirements under Regulation
Crowdfunding by requiring the crowdfunding issuer to provide mandated
information.\512\ Another commenter stated that the proposed
requirements would provide shareholders with the necessary information
to determine whether to direct the crowdfunding vehicle to assert
Federal and State rights for shareholders and would adequately pass
through such rights.\513\
---------------------------------------------------------------------------

    \511\ See J. Clarke Letter; W. Hubbard Letter; and CrowdCheck
Letter.
    \512\ See CrowdCheck Letter.
    \513\ See Hubbard Letter. The commenter also stated that while
disclosure in writing of the differences may suffice from a
substantive standpoint, ``the mechanics and funding for vehicle
operations will likely require, from an operational standpoint, a
separate vehicle account with funds deemed sufficient for such
purposes.'' See id.

---------------------------------------------------------------------------

Form C Filings
    Commenters supported requiring crowdfunding issuers and
crowdfunding vehicles to jointly file a Form C, and several commenters
noted its simplicity and efficiency.\514\ One commenter also stated
that having both parties file the same Form C and the same Form C-AR
would reduce market confusion, help investors access information more
easily, and assist the administrator of the crowdfunding vehicle in
enforcing the crowdfunding issuer's ongoing reporting obligations.\515\
---------------------------------------------------------------------------

    \514\ See J. Clarke Letter; SEI Letter; W. Hubbard Letter; Raise
Green & New Haven Comm. Solar Letter; and CrowdCheck Letter (noting
that filing obligations of the crowdfunding issuer and the
crowdfunding vehicle should be coterminous and coordinated).
    \515\ See CrowdCheck letter.
---------------------------------------------------------------------------

    Some commenters supported requiring a crowdfunding issuer to file
its own Form C if it is separately offering securities through a
crowdfunding vehicle and directly to investors.\516\ The commenters
were concerned a joint filing in these circumstances could lead to
investor confusion. Other commenters opposed this approach, stating
that a joint form in these circumstances is necessary to focus the
investment on the venture, instead of the crowdfunding vehicle.\517\
---------------------------------------------------------------------------

    \516\ See W. Hubbard Letter; Raise Green & New Haven Comm. Solar
Letter; and CrowdCheck Letter.
    \517\ See J. Clarke Letter; and SEI Letter.
---------------------------------------------------------------------------

Treatment Under Other Sections of the Securities Laws
    The Commission stated in the Proposing Release that a crowdfunding
vehicle may constitute a single record holder for purposes of Section
12(g) of the Exchange Act, rather than treating each of the
crowdfunding vehicle's investors as record holders, which would be the
case if they had invested in the crowdfunding issuer directly, and
solicited comment on the appropriate treatment.\518\ Commenters
generally supported treating a crowdfunding vehicle as a single record
holder for Section 12(g) purposes.\519\ Some of these commenters stated
that treating crowdfunding vehicles as a single record-holder for
Section 12(g) eases record-keeping, capital structures, and entity
development \520\ and is consistent with what they believed to be the
intent of Section 12(g).\521\ Commenters opposing this treatment stated
that they were concerned that it would allow private companies to avoid
going public and therefore reduce market transparency.\522\
---------------------------------------------------------------------------

    \518\ See Proposing Release, at Request for Comment 76 and text
accompanying notes 420 and 421.
    \519\ See Wefunder Letter (also requesting clarification that it
is permissible for a securities intermediary to hold securities in
``street name,'' and that ``that those beneficial owners don't count
towards the 12(g) threshold.''); J. Clarke Letter; Carta Letter
(noting that securities issued pursuant to Regulation Crowdfunding
are conditionally exempted from Section 12(g)'s holder of record
limit, but commending the Commission for proposing that the SPV be
treated as a single holder of record to minimize any concerns around
this threshold for those issuers who may have concerns.); W. Hubbard
Letter; Raise Green & New Haven Comm. Solar Letter; and CrowdCheck
Letter. See also 2019 OASB Annual Report, at 48 (suggesting that
allowing SPVs to be used in Regulation Crowdfunding offerings would
mitigate concerns related to Section 12(g)).
    \520\ See W. Hubbard Letter.
    \521\ See Raise Green & New Haven Comm. Solar Letter.
    \522\ See CFA Letter; and AFREF letter.
---------------------------------------------------------------------------

    The Proposing Release requested comment on whether the Commission
should further address the status of a crowdfunding vehicle and persons
operating the vehicle for purposes of the definition of broker under
Section 3(a)(4) of the Exchange Act or dealer under Section 3(a)(5) of
the Exchange Act. Commenters addressing the issue agreed that further
clarity would be helpful but suggested differing approaches.\523\
---------------------------------------------------------------------------

    \523\ See J. Clarke Letter (requesting the Commission clarify
that the portal platform is acting as the broker, since the SPV is
not taking dealer inventory risk); W. Hubbard Letter (suggesting
``[a] regulatorily conclusive presumption at some point statutorily
codified may be helpful.''); Raise Green & New Haven Comm. Solar
Letter (stating a need for ``a safe harbor to assure a crowdfunded
issuer and for the intermediary that neither would trigger
registration as a broker under Section 15(a) of the Exchange
Act.''); and CrowdCheck Letter (stating that ``a [registered
investment adviser] operating a crowdfunding vehicle . . . would not
be a broker-dealer and that it would be appropriate for the
Commission to confirm that doing so would not result in the operator
being required to register as either a broker or a dealer.'').
---------------------------------------------------------------------------

    Finally, with respect to the proposed definition of ``crowdfunding
issuer,'' one commenter stated that it was unclear in the proposed rule
whether the offering or the crowdfunding vehicle would be required to
comply with all of the requirements of Section 4(a)(6) of the
Securities Act and Regulation Crowdfunding.\524\
---------------------------------------------------------------------------

    \524\ See ABA Letter (suggesting that the rule text be revised
to state ``a company that seeks to raise capital as a co-issuer with
a crowdfunding vehicle in an offering that complies with all of the
requirements under Section 4(a)(6) of the Securities Act and
Regulation Crowdfunding'').
---------------------------------------------------------------------------

c. Final Amendments
    We are adopting Rule 3a-9 under the Investment Company Act,
substantially as proposed, to exclude from the definition of
``investment company'' under that Act a crowdfunding vehicle that meets
certain conditions designed to require that it function as a conduit
for investors to invest in a business that seeks to raise capital
through a crowdfunding vehicle. After considering the comments on the
proposed structure and alternative structures commenters suggested, we
believe that the ``conduit'' structure we proposed is consistent with
the intent of Section 4(a)(6). We also continue to believe that this
conduit structure would address concerns associated with managing the
potentially large number of direct investors that could result from a
crowdfunding offering.\525\
---------------------------------------------------------------------------

    \525\ In particular, the crowdfunding vehicle may be able to
appear as a single entry on the crowdfunding issuer's capitalization
table. Several commenters stated that the permitting crowdfunding
vehicles would help solve the ``messy cap table'' issues. See
CrowdCheck Letter; and W. Hubbard Letter.
---------------------------------------------------------------------------

    While some commenters suggested requiring a registered investment
adviser or ERA to manage a crowdfunding vehicle, we do not believe this
condition is necessary from an investor protection perspective given
the conditions set forth in Rule 3a-9. For similar reasons, we do not
believe it is necessary to create a new exemption from registration
with the Commission for advisers to crowdfunding vehicles.\526\
Collectively, the conditions in the rule require the crowdfunding
vehicle to act solely as a conduit by limiting the scope of the
activities in which the crowdfunding vehicle can engage, and
restricting the compensation it can receive. In particular, Rule 3a-9's
conditions are designed to limit the crowdfunding vehicle's activities
to that of acting solely as a conduit to directly hold the securities
of the crowdfunding issuer without the ability for independent
investment decisions to be made on behalf of the crowdfunding vehicle.
---------------------------------------------------------------------------

    \526\ See Wefunder Letter.
---------------------------------------------------------------------------

    Consistent with the concerns raised by commenters with respect to
costs, we also continue to believe that it would not be economically
feasible to require a registered investment adviser to manage the
vehicle.\527\ For example, we believe that compliance with the Custody
Rule, coupled with the small size of the typical crowdfunding offering
\528\ and the fees and other expenses associated with operating a
registered investment adviser, would

not make it economically feasible for a registered investment adviser
to serve as the manager of a crowdfunding vehicle. As some commenters
suggested, requiring an adviser to manage the crowdfunding vehicle,
along with the associated costs, also could deter small to medium
enterprises, or women- or minority-owned businesses, which may not have
access to such investment advisory expertise, from using the
crowdfunding vehicle.\529\ It is also unlikely that a registered
investment adviser could receive performance-based compensation for
managing a crowdfunding vehicle, since the typical crowdfunding
investor may not meet the threshold to qualify as a qualified
client.\530\ We similarly do not believe that it would be economically
feasible to require an ERA to manage the vehicle. Given that one of our
objectives is for an investor to achieve the same economic exposure as
if he or she had invested directly in the crowdfunding issuer, we
continue to believe that it is not appropriate for investors in the
crowdfunding vehicle to bear directly the cost of any compensation paid
to any person operating the vehicle, and we are not convinced that the
issuer would be willing to bear the additional cost associated with
hiring an investment adviser, whether registered or exempt from
registration.
---------------------------------------------------------------------------

    \527\ See Proposing Release, at text accompanying note 349.
    \528\ Between May 16, 2016, and December 31, 2018, the average
Regulation Crowdfunding offering had a maximum offering amount of
approximately $577,385 and raised approximately $208,300 (see 2019
Regulation Crowdfunding Report, at 4), with a maximum offering size
of $1.07 million pursuant to Rule 100(a)(1) of Regulation
Crowdfunding.
    \529\ See Raise Green & New Haven Comm. Solar Letter.
    \530\ 17 CFR 275.205-3 permits registered investment advisers to
receive performance-based compensation only when the client is a
qualified client. The rule's definition of ``qualified client''
includes a natural person who, or a company that, immediately after
entering into the investment contract has at least $1,000,000 under
the management of the investment adviser, and a natural person who,
or a company that, the investment adviser entering into the
investment contract (and any person acting on his behalf) reasonably
believes, immediately prior to entering into the contract, has a net
worth (together, in the case of a natural person, with assets held
jointly with a spouse) of more than $2,100,000 (exclude the value of
a person's primary residence and certain associated debt).
---------------------------------------------------------------------------

    We also do not believe that we should expand the scope of the
activities in which the crowdfunding vehicle can engage and allow a
compensated lead investor to make decisions on behalf of all investors.
We believe this approach would be inconsistent with the ``conduit''
structure we are using to ensure that there is no material difference
between an investment in the crowdfunding issuer and the crowdfunding
vehicle. We also are concerned that a compensated lead investor may not
serve as an advocate for the interests of other investors in the
vehicle, given the potential conflicts of interest that could arise
between the lead investor and other investors in the vehicle. For
similar reasons, a ``SEC-registered transfer agent'' structure is
inconsistent with the ``conduit'' structure we are adopting in this
release.\531\
---------------------------------------------------------------------------

    \531\ The commenter also requested guidance from the Commission
on two additional issues that we believe are outside the scope of
this rulemaking. See supra notes 493 and 517.
---------------------------------------------------------------------------

    We recognize that there are costs associated with organizing and
maintaining the crowdfunding vehicle under Rule 3a-9. However, we
believe these costs and burdens are necessary to provide investors in
the crowdfunding vehicle the same economic exposure, voting power, and
ability to assert State and Federal law rights, and receive the same
disclosures under Regulation Crowdfunding, as if they had invested
directly in the crowdfunding issuer. As discussed in Section IV.C.6
below, because the use of the crowdfunding vehicle structure will be
voluntary, we expect issuers to use a crowdfunding vehicle only when an
issuer determines that the benefits justify the costs. The balance of
these tradeoffs is likely to vary depending on a number of factors,
including the issuer's offering experience, potential for raising
follow-on financing from a large investor, costs associated with the
creation and administration of the crowdfunding vehicle, and the number
of small investors participating in the crowdfunding offering.
    Some commenters recommended that we permit advisers to form funds
for non-accredited investors to invest in multiple crowdfunding
issuers, effectively creating a ``private fund'' like structure for
non-accredited investors. This ``fund'' structure is inconsistent with
the ``conduit'' nature of the crowdfunding vehicle structure in Rule
3a-9, which underlies the limited exemption from Section 3(a) of the
Investment Company Act that we are adopting. In addition, this conduit
nature also protects investors by simply passing along the same
exposures, rights and disclosures as if they had invested directly in
the crowdfunding issuer in an offering made under Regulation
Crowdfunding.\532\
---------------------------------------------------------------------------

    \532\ See Raise Green & New Haven Comm. Solar Letter.
---------------------------------------------------------------------------

    In response to the commenter who stated that it was unclear whether
the offering or the crowdfunding vehicle would be required to comply
with applicable requirements, we are slightly modifying the definition
of ``crowdfunding issuer'' from the proposal to clarify that the
crowdfunding issuer is acting as a co-issuer with the crowdfunding
vehicle and the combined offering of the crowdfunding issuer's
securities and the crowdfunding vehicle's securities must comply with
of Section 4(a)(6) of the Securities Act and Regulation Crowdfunding.
    In order to clarify that we do not intend to permit a crowdfunding
vehicle to invest in another crowdfunding vehicle, creating a multi-
tier structure to invest in one crowdfunding issuer, we are slightly
modifying proposed Rule 3a-9(a)(1) to specify that crowdfunding
vehicles must be organized and operated for the sole purpose of
directly acquiring, holding, and disposing of securities issued by a
single crowdfunding issuer and raising capital in one or more offerings
made in compliance with Regulation Crowdfunding. As discussed below, we
believe this is appropriate given our treatment of the crowdfunding
vehicle under Section 12(g) of the Exchange Act in order to prevent a
multi-tier crowdfunding vehicle from further excluding investors from
the Section 12(g) calculation.
    In response to commenters who requested guidance on this point, we
are clarifying that a crowdfunding vehicle and persons operating the
vehicle will not implicate the broker-dealer registration requirements
of Section 15(a) of the Exchange act so long as the crowdfunding
vehicle and persons operating the vehicle limit their activities solely
to those permitted by new Rule 3a-9. Under Rule 3a-9, the crowdfunding
vehicle would be a co-issuer formed by or on behalf of the underlying
crowdfunding issuer to serve merely as a conduit for investors to
invest in the crowdfunding issuer and will not have a separate business
purpose. Issuers generally are not considered to be ``brokers'' within
the meaning of Section 3(a)(4) of the Exchange Act because they sell
securities for their own accounts and not for the accounts of others;
nor are issuers generally considered to be ``dealers'' within the
meaning of Section 3(a)(5) of the Exchange Act because they do not buy
and sell their securities for their own accounts as part of a regular
business. Further, given the limited activities in which a crowdfunding
vehicle may engage under Rule 3a-9 and, in particular, the limitations
17 CFR 270.3a-9(a)(4) places on the receipt of compensation by and the
payment of compensation to the crowdfunding vehicle, the Commission
similarly does not believe that a person operating the crowdfunding
vehicle in accordance with Rule 3a-9 would be in the business of
effecting securities transactions for the account of others, or in the
business

of buying and selling securities for the account of the crowdfunding
vehicle.
    We are adopting the conditions, as proposed, to address specific
investor protection concerns raised by a vehicle that acts as a conduit
for investments in a crowdfunding issuer.\533\ While some commenters
suggested modifications to these conditions to expand the crowdfunding
vehicle's permissible investments, we believe these capabilities would
make the crowdfunding vehicle more like a traditional investment fund,
rather than merely a conduit entity for a single issuer consistent with
its purpose. For the same reasons, we also do not believe that it is
appropriate to permit the crowdfunding vehicle to issue different
securities for different rounds of a Regulation Crowdfunding offering
or to issue multiple classes of securities. Additionally, consistent
with the crowdfunding vehicle's purpose as a conduit, the rule will
require the crowdfunding vehicle to redeem or offer to repurchase its
securities if there is a liquidity event at the crowdfunding issuer
level since its reason for existence will cease on the occurrence of
such liquidity event.
---------------------------------------------------------------------------

    \533\ See 17 CFR 270.3a-9(a) (``Rule 3a-9(a)'').
---------------------------------------------------------------------------

    We disagree with one commenter's suggestion that we eliminate the
requirement that the crowdfunding issuer pay the costs of the
crowdfunding vehicle.\534\ The crowdfunding vehicle provides direct
benefits to the crowdfunding issuer, such as reducing capitalization
table concerns and providing for greater efficiency for the
administration of a large and diffuse investor base, and we believe
that it is appropriate for the crowdfunding issuer itself to bear the
direct costs of the crowdfunding vehicle. Additionally, requiring
investors in the crowdfunding vehicle to bear directly the costs of the
crowdfunding vehicle would be inconsistent with our goal of providing
those investors with the same economic exposure as if they had invested
directly in the crowdfunding issuer given the conduit nature of the SPV
structure.
---------------------------------------------------------------------------

    \534\ See Raise Green & New Haven Comm. Solar Letter. A third-
party (e.g., a funding portal) could contribute to the issuer's
coverage of these costs, as long as the crowdfunding issuer, and not
the crowdfunding vehicle, ultimately bears the costs.
---------------------------------------------------------------------------

    As one commenter pointed out, because investors are investing in
the crowdfunding vehicle, and not directly in the crowdfunding issuer,
there may be slight differences in the rights in the crowdfunding
vehicle that investors receive.\535\ However, we do not believe these
slight differences in rights should in any way affect the ability of
the crowdfunding vehicle to issue securities with rights that are
materially indistinguishable from the rights a direct investor in the
crowdfunding issuer would have. The rule as adopted will require a one-
to-one relationship between the number, denomination, type and rights
of crowdfunding issuer securities the crowdfunding vehicle owns and the
number, denomination, type, and rights of its securities outstanding to
ensure that there is no material difference in rights between investing
in the crowdfunding vehicle and investing directly in the crowdfunding
issuer. This requirement is designed to ensure that the crowdfunding
vehicle maintains its character as a conduit to the crowdfunding
issuer.
---------------------------------------------------------------------------

    \535\ See CrowdCheck Letter (stating that the exact replication
of the rights attached to the securities of the crowdfunding issuer
is impossible because of, for example, possible differences in legal
structure and state of incorporation).
---------------------------------------------------------------------------

    With respect to a commenter's concerns regarding voting, we do not
believe that the rule is too narrow with respect to the specific
actions the crowdfunding vehicle is required to take, nor do we think
it is too ambiguous with respect to the assertion of investor
rights.\536\ The rule's voting conditions were designed to provide
flexibility, knowing that it is impossible to anticipate every possible
action that a crowdfunding vehicle will need to take in its lifespan.
Furthermore, in response to one commenter's suggestion that we address
appraisal rights,\537\ we believe that the assertion of such rights is
captured under the prong of the rule that provides each investor the
right to direct the crowdfunding vehicle to assert the rights under
State and Federal law that the investor would have if he or she had
invested directly in the crowdfunding issuer.\538\
---------------------------------------------------------------------------

    \536\ See NASAA Letter.
    \537\ See W. Hubbard Letter.
    \538\ See 17 CFR 270.3a-9(a)(9).
---------------------------------------------------------------------------

    We recognize that permitting the crowdfunding vehicle to vote
automatically with the majority or permitting the crowdfunding
investors to otherwise delegate voting authority may simplify the
voting process.\539\ However, we do not believe the rule should permit
either approach to voting because both would be inconsistent with the
vehicle's purpose, which is to act merely as a conduit and not an
independent investment entity like a fund or other similar investment
vehicle. Furthermore, we do not believe that a registered investment
adviser is necessary to assert rights attendant to an investment in the
issuer as the ability to assert such rights (and the flow through of
information related to thereto) will pass directly to investors as if
they were direct investors in the crowdfunding issuer.\540\
---------------------------------------------------------------------------

    \539\ See J. Clarke Letter; W. Hubbard Letter.
    \540\ See CrowdCheck Letter (suggesting this is an area where a
pro-active registered investment adviser could better provide
investor protection).
---------------------------------------------------------------------------

    We are adopting as proposed the requirement that crowdfunding
vehicles jointly file a Form C with the crowdfunding issuer,\541\ as
opposed to requiring that each file a separate Form C or only requiring
the crowdfunding vehicle to file a Form C. We continue to believe that
by jointly filing a Form C describing both transactions and providing
disclosure about both co-issuers, investors will be provided all
information necessary to analyze both their direct investment in the
crowdfunding vehicle and the terms of the crowdfunding vehicle's
investment in the crowdfunding issuer.\542\ This approach also will
allow investors to review the entire business of the crowdfunding
issuer and crowdfunding vehicle in one location (avoiding any confusion
that could arise if the crowdfunding vehicle and crowdfunding issuer
provided separate disclosure on the separate transactions, for example,
on separate Forms C).
---------------------------------------------------------------------------

    \541\ See amended Rule 201 of Regulation Crowdfunding and Form
C.
    \542\ See 17 CFR 227.201(m). See also J. Clarke Letter; SEI
Letter; W. Hubbard Letter; Raise Green & New Haven Comm. Solar
Letter; and CrowdCheck Letter.
---------------------------------------------------------------------------

    Additionally, we agree with commenters that supported requiring a
crowdfunding issuer to file its own Form C if it is separately offering
securities both through a crowdfunding vehicle and directly to
investors, and are therefore clarifying this in Rule 203(a)(1). We
believe that to do otherwise, as noted by commenters, would likely be
confusing to investors and overcomplicate and unnecessarily burden the
preparation, compliance, and related administrative responsibilities of
both the crowdfunding issuer and the crowdfunding vehicle. We do not
believe, as one opposing commenter suggested, that having two Form Cs
in this context would only promote confusion, as each separate offering
would have its own corresponding Form C.
    As stated in the Proposing Release, we continue to believe that,
because the crowdfunding vehicle is only acting as a conduit for the
crowdfunding issuer, the individual investment limitations under
Regulation Crowdfunding should not apply to transfer of the securities
from the crowdfunding issuer to the

crowdfunding vehicle.\543\ In addition, we do not believe that the
amount of securities issued by the crowdfunding issuer to the
crowdfunding vehicle should reduce the amount of securities that could
be offered and sold to the investors in the crowdfunding vehicle for
purposes of the offering limit in Rule 100(a) of Regulation
Crowdfunding. To clarify this treatment of the transfer of securities
from the crowdfunding issuer to the crowdfunding vehicle, we are
amending 17 CFR 227.100(d) to state that a crowdfunding vehicle is not
considered an investor for the purposes of Regulation Crowdfunding.
---------------------------------------------------------------------------

    \543\ See Proposing Release, at note 333.
---------------------------------------------------------------------------

    After considering comments, we have determined that a crowdfunding
vehicle should constitute a single record holder in the crowdfunding
issuer for purposes of Section 12(g) of the Exchange Act, but only to
the extent that all investors in the crowdfunding vehicle are natural
persons. As a result, we are adopting amendments to Exchange Act Rule
12g5-1. New Rule 12g5-1(a)(9) will specify that, for purposes of
determining whether a crowdfunding issuer is required to register a
class of equity securities with the Commission pursuant to Section
12(g)(1) of the Exchange Act, a crowdfunding issuer may exclude
securities issued by a crowdfunding vehicle in accordance with Rule 3a-
9 that are held by natural persons, but must include securities issued
by a crowdfunding vehicle that are held by investors that are not
natural persons.\544\ The same provision will also apply to a
crowdfunding vehicle, which is a separate legal entity from the
crowdfunding issuer and itself is subject to Section 12(g). In
connection with this new provision, we are also amending Rule 12g5-
1(a)(2) to clarify that a crowdfunding issuer that makes use of Rule
3a-9 should look to new Rule 12g5-1(a)(9), even though the crowdfunding
vehicle may otherwise have been considered a corporation, partnership,
trust or other organization for purposes of Rule 12g5-1(a)(2).
Regardless of the crowdfunding vehicle's Section 12(g) treatment, under
the final rules, investors in the crowdfunding vehicle will have the
same economic exposure, voting power, and ability to assert State and
Federal law rights, and receive the same disclosures under Regulation
Crowdfunding, as if they had invested directly in the crowdfunding
issuer.
---------------------------------------------------------------------------

    \544\ For purposes of the crowdfunding vehicle's calculation of
holders of record, such non-natural persons will be treated the same
way they would be if they held the crowdfunding issuer's securities
directly.
---------------------------------------------------------------------------

    We believe that this treatment of natural person and non-natural
person investors is appropriate in light of the novel crowdfunding
issuer-crowdfunding vehicle structure we are adopting and the types of
offerings the Crowdfunding exemption was intended to facilitate.\545\
It recognizes that the crowdfunding vehicle is a separate organization,
holding the crowdfunding issuer securities in its own name, but by
counting non-natural persons differently reduces the risk that the
structure is used by either the crowdfunding issuer or the crowdfunding
vehicle to further exclude investors from the Section 12(g)
calculation.
---------------------------------------------------------------------------

    \545\ See Crowdfunding Adopting Release, at note 2 and text
accompanying note 2 (discussing the intent of the crowdfunding
provisions of the JOBS Act to help provide startups and small
businesses with capital by making relatively low dollar offerings of
securities, featuring relatively low dollar investments by the
``crowd,'' less costly).
---------------------------------------------------------------------------

    Although commenters expressed concern that treating the
crowdfunding vehicle as a single entity for Section 12(g) purposes
would allow crowdfunding issuers to delay having to register a class of
equity securities under Section 12(g) and reduce transparency, we do
not believe it is necessary to require a crowdfunding issuer to ``look
through'' the crowdfunding vehicle to count all of the holders in the
vehicle. While this may result in some crowdfunding issuers being able
to delay Exchange Act registration, we note that, as is the case for
any Regulation Crowdfunding issuer, if the crowdfunding issuer and
crowdfunding vehicle both meet the terms of Rule 12g-6, they will be
able to rely on that conditional exemption. As a result, only the
largest issuers that sell securities under Regulation Crowdfunding are
likely to trigger a Section 12(g) registration requirement at any time,
regardless of the approach we are adopting. Further, we believe that
concerns about transparency are mitigated by the existing ongoing
reporting requirements of Regulation Crowdfunding, which are tailored
to the types of issuers and offerings the exemption is intended to
accommodate.\546\ Finally, not counting natural persons holding through
the crowdfunding vehicle as holders for Section 12(g) purposes also has
no impact on the requirement that investors in the crowdfunding vehicle
receive the same disclosures as if they had invested directly in the
crowdfunding issuer, ensuring that the investors have the full
transparency into the crowdfunding issuer required by Regulation
Crowdfunding.
---------------------------------------------------------------------------

    \546\ See, e.g., Crowdfunding Adopting Release, at Section
II.B.1.a.(1)(b)(iii) (noting that issuers engaging in crowdfunding
transactions may have businesses at various stages of development in
different industries, and the need for flexibility for these issuers
regarding what information they disclose about their businesses).
---------------------------------------------------------------------------

    We also do not agree with the commenter that suggested that the
proposed crowdfunding vehicle is a complex and costly way to have one
record holder for the purposes of Section 12(g) without benefits to the
issuer that still needs to communicate with possibly thousands of
strangers to make corporate decisions. Rule 3a-9 allows issuers to
shift the administrative burden to the crowdfunding vehicle, meaning
the crowdfunding vehicle could engage a third party (such as a funding
portal) to handle the burden of communicating with investors regarding
votes and for other administrative matters.
2. Regulation Crowdfunding Eligible Securities
    Unlike Regulation A, which limits the types of securities eligible
for sale to equity securities, debt securities, and securities
convertible or exchangeable to equity interests, including any
guarantees of such securities,\547\ Regulation Crowdfunding does not
restrict the type of security that may be offered and sold in reliance
on the exemption. As a result, issuers using Regulation Crowdfunding
have offered and sold a number of non-traditional securities, such as
Simple Agreements for Future Equity (``SAFEs''), Simple Agreements for
Future Tokens, and certain revenue sharing agreements.
---------------------------------------------------------------------------

    \547\ See 17 CFR 230.261.
---------------------------------------------------------------------------

a. Proposed Amendments
    The Commission proposed to amend Regulation Crowdfunding to
harmonize the rule with Regulation A and limit the types of securities
that may be offered under the exemption to correspond with the eligible
securities provision of Regulation A. As proposed, the types of
securities eligible for sale in an offering under Regulation
Crowdfunding would be limited to equity securities, debt securities,
and securities convertible or exchangeable to equity interests,
including any guarantees of such securities.
b. Comments
    Commenters were divided on whether to revise Regulation
Crowdfunding to restrict the securities eligible under the exemption to
those included in Regulation A's list of eligible securities. Some
commenters generally supported harmonizing the eligible securities

under the two exemptions,\548\ while other commenters supported
harmonizing the exemptions by citing concerns regarding the use of
SAFEs.\549\ One of the commenters who supported harmonizing the
eligible securities under the two exemptions specifically stated that
``tokenized securities and other forms of digital assets should not be
included as eligible securities under Regulation Crowdfunding'' as they
pose particular risks to investors.\550\ A number of commenters
specifically opposed revising Regulation Crowdfunding to track the
securities eligible under Regulation A.\551\ Of these commenters, many
recommended there be no restrictions on the types of securities that
can be offered under Regulation Crowdfunding.\552\
---------------------------------------------------------------------------

    \548\ See, e.g., ABA Letter; SEI Letter; SEC SBCFAC Letter;
Wefunder Letter; and Letter from Y Combinator dated May 29, 2020
(``Y Combinator Letter''). Some of these commenters supported
harmonization but indicated that SAFEs should be allowed under
Regulation Crowdfunding. See Wefunder Letter; and Y Combinator
Letter.
    \549\ See, e.g., CrowdCheck Letter; and CFA Letter.
    \550\ See ABA Letter (expressing concern that non-traditional
securities can create confusion for retail investors and potentially
jeopardize the reputation of the Regulation Crowdfunding market and
further recommending that tokenized securities and other forms of
digital assets should not be included as eligible securities under
Regulation Crowdfunding due to the continued regulatory uncertainty
and risks that they pose to investors and issuers).
    \551\ See, e.g., J. Clarke Letter; W. Hubbard Letter; Letter
from Shane Hadden dated May 26, 2020 (``S. Hadden Letter''); Silicon
Prairie Letter; Chamber of Digital Commerce Letter; Letter from
Vezzit, Inc. dated July 13, 2020 (``Vezzit Letter''); Raise Green &
New Haven Comm. Solar Letter; and Ketsal Letter.
    \552\ See, e.g., S. Hadden Letter; Silicon Prairie Letter;
Chamber of Digital Commerce Letter; Vezzit Letter; Raise Green & New
Haven Comm. Solar Letter; and Ketsal Letter.
---------------------------------------------------------------------------

    Commenters were similarly divided on whether to permit SAFEs under
Regulation Crowdfunding. A number of commenters generally opposed
revising the Regulation Crowdfunding eligible securities to
specifically prohibit the offering and selling of SAFEs.\553\ These
commenters suggested that prohibiting the use of SAFEs under Regulation
Crowdfunding would limit the usefulness of the exemption for many
issuers \554\ and indicated that there was not significant evidence
that SAFEs pose undue risks for investors.\555\ Another commenter
recommended the Commission require issuers and portals to disclose a
list of ``potentially risky or problematic deal terms'' in lieu of
prohibiting SAFEs.\556\ In contrast, a number of commenters supported
explicitly prohibiting the offering and selling of SAFEs under
Regulation Crowdfunding.\557\
---------------------------------------------------------------------------

    \553\ See, e.g., S. Hadden Letter; Wefunder Letter; Y Combinator
Letter; Silicon Prairie Letter; Republic Letter; NextSeed Letter;
Chamber of Digital Commerce Letter; Vezzit Letter; Raise Green & New
Haven Comm. Solar Letter; InnaMed, et al. Letter; Crowdwise Letter;
Ketsal Letter; and Letter from Marshall E. Uzzle and Ron Montana
dated June 1, 2020. Some of these commenters also contended that
harmonizing securities eligible under Regulation Crowdfunding with
Regulation A would not prohibit the use of SAFEs, as SAFEs are
``securities convertible into equity securities.'' See Letter from
Joe Spivak dated Mar. 18, 2020; Y Combinator Letter; and Republic
Letter.
    \554\ See, e.g., Wefunder Letter; and Republic Letter.
    \555\ See Vezzit Letter.
    \556\ See Crowdwise Letter.
    \557\ See, e.g., Letters from Miguel Costa dated Mar. 10, 2020,
Mar. 14, 2020, and Mar. 22, 2020; J. Clarke Letter; SEI Letter;
NASAA Letter; W. Hubbard Letter; CFA Letter; CrowdCheck Letter; and
CFA Institute Letter.
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c. Final Amendments
    We are not adopting the proposed amendments to harmonize the
securities eligible under Regulation Crowdfunding with the securities
eligible under Regulation A at this time in light of commenters'
concerns that doing so would limit the utility of Regulation
Crowdfunding. We are also not adopting rule changes that would
specifically prohibit SAFEs under Regulation Crowdfunding. We recognize
the concern that the offer and sale of non-traditional securities to
retail investors in an exempt offering could result in harm to
investors who may face challenges in analyzing and valuing such
securities or who may be confused by the descriptions of such
securities on the funding portals. However, we believe that many of
these concerns can be addressed by providing adequate disclosure to
investors. To this end, issuers assessing their compliance with
Regulation Crowdfunding should carefully consider whether they are
clearly describing the terms of the offered securities, especially in
the case of non-traditional securities, such as SAFEs. 17 CFR
227.201(m) requires issuers to disclose the terms of the securities
being offered whether or not such securities have voting rights, any
limitations on such voting rights, how the terms of the securities
being offered may be modified and a summary of the differences between
such securities and each other class of security of the issuer, and how
the rights of the securities being offered may be materially limited,
diluted or qualified by the rights of any other class of security of
the issuer. We remind issuers of non-traditional securities of the need
to carefully consider their obligations under this rule.
3. Regulation A Eligibility Restrictions for Delinquent Exchange Act
Filers
    Regulation A includes an eligibility requirement that an issuer
conducting a Regulation A offering must have filed with the Commission
all reports required to be filed, if any, pursuant to Rule 257 during
the two years before the filing of the offering statement (or for such
shorter period that the issuer was required to file such reports).\558\
However, because Exchange Act registrants are not required to file
reports pursuant to Rule 257, the existing eligibility provision does
not expressly require those registrants to have filed their Exchange
Act reports in order to rely on Regulation A.
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    \558\ See 17 CFR 230.251(b)(7). Rule 257 requires issuers
conducting Tier 2 offerings to comply with certain ongoing and
periodic reporting requirements.
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a. Proposed Amendments
    The Commission proposed to amend Regulation A to require issuers
that are subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act to meet a similar eligibility requirement with
respect to Exchange Act reports. As proposed, issuers that do not file
all the reports required to have been filed by Sections 13 or 15(d) of
the Exchange Act in the two-year period preceding the filing of an
offering statement would be ineligible to conduct a Regulation A
offering.\559\
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    \559\ If an issuer is delayed in filing a report, it would need
to become current in its reports over the last two years in order to
become eligible again.
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b. Comments
    Commenters that addressed the issue generally supported requiring
Exchange Act reporting Regulation A issuers to be current in their
Exchange Act reporting obligations.\560\ Only one commenter opposed
requiring applicable issuers to be current in their Exchange Act
reporting obligations, arguing that because non-reporting companies can
rely on Regulation A, there should be no requirement for reporting
companies to be current in their reporting obligations.\561\ Another
commenter recommended that the Commission additionally make Regulation
A available to business development companies as defined in Section
2(a)(48) of the Investment Company Act.\562\
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    \560\ See CII Letter; NASAA Letter; CrowdCheck Letter; and CFA
Institute Letter.
    \561\ See J. Clarke Letter.
    \562\ See ABA Letter.
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c. Final Amendments
    We are adopting the amendment as proposed. The amendment holds
Exchange Act reporting companies to

the same standard as repeat Regulation A issuers. This requirement will
benefit investors by assuring that they have access to historical
financial and non-financial statement disclosure about Exchange Act
reporting companies that are conducting Regulation A offerings and may
facilitate the development of an efficient secondary market for the
securities they purchase in Regulation A offerings. Furthermore,
because they are already required to file such reports, the requirement
does not increase the burden of making a Regulation A offering for
Exchange Act reporting companies or issuers that were Exchange Act
reporting companies within the two years prior to making a Regulation A
offering. We are not persuaded by the commenter that suggested that
because non-reporting companies can use Regulation A, reporting
companies should not be required to be current in their reporting
obligations. We believe Regulation A investors should be able to look
to the Exchange Act filings of reporting company issuers for
information supplemental to the issuers' Regulation A disclosures.\563\
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    \563\ See, e.g., 2020 Regulation A Review (stating that the
requirement for Regulation A reporting company issuers to be current
in their reporting requirements ``would benefit investors by
ensuring that they have access to historical financial and non-
financial statement disclosure about Exchange Act reporting
companies that are conducting Regulation A offerings and may
facilitate the development of an efficient secondary market for the
securities they purchase in Regulation A offerings''). See also
NASAA Letter (``By helping to make clear that issuers are expected
to behave as public companies once they enter the public markets,
even through the means of exempt offerings, the Commission is at
least partly addressing the concern that the current proposals will
cause even substantial companies to remain in the private markets
permanently.'')
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    We are not amending Regulation A as recommended by a commenter to
make the exemption available to business development companies at this
time. While we acknowledge that business development companies serve an
important function in facilitating capital formation for small,
developing and financially troubled companies, there are important
considerations with respect to the application of Regulation A's
requirements to such entities that we believe we should assess before
expanding the eligibility criteria.

G. Bad Actor Disqualification Provisions

    The Commission's exempt offering framework includes rules
disqualifying certain covered persons, including felons and other ``bad
actors,'' from relying on Regulation A, Regulation Crowdfunding, and
Regulation D to offer and sell securities. While the disqualification
provisions are substantially similar,\564\ the lookback period for
determining whether a covered person is disqualified differs between
Regulation D and the other exemptions. For Regulation D, the lookback
period is measured from the time of the sale of securities in the
relevant offering. For 17 CFR 230.262(a) (``Rule 262(a)'' of Regulation
A) and 17 CFR 227.503(a) (``Rule 503(a)'' of Regulation Crowdfunding),
the lookback period is measured from the time the issuer files an
offering statement.\565\
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    \564\ Section 3(b)(2)(G)(ii) of the Securities Act [15 U.S.C.
77c(b)(2)(G)(ii)] provides the Commission with authority to issue
bad actor disqualification rules under Regulation A that are
``substantially similar'' to those adopted for securities offerings
under Rule 506 of Regulation D pursuant to Section 926 of the Dodd-
Frank Act. See 2015 Regulation A Release; Disqualification of
Felons, Other ``Bad Actors'' from Rule 506 Offerings, Release No.
33-9414 (July 10, 2013) [78 FR 44729 (July 24, 2013)] (``Rule 506(d)
Final Release''); and Crowdfunding Adopting Release.
    \565\ Rule 503(a) provides lookback language based on ``the
filing of the offering statement'' or ``the filing of the
information required by section 4A(b) of the Securities Act'' on
Form C. See 17 CFR 227.503. While the disqualification events in
Securities Act Rule 262 and Regulation Crowdfunding Rule 503 are
generally tied to the filing of an offering statement, 17 CFR
230.262(a)(6); and 17 CFR 227.503(a)(6) are not.
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    Under Regulation A, if a covered person triggers one of the
disqualifying events in Rule 262, the Commission may suspend reliance
on the Regulation A exemption through 17 CFR 230.258 (``Rule 258''),
which requires a notice and hearing opportunity for the issuer prior to
the suspension becoming permanent. Furthermore, if a covered person
triggers one of the disqualifying events, the issuer may need to
consider whether it must suspend the offering until it files a post-
qualification amendment to reflect a fundamental change in the
information set forth in the most recent offering statement or post-
qualification amendment.\566\ Regulation Crowdfunding, which similarly
measures the lookback from the time of filing of the offering
statement, does not have a suspension provision. Similar to Regulation
A, it requires an issuer to amend the offering statement to disclose
material changes, additions, or updates to information that it provides
to investors for offerings that have not been completed or
terminated.\567\ Nevertheless, in certain circumstances, periods of
time may exist during Regulation A and Regulation Crowdfunding
offerings between the filing of the offering statement and the next
required filing where an offering could continue despite an event that
would have constituted a disqualifying event at the time of filing.
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    \566\ See 17 CFR 230.252(f)(2).
    \567\ See 17 CFR 230.203(a)(2).
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1. Proposed Amendments
    The Commission proposed to harmonize the bad actor disqualification
provisions in Rule 506(d) of Regulation D, Rule 262(a) of Regulation A
and Rule 503(a) of Regulation Crowdfunding by adjusting the lookback
requirements in Regulation A and Regulation Crowdfunding to include the
time of sale in addition to the time of filing. Specifically, the
Commission proposed to add ``or such sale'' to any lookback references
that refer to the time of filing, such as the ``filing of the offerings
statement,'' ``such filing,'' or ``the filing of the information
required by Section 4A(b) of the Securities Act'' in Rule 262(a) and
Rule 503(a).
    In order to reflect the offering statement filing requirement
before the first Regulation Crowdfunding sale, and more closely track
the requirement in Rule 262(a) of Regulation A, the Commission proposed
including ``any promoter connected with the issuer in any capacity at
the time of filing, any offer after filing, or such sale'' in Rule
503(a).\568\ The proposed amendments would not alter the availability
of the existing reasonable care exception, an issuer's ability to seek
a waiver from disqualification from the Commission, or the exception
applicable when a court or regulatory authority advises in writing that
disqualification should not arise.\569\ Nonetheless, with respect to
the latter provision, the Commission proposed to amend 17 CFR
230.262(b)(3) (``Rule 262(b)(3)'') and 17 CFR 227.503(b)(3) (``Rule
503(b)(3)''), which currently provide that a court's or regulatory
authority's advice with respect to the disqualifying effect of an
order, judgment or decree must occur before: (i) The time of ``the
filing of the offering statement,'' in the case of Regulation A, or
(ii) ``the filing of the information required by section 4A(b) of the
Securities Act,'' in the case of Regulation Crowdfunding. The proposed
amendments would conform the existing language in Rules 262(b)(3) and
503(b)(3) with the parallel lookback language in 17 CFR
230.506(d)(2)(iii) by adding the phrase ``before . . . [the relevant/
such] sale.''
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    \568\ Rule 503(a) currently covers only promoters connected with
the issuer in any capacity ``at the time of such sale,'' making it
possible that a promoter that previously engaged in fraudulent
activities or violated securities or other laws or regulations,
could be involved in offering activities under Regulation
Crowdfunding so long as such promoter is not connected with the
issuer in any capacity at the time of sale.
    \569\ See 17 CFR 230.262(b)(3).

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2. Comments
    Commenters generally supported revising the bad actor lookback
provisions in Regulation A and Regulation Crowdfunding as
proposed.\570\ One commenter recommended that the Commission provide
guidance on how often bad actor checks should be performed, using the
same timing for all bad actor lookback periods, and including 20%
holders in the revised lookback provisions.\571\ Another commenter
suggested establishing a consistent standard for bad actor
determinations in conjunction with FINRA and providing a centralized
bad actor database.\572\ Other commenters recommended permitting
issuers to continue their offerings and provide investors with
disclosure and an option to cancel their investment commitments after a
disqualifying event first arises.\573\ Commenters also generally
supported revising the bad actor language in Rule 503(a) of Regulation
D to include ``any promoter connected with the issuer in any capacity
at the time of filing, any offer after filing, or such sale,'' to more
closely track Rule 262(a) of Regulation A.\574\
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    \570\ See, e.g., J. Clarke Letter; Netcapital Letter; NASAA
Letter; Md. St. Bar Assoc. Letter; W. Hubbard Letter; CrowdCheck
Letter; and IPA Letter.
    \571\ See CrowdCheck Letter. In contrast, one commenter
supported continuing to use the time of filing, rather than time of
sale, for covered persons. See J. Clarke Letter.
    \572\ See IPA Letter.
    \573\ See Geraci Law Letter; J. Clarke Letter; NextSeed Letter;
and W. Hubbard Letter. But see CrowdCheck Letter contending that
permitting the offerings to continue would treat more recent
disqualifying events as less serious than older ones.
    \574\ See, e.g., Geraci Law Letter; Netcapital Letter; NASAA
Letter; Md. St. Bar Assoc. Letter; and CrowdCheck Letter.
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    One commenter opposed the revisions, suggesting the additional
monitoring cost will prevent issuers from relying on Regulation
Crowdfunding.\575\ Another commenter, who was supportive of the
revisions, also acknowledged the potential for significant monitoring
costs, especially in Regulation Crowdfunding offerings.\576\
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    \575\ See NextSeed Letter.
    \576\ See CrowdCheck Letter.
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3. Final Amendments
    We are adopting the amendments as proposed to further harmonize the
disqualification provisions in Regulation A, Regulation Crowdfunding,
and Regulation D by using the same disqualification lookback period.
Although the amendments may, to some extent, increase the compliance
costs associated with conducting an offering under Regulation A or
Regulation Crowdfunding, for issuers that conduct offerings in reliance
on more than one of these exemptions, using the same disqualification
lookback period across exemptions may simplify compliance and due
diligence for issuers.\577\ In addition, the revised lookback period,
which looks to both the time of filing of the offering document and the
time of sale, will improve investor protections by further limiting the
role of ``bad actors'' in exempt offerings and reducing the chance that
investors may unknowingly participate in securities offerings involving
offering participants who have engaged in fraudulent activities or
violated securities or other laws or regulations.\578\
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    \577\ See 2015 Regulation A Release, at Section II.G. In
adopting the 2015 Regulation A amendments, the Commission stated
that a uniform set of bad actor triggering events would simplify due
diligence, particularly for issuers that may engage in different
types of exempt offerings.
    \578\ This may be particularly true for regulating the conduct
of promoters connected with an issuer throughout an ongoing
offering.
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    The disqualification provisions in Regulation A and Regulation
Crowdfunding were intended to be ``substantially similar'' to those in
Regulation D.\579\ When the Commission adopted disqualification
provisions under Regulation D, the Commission also adopted an exception
from disqualification for offerings where the issuer establishes that
it did not know and, in the exercise of reasonable care, could not have
known that a disqualification existed. At that time, the Commission was
cognizant of the monitoring costs associated with Rule 506(d)'s
disqualification provisions, particularly the costs of monitoring
beneficial owners of 20 percent or more of the issuer's outstanding
voting securities.\580\
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    \579\ See 2015 Regulation A Release and Crowdfunding Adopting
Release. Section 302(d) of the JOBS Act requires the Commission to
establish disqualification provisions under which an issuer would
not be eligible to offer securities pursuant to Section 4(a)(6) and
an intermediary would not be eligible to effect or participate in
transactions pursuant to Section 4(a)(6). Section 302(d)(2)
specifies that the disqualification provisions must be
``substantially similar'' to the ``bad actor'' disqualification
provisions contained in Rule 262 of Regulation A. As noted above,
the disqualification provisions under Regulation A are required to
be ``substantially similar'' to those adopted for securities
offerings under Rule 506. See supra note 564.
    \580\ See Rule 506(d) Final Release, at Section II.B. The
Commission clarified that, for ongoing offerings, the issuer's
reasonable care duty to monitor covered persons generally ``includes
updating the factual inquiry'' on a periodic basis. Id. at Section
II.D.2.
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    For Regulation A and Regulation Crowdfunding issuers, monitoring
covered beneficial owners may pose different challenges than for
issuers in Regulation D offerings because shares sold under Regulation
A are potentially freely tradable immediately following an investor's
initial purchase, and shares sold under Regulation Crowdfunding are
generally freely tradable after a holding period. In recognition of the
additional monitoring burdens associated with Regulation A and
Regulation Crowdfunding offerings, and the potential for such burdens
to discourage reliance on Regulation Crowdfunding, we are, as proposed,
retaining the current lookback period applicable to covered beneficial
owners in Regulation A and Regulation Crowdfunding rather than amending
it to start at the time of sale. We do not believe that permitting