offerings, are limited to accredited investors and up to 35 non-
accredited investors, capital raising activity during the last two
decades suggests that the benefits of state preemption outweigh
unrestricted access to non-accredited investors. With the adoption of
Rule 506(c), which allows for general solicitation, the comparative
advantage of current Rule 504 has further diminished.
    The current $1 million maximum amount was set by the Commission in
1988 and was meant to provide ``seed capital'' for small and emerging
businesses.\472\ Given the high costs of raising capital from public
sources, the

unregistered offerings market has expanded significantly in the past
twenty-five years. The growth of angel investors and VCs, who invest
primarily through unregistered offerings, has also increased seed
capital available for investment at the initial stages of a company.
Angel investments in 2015 amounted to approximately $25 billion, and
the average angel deal size was approximately $346,000.\473\ According
to PWC MoneyTree, in 2008, U.S. VCs made $1.5 billion of seed
investments in 440 companies.\474\ This represents an average seed
investment of $3.5 million per company. While the involvement of VCs at
the seed stage has been increasing over the years, it is reported that
some angel investments at the seed stage have included investments as
large as $2.5 million per entity.\475\ Given these changes, amending
the Rule 504 offering size from $1 million to $5 million would better
comport with market trends that indicate demand for larger seed capital
infusions.
---------------------------------------------------------------------------

    \472\ See Seed Capital Release.
    \473\ According to a recent report, angel investments amounted
to $24.6 billion in 2015, with approximately 71,100 entrepreneurial
ventures receiving angel funding and approximately 304,930 active
angel investors. Seed/startup stage investments accounted for
approximately 28% of the $24.6 billion. See Jeffrey Sohl, The Angel
Investor Market in 2015: A Buyer's Market, Center for Venture
Research, May 25, 2015, available at https://paulcollege.unh.edu/sites/paulcollege.unh.edu/files/webform/Full%20Year%202015%20Analysis%20Report.pdf.
    \474\ See PricewaterhouseCoopers, Investment by Stage of
Development, available at https://www.pwcmoneytree.com/CurrentQuarter/BySoD.
    \475\ See Fenwick & West Survey 2012 (March 2013), available at
https://www.fenwick.com/publications/Pages/Seed-Finance-Survey-2012.aspx. The survey defines a ``seed'' financing as the first
round of financing by a company in which the company raises between
$250,000 and $2,500,000 and in which professional investors play a
lead role.
---------------------------------------------------------------------------

    Four parallel developments may further change the regulatory
landscape surrounding existing Rule 504. First, the use of current Rule
504 could be diminished by interstate crowdfunding offerings pursuant
to Regulation Crowdfunding, which allows issuers to raise up to $1
million over a 12-month period with unlimited access to non-accredited
investors, permits general solicitation, and provides preemption from
state regulation and exemption from Exchange Act reporting, subject to
certain conditions. Second, at least 34 states and the District of
Columbia have enacted and several other states are in the process of
enacting their own crowdfunding exemptions where the maximum amount
that can be raised in a 12-month period ranges from $250,000 to $4
million, depending on the state (up to $2 million for all but three
states). The maximum offering amounts for intrastate crowdfunding thus
exceed the current offer limit under Rule 504. While most state
crowdfunding exemptions require use of Rule 147, currently three states
allow issuers to conduct intrastate crowdfunding under the Rule 504
exemption.\476\ Third, state regulators have been working to implement
regional coordinated review programs in order to facilitate regional
offerings that could potentially save issuers time and money.
Additionally, at least one state is in the process of enacting
reciprocal crowdfunding provisions, which may allow issuers to conduct
regional crowdfunding offerings under state law.\477\ Since amended
Rule 147 and new Rule 147A will be restricted to intrastate offerings,
Rule 504 will be the most likely federal exemption that could be used
for such regional offerings. Fourth, Tier 1 of amended Regulation A,
which became effective in June 2015 and has similar eligibility
criteria as Rule 504, allows offerings up to $20 million without any
restrictions on resale of securities. In light of these developments,
the increase in the maximum amount that can be raised in Rule 504
offerings to $5 million could help make this market more attractive for
startups and small businesses while also facilitating intrastate and
regional offerings greater than $1 million.
---------------------------------------------------------------------------

    \476\ Maine's provisions currently permit interstate
crowdfunding utilizing the Rule 504 exemption, and Mississippi and
Vermont dually offer intrastate crowdfunding under Section 3(a)(11)
and interstate crowdfunding under Rule 504. See NASAA Letter.
    \477\ See http://www.nasaa.org/industry-resources/corporation-finance/coordinated-review/. See also, the ``Reciprocal Crowdfunding
Exemption'' proposed by the Massachusetts Securities Division,
available at http://www.sec.state.ma.us/sct/crowdfundingreg/Reciprocal%20Crowdfunding%20Exemption%20-%20MA.PDF.
---------------------------------------------------------------------------

    A higher offering amount limit for Rule 504 offerings could
increase the number of issuers that rely on the exemption.\478\ To the
extent that amended Rule 504 permits issuers to raise larger amounts of
capital at lower costs than other unregistered capital markets, the
final rules could also lower issuer cost of capital and facilitate
intrastate crowdfunding and the regional offerings market as it
evolves. In addition to new issuers raising capital for the first time,
it is likely that some issuers currently using other unregistered
capital markets may shift to the amended Rule 504 market. Such
potential trends would increase competition for supply of and demand
for capital between the different unregistered markets, especially the
exemptions pursuant to amended Rule 147, Rule 147A, Rule 506 of
Regulation D, Regulation A, Regulation Crowdfunding, and Sections
4(a)(2) and 3(a)(11). Further, modernizing our exemptive scheme in
order to provide issuers, and especially small businesses, with more
viable options for capital raising could foster an environment that
encourages new market participants with promising ventures to enter the
capital markets, thereby enhancing the overall level of capital
formation in the economy and investment opportunities. The amendments
could also encourage new interstate and regional approaches to
crowdfunding and other offering methods \479\ and lead to greater
coordination for regional review of capital raising options.
---------------------------------------------------------------------------

    \478\ See CFA Letter, CFIRA Letter, NASAA Letter.
    \479\ Id.
---------------------------------------------------------------------------

    Increasing the Rule 504 offering amount limit could also increase
the number of investors (including non-accredited investors) that can
access such exempt offerings, thereby providing them with a wider array
of investment opportunities to diversify their investment portfolios.
This, in turn, could have positive effects on the supply of capital and
the allocative efficiency of unregistered capital markets. To the
extent that non-accredited investors are less capable of evaluating
investment opportunities than accredited investors,\480\ an increase in
the number of Rule 504 offerings could raise investor protection
concerns.
---------------------------------------------------------------------------

    \480\ See Staff of the U.S. Securities and Exchange Commission,
Report on the Review of the Definition of ``Accredited Investor''
(Dec. 18, 2015) at 43-46 available at https://www.sec.gov/corpfin/reportspubs/special-studies/review-definition-of-accredited-investor-12-18-2015.pdf (describing criticisms of the current
definition of accredited investor).
---------------------------------------------------------------------------

    A higher offering amount limit, together with a potential increase
in the number of investors that can access Rule 504 offerings, may
raise concerns about a potential increase in the incidence of fraud
under the final rules. The Commission's experience with the elimination
of the prohibition against general solicitation for Rule 504 offerings
in 1992 \481\ and its subsequent reinstatement in 1999 as a result of
heightened fraudulent activity \482\ illustrates the potential for
fraud in the Rule 504 market. It should be noted, however, that in 1998
and 1999 the Commission concluded that the increase in fraud occurred
because of rule provisions that permitted general solicitation of
investors and free

transferability of issued securities.\483\ As a result, under that
regime, a non-reporting company was able to sell up to $1 million of
unrestricted securities in a 12-month period and be subject only to the
antifraud and civil liability provisions of the federal securities
laws. In contrast, the final rules will only increase the aggregate
offering amount limitation of Rule 504, thereby retaining existing
restrictions on general solicitation and the restricted securities
status of most offered securities. State registration requirements may
also mitigate the risk for investor abuse in Rule 504 offerings.
---------------------------------------------------------------------------

    \481\ See Adoption of Small Business Initiatives, SEC Release
No. 33-6949 (July 30, 1992).
    \482\ See Seed Capital Release.
    \483\ Id. See also Proposed Revision of Rule 504 of Regulation
D, the ``Seed Capital'' Exemption, No. 33-7541 (May 21, 1998). As
the Commission noted at the time it proposed to eliminate the
unrestricted status of securities issued under Rule 504, securities
issued in these Rule 504 offerings may have facilitated a number of
fraudulent secondary transactions in the over-the-counter markets.
The Commission also noted that these securities were issued by
``microcap'' companies, characterized by thin capitalization, low
share prices and little or no analyst coverage. As the freely-
tradable nature of the securities facilitated the fraudulent
secondary transactions, the Commission proposed to ``implement the
same resale restrictions on securities issued in a Rule 504
transaction as apply to transactions under the other Regulation D
exemptions,'' in addition to reinstating the prohibition against
general solicitation. Although the Commission recognized that resale
restrictions would have ``some impact upon small businesses trying
to raise `seed capital' in bona fide transactions,'' it believed at
the time that such restrictions were necessary so that
``unscrupulous stock promoters will be less likely to use Rule 504
as the source of the freely tradable securities they need to
facilitate their fraudulent activities in the secondary markets.''
---------------------------------------------------------------------------

    Enforcement cases over the past several years involving Rule 504
offerings could also raise concerns about the potential for increased
incidence of fraud under the final rules. Most of these cases have
involved promoters who engaged in secondary market sales of
unrestricted securities that were previously issued in reliance on Rule
504(b)(1)(iii), defrauding investors and, in some cases,
unsophisticated issuers.\484\ Securities issued in reliance on Rule
504(b)(1)(iii) are exempt from state registration, and issuers relying
on the exemption are permitted to market the securities using general
solicitation so long as sales are made only to accredited
investors.\485\ We recognize that an increase in the maximum offering
size could increase the risk of investor harm, at least in offerings
that are exempt from state registration. Some of these concerns could
be mitigated by the inclusion of bad actor disqualification provisions
in Rule 504, as discussed below.
---------------------------------------------------------------------------

    \484\ See, e.g., SEC v. Stephen Czarnik, Case No. 10-cv-745
(S.D.N.Y.), Litigation Release No. 21401 (Feb. 2, 2010); SEC v.
Yossef Kahlon, a/k/a Jossef Kahlon and TJ Management Group, LLC,
Case No. 4:12-cv-517 (E. D. Tex.) (Aug. 14, 2012).
    \485\ The extent to which general solicitation may be used in
connection with an offering conducted in reliance on Rule
504(b)(1)(iii) will depend on the specific state exemption being
relied upon. In this regard, the NASAA Model Accredited Investor
Exemption specifies that only a tombstone ad may be used in making a
general solicitation. See Model Accredited Investor Exemption,
available from the NASAA Web site at http://www.nasaa.org/wp-content/uploads/2011/07/24-Model_Accredited_Investor_Exemption.pdf.
---------------------------------------------------------------------------

b. Bad Actor Disqualification Provisions and Additional Amendments
    The amendments to Rule 504 will include bad actor disqualification
provisions that are substantially similar to related provisions in Rule
506 of Regulation D. \486\ Consistent with Rule 506(d), the final rules
will require that the covered person's status be assessed at the time
of the sale of securities. As in Rule 506(d), the disqualification
provisions will not preclude the participation of bad actors whose
disqualifying events occurred prior to the effective date of the final
rules, which could expose investors to risks that arise when bad actors
are associated with an offering. However, similar to Rule 506(e),
issuers will be required to disclose bad actor disqualifying events
that occurred prior to the effectiveness of the final rules. The risks
to investors from participation of covered persons who otherwise would
be disqualified may therefore be partly mitigated as investors will
have access to relevant information that could inform their investment
decisions. Disclosure of prior bad actor disqualifying events may make
it more difficult for issuers to attract investors, and as a result,
issuers may experience a similar impact to being disqualified. Some
Rule 504 issuers may accordingly choose to exclude involvement by prior
bad actors to avoid such disclosures.
---------------------------------------------------------------------------

    \486\ See Rule 506(d) of Regulation D, 17 CFR 230.506(d).
---------------------------------------------------------------------------

    We expect that the bad actor disqualification provisions could help
reduce the potential for fraud in these types of offerings and thus
strengthen investor protection.\487\ If disqualification standards
lower the risk premium associated with the risk of fraud due to the
presence of bad actors in securities offerings, they could also reduce
the cost of capital for issuers that rely on the amended Rule 504
exemption. In addition, the requirement that issuers determine whether
any covered persons are subject to disqualification might reduce the
need for investors to conduct their own due diligence on such persons
and could therefore increase efficiency. While fraud can still occur
without prior incidence of disqualification on the part of the issuer
or covered persons, these provisions could mitigate some of the
concerns relating to incidence of fraud in offerings pursuant to
amended Rule 504, including offerings subject to regional coordinated
review programs that could be registered in one jurisdiction but
offered and sold in multiple other jurisdictions.
---------------------------------------------------------------------------

    \487\ See also ABA Letter, CFA Letter.
---------------------------------------------------------------------------

    The disqualification provisions could also impose costs on issuers
and covered persons. Issuers that are disqualified from using amended
Rule 504 may experience an increased cost of capital or a reduced
availability of capital, which could have negative effects on capital
formation. Similarly, other covered persons may experience reductions
in revenue or market share (for market intermediaries) or demotion or
termination of employment or other limitations on career advancement
(for individuals) as a result of disqualification from Rule 504
offerings. In addition, issuers may incur costs and transactional
delays related to seeking disqualification waivers from the Commission
and replacing personnel or avoiding the participation of covered
persons who are subject to disqualifying events. Issuers also might
incur costs to restructure their share ownership to avoid beneficial
ownership of 20% or more of the issuer's outstanding voting equity
securities by individuals subject to disqualification.
    The final rules will provide, by reference to Rule 506(d), a
reasonable care exception, similar to other exemptions and safe harbors
under Regulation D. A reasonable care exception could facilitate
capital formation by encouraging issuers to proceed with Rule 504
offerings in situations in which issuers otherwise might have been
deterred from relying on Rule 504 if they risked potential liability
under Section 5 of the Securities Act for unknown disqualifying events.
At the same time, this exception also could increase the potential for
fraud, compared with an alternative of not providing a reasonable care
exception, by limiting issuers' incentives to determine whether bad
actors are involved with their offerings. We also recognize that some
issuers might incur costs associated with conducting and documenting
their factual inquiry into possible disqualifications. The rule's
flexibility with respect to the nature and extent of the factual
inquiry required could allow an issuer to tailor its factual inquiry as
appropriate to its particular circumstances, thereby potentially
limiting costs. Finally, we note that

extending the disqualification provisions to Rule 504 will create a
more consistent regulatory regime under Regulation D that will simplify
due diligence requirements and thereby benefit issuers and investors
that participate in different types of exempt offerings.\488\
---------------------------------------------------------------------------

    \488\ See NASAA Letter.
---------------------------------------------------------------------------

    The amendment to Rule 504(b)(2) will update the current
illustrations of how the aggregate offering limitation is calculated in
the event that an issuer sells securities in multiple offerings
pursuant to Rule 504 within the same twelve-month period. By enabling
market participants to calculate more easily the amounts permitted to
be sold, this amendment will facilitate issuer compliance with the
increased aggregate offering limitation.
c. Alternatives Considered
    As an alternative to the final rules, we considered raising the
offering limit under Rule 504 to an amount less than $5 million. For
example, adjusted for inflation, the $1 million in 1988 would equate to
approximately $2 million today.\489\ Additionally, offering amount
limits under various state crowdfunding provisions generally are set
around $2 million for most jurisdictions, with $4 million being the
highest offering limit in one state. Increasing the maximum Rule 504
offering to an amount less than $5 million could help alleviate
concerns about a decrease in investor protection from unlimited access
to non-accredited investors. At the same time, this alternative could
limit the use of Rule 504 as a capital raising option for issuers.
---------------------------------------------------------------------------

    \489\ Annual inflation rates (1988-2015) based on consumer price
index data, for all urban consumers, obtained from the Bureau of
Labor Statistics. See http://data.bls.gov/cgi-bin/surveymost?cu.
---------------------------------------------------------------------------

    We also considered increasing the maximum offering limit under
amended Rule 504 to an amount greater than $5 million. For example, we
could align the maximum offering limit to that of the Tier 1 offer
limit ($20 million) under amended Regulation A. This could allow for
more cost-effective state registration, while also providing a
competitive alternative to eligible issuers in Tier 1 of the Regulation
A market. However, unlike the Regulation A market, non-accredited
investors have no investment limits under the Rule 504 provisions.
Moreover, enforcement cases over the past several years have
highlighted instances of fraud in Rule 504(b)(1)(iii) offerings.\490\ A
higher maximum offering amount may thus lead to greater investor
protection concerns.
---------------------------------------------------------------------------

    \490\ See note 484 and related discussion above.
---------------------------------------------------------------------------

    In light of concerns about potential abuses involving securities
issued in reliance on Rule 504(b)(1)(iii),\491\ we considered, as an
alternative, to impose resale restrictions on such securities. This
could increase investor protection by helping to ensure that securities
initially sold pursuant to the exemption are only resold by initial
purchasers after the passage of a specified time period. However, these
restrictions would reduce the liquidity of Rule 504(b)(1)(iii)
securities, which could increase the cost of capital for issuers
seeking to raise capital in reliance on this rule provision. At the
same time, increasing investor protection through resale restrictions
could attract somewhat greater investor interest and lower the expected
risk premium, which would mitigate, to some extent, the higher costs
arising from less liquid securities. We note that states are free to
enact additional restrictions in such offerings if they deem them
necessary or appropriate.
---------------------------------------------------------------------------

    \491\ Id.
---------------------------------------------------------------------------

    Additionally, Rule 504 could be amended to include additional
mandatory disclosures, or other requirements, to address investor
protection concerns arising from the increase in the maximum offering
size. While such additional requirements could mitigate some of these
concerns, they would also increase the compliance obligations for Rule
504 issuers and may also overlap with similar requirements under state
law in the jurisdiction in which such Rule 504 offering is registered.
4. Analysis of Repeal of Rule 505
    The final rules also eliminate the exemption under Rule 505 of
Regulation D. Rule 505, like Rule 504, was created under Section
3(b)(1) of the Securities Act to exempt offerings of up to $5 million
over a 12-month period. As discussed in the baseline analysis, reliance
on Rule 505 is much less frequent than even Rule 504 and has declined
steadily in the past 15-20 years in terms of the number of new
offerings and the amount of capital raised.\492\
---------------------------------------------------------------------------

    \492\ During the period 2009-2015, there were 1,588 new
offerings of less than or equal to $5 million by non-fund issuers
that relied on Rule 505 compared to 64,862 such offerings that
relied on Rule 506. Including offerings in which the issuer checked
both the Rule 505 and Rule 506 exemptions on the Form D (2,170 new
offerings), the proportion of Rule 505 offerings in Regulation D
offerings rises from 2% to 5.3%. See Section V.A.2 and Table 5.
---------------------------------------------------------------------------

    We believe that amended Rule 504, by allowing offerings up to $5
million, will likely further diminish the utility of current Rule 505
for issuers that are currently eligible to use both exemptions because
Rule 504 provides access to an unlimited number of non-accredited
investors and restricted access to general solicitation.\493\ Other
exemptions from registration may also provide an alternative to Rule
505 offerings. For example, Rule 506(b) enables issuers to raise
unlimited amounts of capital along with providing preemption from state
registration, although being limited to 35 non-accredited investors who
need to be sophisticated, either individually or through a purchaser
representative. Similarly, while Regulation A offerings have greater
disclosure requirements, they may be sold to non-accredited investors
and have the added benefit of unrestricted resales of securities. We
recognize that reporting companies that are potential Rule 505 issuers
may find it relatively harder to shift to another type of unregistered
offering as they are excluded from using Rule 504, Regulation A and
Regulation Crowdfunding. Such issuers, however, constitute a small
proportion of current Rule 505 issuers and, absent disqualifying bad
actor events, could likely avail themselves of Rule 506. Alternatively,
Rule 505 issuers, particularly those that are reporting companies,
could also raise capital through a registered offering if they seek
investment from non-accredited investors and investors who prefer
securities issued through registered offerings. In view of recent
changes to Form S-1 \494\ and the availability of shelf registration to
eligible reporting issuers, the costs of raising capital through a
registered offering for issuers that are reporting companies, may be
comparable to costs of a Rule 505 offering that solicits non-accredited
investors and requires registration under state regulations. Whether
Rule 505 issuers, particularly those that are reporting companies,
switch to an unregistered offering such as a Rule 506 offering or a
registered offering will depend on how these issuers assess the costs
of registration relative to benefits such as broader access to non-
accredited investors and investors who prefer securities issued through
registered offerings.\495\
---------------------------------------------------------------------------

    \493\ Unlike offerings conducted pursuant to Rule 506, Rule 504
and Rule 505 offerings are subject to state securities law
registration and qualification requirements.
    \494\ See note 435 above.
    \495\ See discussion in Section V(B)(1) and note 436.
---------------------------------------------------------------------------

    The impact of the elimination of Rule 505 will depend on whether
issuers are

able to access alternate capital markets and raise the desired amount
of capital at a comparable cost and in a timely manner, as they would
in the current Rule 505 market. To the extent that issuers are not able
to raise sufficient or any amount of capital in such alternate markets,
overall capital formation in the economy and allocative efficiency of
capital markets could decline. We believe that Rule 505 issuers likely
will be able to shift to other exemptions or alternately to follow-on
registered offerings in case of issuers that are reporting companies,
at little or no additional cost. In the short term, the repeal likely
will increase competition amongst markets for attracting potential Rule
505 issuers and investors, but in the long-run, it may decrease the
overall level of competition amongst the various capital markets to
attract new issuers and investors.
    As discussed above, the impact on efficiency, competition and
capital formation of the repeal of Rule 505 also will depend on
investor willingness and ability to purchase in an alternate
unregistered capital market. For example, unsophisticated investors
that may be eligible to purchase in a Rule 505 offering may not be able
to purchase in a Rule 506 offering and hence may find their set of
investment opportunities reduced. Further, as Rule 506 offerings are
preempted from state registration, potential Rule 505 investors may be
reluctant to purchase in a Rule 506 offering once Rule 505 is repealed,
due to investor protection concerns. Similarly, Rule 504 offerings are
subject to fewer investor disclosure requirements at the federal level,
relative to a Rule 505 offering, that could also raise potential
investor protection concerns. The net impact on the overall level of
investor participation could thus depend on the type of offering that
primarily substitutes for the repealed Rule 505 market.
    Overall, we believe that the repeal of Rule 505 will not have a
significant impact or any impact on capital formation because issuers
will likely be successful at finding commensurate capital supply in an
alternate unregistered capital market. Repeal of Rule 505 will
streamline the existing exemptive framework to provide a clearer and
less complex set of rules and regulations for the issuer to choose
among.
    As an alternative to the repeal of Rule 505, we considered
increasing the maximum amount that can be raised over a period of 12
months to a higher amount. For example, adjusting for inflation, $5
million in 1988 would equate to approximately $10 million today.
Retention of Rule 505 with a higher offering limit would allow issuers
(in contrast to Rule 506) to access to up to 35 non-accredited
investors without having to ensure that these investors are
sophisticated investors. It would also allow reporting companies (in
contrast to Rule 504) to avail themselves of the exemption for raising
capital. However, we believe that in view of the widespread use of Rule
506 and the decreased use of Rule 505 in capital formation in the
Regulation D market, a higher ceiling is not likely to increase
reliance on the exemption.

VI. Paperwork Reduction Act

A. Rules 147(f)(1)(iii) and 147A(f)(1)(iii)

    Rule 147 and new Rule 147A contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\496\ Specifically, Rules 147(f)(1)(iii) and 147A(f)(1)(iii)
each contain a provision requiring issuers relying on the rules to
``obtain a written representation from each purchaser as to his or her
residence.'' There are two titles for these collection of information
requirements. The first title is: ``Rule 147(f)(1)(iii) Written
Representation as to Purchaser Residency,'' a new collection of
information. The second title is: ``Rule 147A(f)(1)(iii) Written
Representation as to Purchaser Residency,'' a new collection of
information. We are requesting comment on these collection of
information requirements in this adopting release, and intend to submit
these requirements to the Office of Management and Budget (``OMB'') for
review in accordance with the PRA and its implementing
regulations.\497\ If approved, responses to the new collection of
information requirement would be mandatory for issuers seeking to rely
upon the rules to conduct exempt intrastate offerings. An agency may
not sponsor, and a person is not required to respond to, a collection
of information unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \496\ 44 U.S.C. 3501 et seq.
    \497\ In the Proposing Release, we did not submit a PRA analysis
because we proposed to eliminate the written representation
requirement in Rule 147(f)(1)(iii), and our other proposed
amendments to Rule 147 did not contain a ``collection of
information'' requirement within the meaning of the PRA. At this
time, we do not have any comments regarding overall burden estimates
for the final rules. This release is requesting such comments.
---------------------------------------------------------------------------

    In the Proposing Release, we solicited comment on our proposal to
eliminate the requirement in Rule 147(f)(1)(iii) to obtain a written
representation as to the purchaser's residency. In response to comments
received, we have decided not to eliminate the requirement and are
adopting an identical requirement in new Rule 147A(f)(1)(iii) under the
Securities Act.\498\
---------------------------------------------------------------------------

    \498\ See text accompanying notes 119, 120, and 121 above.
---------------------------------------------------------------------------

    Both Rule 147(f)(1)(iii) and new Rule 147A(f)(1)(iii) will require
the issuer to obtain from the purchaser a written representation as to
the purchaser's residency. The representation is not required to be
presented in any particular format, although it must be in writing.
Representations obtained by the issuer are not required to be kept
confidential, and there is no mandatory retention period. The hours and
costs to the issuer and purchaser associated with preparing,
furnishing, obtaining and collecting these written representations
constitute paperwork burdens and costs imposed by these collection of
information requirements.
    The required written representation by the purchaser as to his or
her residence is identical under both Rule 147(f)(1)(iii) and new Rule
147A(f)(1)(iii). Similarly, both rules define the residence of the
purchaser in the same manner. If the purchaser is a corporation,
partnership, limited liability company, trust or another form of
business organization, it shall be deemed to be a resident of the
territory or state if, at the time of the offer and sale to it, it has
its principal place of business within such territory or state.
Principal place of business is defined as the territory or state in
which the officers, partners or managers of the entity primarily
direct, control and coordinate the activities of the entity. If the
purchaser is an individual, such person shall be deemed to be a
resident of the territory or state if such person has, at the time of
the offer and sale, his or her principal residence in the territory or
state.\499\
---------------------------------------------------------------------------

    \499\ See Rules 147(d) and 147A(d).
---------------------------------------------------------------------------

    We expect that the determination of a purchaser's residence will be
easiest for natural persons.\500\ This determination may be more
difficult for purchasers who have more than one place of residence. We
also expect this determination to be more difficult for purchasers who
are legal entities, such as corporations, partnerships, limited
liability companies and trusts which will have to undertake a factual
inquiry to determine in what state or territory their ``principal place
of business'' is located.
---------------------------------------------------------------------------

    \500\ See Section II.B.2(c) above.
---------------------------------------------------------------------------

    We anticipate that the requirement for issuers to obtain a written

representation from each purchaser as to his or her residence, as
required under Rule 147(f)(1)(iii) and Rule 147A(f)(1)(iii), will
result in a burden and cost to issuers to meet these requirements in
order to sell securities in an exempt intrastate offering. For purposes
of the PRA, for each of Rule 147 and Rule 147A, we estimate that the
total annual paperwork burden for all affected issuers arising from
this collection of information requirement will be approximately 175
hours of issuer (company) personnel time and approximately $70,000 for
the services of outside professionals at an average cost of $400 per
hour.
    Similarly, we anticipate that the written representation required
by purchasers, including the obligation to determinate the state or
territory of their residence, as required under Rule 147(f)(1)(iii) and
Rule 147A(f)(1)(iii), will result in a burden incurred by purchasers in
order to purchase securities in an exempt intrastate offering. For
purposes of the PRA, for each of Rule 147 and Rule 147A, we estimate
that the total annual paperwork burden for all affected purchasers
arising from this collection of information requirements will be
approximately 1,750 hours of purchaser time and no cost incurred for
the services of outside professionals.
    In deriving our estimates, we assume that:
     Approximately 700 issuers \501\ will conduct a Rule 147
and Rule 147A offering each year, respectively, and each issuer will
spend an average of fifteen minutes to obtain and collect the written
representation from each purchaser in the offering as to his or her
state or territory of residence;
---------------------------------------------------------------------------

    \501\ We rely upon the number of offerings under Rules 504 and
505 of Regulation D for the year ended December 31, 2015 as a proxy
for the average annual number of offerings under Rule 147 and new
Rule 147A. Based on staff analysis of Form D filings, there were 519
new Form D filings reporting reliance on Rule 504 and 179 new Form D
filings reporting reliance on Rule 505 in 2015. See Figure 1 in
Section V.A.1, above. For purposes of these PRA estimates, we
estimate that an average of 700 issuers will conduct a Rule 147 and
new Rule 147A offering each year, respectively.
---------------------------------------------------------------------------

     Each of the approximately 700 issuers will retain outside
professional firms to spend an average of fifteen minutes helping the
issuer comply with this requirement to obtain and collect the written
statement of residency from each purchaser in the offering at an
average cost of $400 per hour;
     Each Rule 147 and Rule 147A offering will have an average
of approximately 10 purchasers of securities, resulting in
approximately 7,000 purchasers per year for each exemption; and
     Each purchaser in a Rule 147 and Rule 147A offering will
spend an average of approximately fifteen minutes preparing a written
statement of residency to provide to the issuer and will incur no cost
for the services of outside professionals to satisfy this requirement.
    Since Rule 147 does not require the issuer to file any type of
notice form with the Commission, it is difficult to determine
accurately the number of Rule 147 offerings conducted annually or
estimate the annual number of offerings that will be made in reliance
on the updated rule and the new Rule 147A exemption. As a result, we
are using the number of offerings made in reliance on the exemptions in
Rules 504 and 505 of Regulation D for the year ended December 31, 2015
as a proxy to estimate the average annual number of Rule 147 offerings,
given that both Rule 147 and Rules 504 and 505 provide exemptions to
Securities Act registration designed to facilitate smaller issuers
raising seed capital. Given that Rule 147A is very similar to Rule 147,
as amended, we are using this same methodology and estimate for the
number of offerings under newly adopted Rule 147A.
    It is also difficult to provide any standardized estimates of the
burdens and costs involved for the issuer to obtain and collect these
written statements of purchaser residency. We expect, however, that the
burdens and costs to issuers may be higher or lower depending on the
size of the offering and the number of purchasers acquiring securities
in the offering, which may, in turn, be affected by the state or
territory where the offering occurs.
    These estimates include the time and cost to the issuer to
implement a system to obtain and collect the written statements of
residency by purchasers in their offerings, including the preparation
of written materials, such as subscription agreements or questionnaires
to potential purchasers. These estimates also include the time and cost
incurred by an issuer's in-house and outside counsel and executive
officers of collecting these written statements received from
purchasers in their offerings.
    In deriving our estimates, we recognize that these burdens and
costs will likely vary among issuers based on the size of their
offerings and the number of purchasers acquiring securities in their
offerings. We believe that some issuers will experience burdens and
costs in excess of these estimated averages and other issuers may
experience less than these estimated average burdens and costs.
    Similarly, it is difficult to provide any standardized estimates of
the burdens and costs to purchasers in determining their state or
territory of residence and preparing their related written statements
of residency to the issuer. We expect, however, that the burden to
purchasers may be higher or lower depending on whether the purchaser is
a natural person or legal entity, and, if a legal entity, the extent of
the entity's activities in other states or territories. If a legal
entity, we realize there may be a wide range of management structures,
involving management teams potentially residing in multiple states or
territories, thereby complicating the determination of the purchaser's
principal place of business.
    These estimates include the time and cost to the purchaser to
determine the purchaser's state or territory of residence and prepare a
written statement of residency for the issuer. In the case of
purchasers who are legal entities, these estimates also include the
time and cost incurred by purchasers' in-house counsel and executive
officers to undertake a factual inquiry to determine the state or
territory of the purchaser's principal place of business.
    In deriving our estimates, we recognize that the burdens and costs
will likely vary between natural person and legal entity purchasers. In
the case of purchasers who are legal entities, these burdens and costs
will be based on a number of factors, including the location and
structure of their management teams. We believe that some natural
person and legal entity purchasers will experience burdens and costs in
excess of our estimated averages, and that others may experience
burdens and costs less than our estimated averages.
Request for Comment
    We request comment on our approach and the accuracy of the current
estimates. Pursuant to 44 U.S.C. 3506(c)(2)(A), the Commission solicits
comments to: (1) Evaluate whether the collections of information are
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility; (2)
evaluate the accuracy of the Commission's estimate of the burden of the
collections of information; (3) determine whether there are ways to
enhance the quality, utility and clarity of the information to be
collected; and (4) evaluate whether there are ways to minimize the
burden of the collections of information on those who are required to
respond,

including through the use of automated collection techniques or other
forms of information technology.
    Persons submitting comments on the collection of information
requirements should direct the comments to the Commission by any of the
following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/final.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number S7-22-15 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments to Brent J. Fields, Secretary,
Securities and Exchange Commission, 100 F Street NE., Washington, DC
20549-1090.

Comments should be received on or before: January 20, 2017. Comments
submitted in response to this document will be summarized and/or
included in the request for OMB approval of this information
collection; they also will become a matter of public record.

B. Amendments to Rule 504 of Regulation D

    The amendments to Rule 504 of Regulation D contain ``collection of
information'' requirements within the meaning of the PRA. There are two
titles for the collection of information requirements contemplated by
the amendments. The first title is: ``Form D'' (OMB Control No. 3235-
0076), an existing collection of information.\502\ The second title is:
``Regulation D Rule 504(b)(3) Felons and Other Bad Actors Disclosure
Statement,'' (OMB Control No. 3235-0746), a new collection of
information. Although the amendments to Rule 504 do not alter the
information requirements set forth in Form D, the amendments are
expected to increase the number of new Form D filings made pursuant to
Regulation D. Additionally, the mandatory bad actor disclosure
provisions that will be required under Rule 504 contain ``collection of
information'' requirements within the meaning of the PRA. We published
a notice requesting comment on these collection of information
requirements in the Proposing Release, and we submitted the proposed
amendments to the Office of Management and Budget (``OMB'') for review
and approval in accordance with the PRA and its implementing
regulations.\503\ While several commenters provided qualitative
comments on the possible costs of the proposed amendments, we did not
receive comments on our PRA analysis and thus are adopting our
estimates substantially as proposed, except as otherwise noted herein.
---------------------------------------------------------------------------

    \502\ Form D was adopted pursuant to Sections 2(a)(15), 3(b),
4(a)(2), 19(a) and 19(c)(3) of the Securities Act, 15 U.S.C.
77b(a)(15), 77c(b), 77d(a)(2), 77s(a) and 77s(c)(3).
    \503\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    The information collection requirements related to the filing of
Form D with the Commission are mandatory to the extent that an issuer
elects to make an offering of securities in reliance on the relevant
exemption. Responses are not confidential, and there is no mandatory
retention period for the information disclosed. The hours and costs
associated with preparing and filing forms and retaining records
constitute reporting and cost burdens imposed by the collection of
information requirements. We applied for an OMB control number for the
proposed new collection of information in accordance with 44 U.S.C.
3507(j) and 5 CFR 1320.13, and OMB assigned a control number to the new
collection, as specified above. Responses to the new collection of
information will be mandatory for issuers raising capital under Rule
504 of Regulation D.
Form D (OMB Control No. 3235-0076)
    The Form D filing is required for issuers as a notice of sales
without registration under the Securities Act based on a claim of
exemption under Regulation D or Section 4(a)(5) of the Securities Act.
The Form D must include basic information about the issuer, certain
related persons, and the offering. This information is used by the
Commission to observe use of the Regulation D exemptions and safe
harbor.
    As the amendments are not altering the information requirements of
Form D, the amendments will not affect the paperwork burden of the
form, and the burden for responding to the collection of information in
Form D will be the same as before the amendments to Form D. However, we
estimate that the amendments to increase the aggregate amount of
securities that may be offered and sold in any 12-month period in
reliance on Rule 504 will increase the number of Form D filings that
are made with the Commission. We do not believe this increase will be
materially offset by a decrease in the number of Form D filings that
are made with the Commission attributable to our repeal of Rule 505 of
Regulation D.
    The table below shows the current total annual compliance burden,
in hours and in costs, of the collection of information pursuant to
Form D. For purposes of the PRA, we estimate that, over a three-year
period, the average burden estimate will be four hours per Form D. Our
burden estimate represents the average burden for all issuers. This
burden is reflected as a one hour burden of preparation on the company
and a cost of $1,200 per filing. In deriving these estimates, we assume
that 25% of the burden of preparation is carried by the issuer
internally and that 75% of the burden of preparation is carried by
outside professionals retained by the issuer at an average cost of $400
per hour. The portion of the burden carried by outside professionals is
reflected as a cost, while the portion of the burden carried by the
issuer internally is reflected in hours.

                                       Table 1--Estimated Paperwork Burden Under Form D, Pre-Amendment to Rule 504
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                External
                                                 Number of      Burden  hours/  Total burden hours  Internal issuer    professional   Professional costs
                                                 responses           form                                 time             time
                                                   (A) \504\              (B)                   (C) = (A)*(B)  (D)              (E)      (F) = (E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form D......................................          25,900                4             103,600           25,900           77,700         $31,080,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For the year ended 2015, there were 22,854 new Form D filings. The
annual number of new Form D filings rose from 13,764 in 2009 to 22,854
in 2015, an average increase of approximately 1,515 Form D filings per
year, or approximately 9%. Assuming the number of Form D filings
continues to increase by 1,515 filings per year for each of the next
three years, the average number of Form D filings in each of the next
three years would be approximately 25,900.
---------------------------------------------------------------------------

    \504\ Although the number of responses for Form D is reported as
21,824 in the OMB's Inventory of Currently Approved Information
Collections, available at http://www.reginfo.gov/public/do/PRAMain;jsessionid=D37174B5F6F9148DB767D63DF6983A65, we have
prepared a new estimate based on the historical trend of the annual
number of new Form D filings. Based on an average increase of
approximately 1,515 new Form D filings per year over the past six
years, we believe that the average number of new Form D filings in
each of the next three years will be approximately 25,884, or 25,900
rounded to the nearest hundredth.
---------------------------------------------------------------------------

    We estimate that the amendments to Rule 504 will result in a much
smaller annual increase in the number of new Form D filings than the
average annual increase that has occurred over the past six years. To
estimate how the amendments to Rule 504 will impact the number of new
Form D filings, we used as a reference point the impact of a past rule
change on the market for Regulation D offerings. In 1997, the
Commission amended Rule 144(d) under the Securities Act \505\ to reduce
the holding period for restricted securities from two years to one
year,\506\ thereby increasing the attractiveness of Regulation D
offerings to investors and to issuers. Prior to amending Rule 144(d),
there were 10,341 Form D filings in 1996, which was followed by a 20%
increase in the number of Form D filings in each of the subsequent
three calendar years, reaching 17,830 by 1999. Although it is not
possible to predict with any degree of certainty the increase in the
number of Rule 504 offerings following the amendments, we estimate for
purposes of the PRA that there will be a similar 20% increase over the
number of new Form D offerings that relied on either Rule 504 or 505 in
2015 after the amendments become effective.\507\ In 2015, there were
519 new Form D filings reporting reliance on Rule 504 and 179 new Form
D filings reporting reliance on Rule 505.\508\ We estimate that there
will be approximately 100 new Form D filings in each of the next three
years attributable to the amendments.\509\
---------------------------------------------------------------------------

    \505\ 17 CFR 230.144(d).
    \506\ See SEC Rel. No. 33-7390 (Feb. 20, 1997) [62 FR 9242].
    \507\ We include the number of new Form D filings that rely on
Rule 505 in these estimates since we are repealing Rule 505, which
has provided an alternative Regulation D exemption available for
both non-reporting and reporting issuers under the Exchange Act.
Rule 505 has a maximum offering limitation of no more than $5
million in a twelve month period. We believe that issuers who are
non-reporting under the Exchange Act that have previously relied
upon Rule 505 will rely upon Rule 504 upon effectiveness of the
amendments, which will raise the maximum offering limitation under
Rule 504 from $1 million to $5 million. Reporting issuers under the
Exchange Act, who would have otherwise relied upon Rule 505, will
now have to rely upon Rule 506 of Regulation D, once the repeal of
Rule 505 becomes effective, since Rule 504 is unavailable to
reporting issuers.
    \508\ Only 10 of the 179 new Form D filings that reported
reliance on Rule 505 in 2015 were filed by reporting issuers under
the Exchange Act. The remaining 169 new Form D filings were filed by
non-reporting issuers.
    \509\ We estimate the number of new Form D filings attributable
to the amendments over the next three years, as follows: 698 new
Form D filings in 2015 relying on either Rules 504 or 505, less 10
new Form D filings made by reporting issuers under Rule 505 in 2015,
multiplied by 20%, equals 138. Rounding 138 to the nearest hundredth
provides an estimate of 100 new Form D filings attributable to the
amendments.
---------------------------------------------------------------------------

    Based on these increases, we estimate that the total annual
compliance burden of the collection of information requirements for
issuers making Form D filings after amending Rule 504 to increase the
aggregate offering amount from $1 million to $5 million will be 26,000
hours of issuer personnel time and $31,200,000 for the services of
outside professionals.

                                      Table 2--Estimated Paperwork Burden Under Form D, Post-Amendment to Rule 504
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                External
                                                       Number of      Burden  hours/    Total burden   Internal issuer    professional     Professional
                                                       responses           form            hours             time             time            costs
                                                         (A) \510\              (B)                (C) = (A)*(B)  (D)              (E)      (F) = (E) *
                                                                                $400

rForm D...........................................          26,000                4          104,000           26,000           78,000      $31,200,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

Regulation D Rule 504(b)(3) Felons and Other Bad Actors Disclosure
Statement (OMB Control No. 3235-0746)
    Under the amendments, Rule 504 will disqualify issuers from
reliance on Rule 504 if such issuer would be subject to
disqualification under Rule 506(d) of Regulation D.\511\ Consistent
with the requirements of Rule 506(e), the amendments require the issuer
in a Rule 504 offering to furnish to each purchaser, a reasonable time
prior to sale, a written description of any disqualifying events that
occurred before effectiveness of the amendments and within the time
periods described in the list of disqualification events set forth in
Rule 506(d)(1) of Regulation D,\512\ for the issuer or any other
``covered person'' associated with the offering. For purposes of the
mandatory disclosure provision described in the note to Rule
504(b)(3),\513\ issuers will be required to ascertain whether any
disclosures are required in respect of covered persons involved in
their offerings, prepare any required disclosures and furnish them to
purchasers.
---------------------------------------------------------------------------

    \510\ The information in this column is not based on the number
of responses for Form D of 21,824, as reported in the OMB's
Inventory of Currently Approved Information Collections, but rather
on a new estimate of the average number of new Form D filings in
each of the next three years. We prepared this estimate based on the
historical trend of the annual number of new Form D filings. See
text accompanying note 503 above. Based on an average increase of
approximately 1,515 new Form D filings per year over the past six
years, we estimate that the number of new Form D filings after the
amendment to Rule 504 would be the average number of new Form D
filings we estimate in each of the next three years of 25,900, plus
the additional 100 filings we estimate would be filed as a result of
the amendment to Rule 504.
    \511\ See Rule 504(b)(3); see also 17 CFR 230.506(d).
    \512\ 17 CFR 230.506(d)(1).
    \513\ See Note to Rule 504(b)(3).
---------------------------------------------------------------------------

    The disclosure required to be furnished to investors does not
involve submission of a form filed with the Commission and is not
required to be presented in any particular format, although it must be
in writing. The hours and costs associated with preparing and
furnishing the required disclosure to investors in the offering
constitute reporting and cost burdens imposed by the collection of
information.
    The disclosure or paperwork burden imposed on issuers appears in an
instruction to Rule 504(b)(3) and pertains to events that occurred
before effectiveness of the final rules but which would have triggered
disqualification had they occurred after effectiveness. Issuers relying
on Rule 504 will be required to furnish disclosure of any relevant past
events that would have triggered disqualification under Rule 504(b)(3)
that relate to the issuer or any other covered person. If there are any
such events, a disclosure statement will be required to be furnished, a
reasonable time before sale, to all purchasers in the offering. The
disclosure requirement will serve to protect purchasers by

ensuring that they receive information about any covered persons that
were subject to such disqualifying events.
    The disclosure requirement will not apply to triggering events
occurring after the effective date of the amendments, because those
events will result in disqualification from reliance on Rule 504
(absent a waiver or other exception provided in Rule 506(d)), rather
than any disclosure obligation.
    The steps that issuers take to comply with the disclosure
requirement are expected to mirror the steps they would take to
determine whether they are disqualified from relying on Rule 504. For
purposes of estimating burdens and costs, we have assumed that issuers
planning or conducting a Rule 504 offering will undertake a factual
inquiry to determine whether they are subject to any disqualification
in order to utilize the reasonable care provisions set forth in Rule
506(d)(2)(iv). Disqualification and mandatory disclosure will be
triggered by the same types of events in respect of the same covered
persons, with disqualification arising from triggering events occurring
after the adoption and effectiveness of the amendments and mandatory
disclosure applicable to events occurring before that date. Therefore,
we expect that the factual inquiry process for the disclosure statement
requirement will impose a limited incremental burden on issuers.
    The burdens and costs may vary depending on the size of the issuer
and the circumstances of the particular Rule 504 offering. We do not
anticipate that it will generally be necessary for any issuer or any
compensated solicitor to make inquiry of any covered individual with
respect to ascertaining the existence of events that require disclosure
more than once, because the period to be covered by the inquiry will
end with the effective date of the new disqualification rules. However,
issuers may incur additional burden and costs for each Rule 504
offering due to changes in management or intermediaries, other changes
to the group of covered persons or if questions arise about the
accuracy of previous responses.
    We anticipate that the Regulation D Rule 504(b)(3) Felons and Other
Bad Actors Disclosure Statement will result in an incremental increase
in the burdens and costs for issuers that rely on the Rule 504
exemption. For purposes of the PRA, we estimate the total annual
increase in paperwork burden for all affected Rule 504 issuers to
comply with our collection of information requirements will be
approximately 880 hours of company personnel time and approximately
$9,600 for the services of outside professionals. These estimates
include the incremental time and cost of conducting a factual inquiry
to determine whether the Rule 504 issuers have any covered persons with
past disqualifying events. The estimates also include the cost of
preparing a disclosure statement that issuers will be required to
furnish to each purchaser a reasonable time prior to sale.
    In deriving our estimates, consistent with those assumptions used
in the PRA analysis for the Rule 506 bad actor disqualification
provisions,\514\ we assume that:
---------------------------------------------------------------------------

    \514\ See SEC Rel. No. 33-9414 (July 10, 2013).
---------------------------------------------------------------------------

     Approximately 800 issuers \515\ relying on Rule 504 of
Regulation D will spend on average one additional hour to conduct a
factual inquiry to determine whether any covered persons had a
disqualifying event that occurred before the effective date of the
amendments; and
---------------------------------------------------------------------------

    \515\ Based on staff analysis of Form D filings, there were 519
new Form D filings reporting reliance on Rule 504 and 179 new Form D
filings reporting reliance on Rule 505 in 2015. See Figure 1 in
Section V.A.1, above. Of the 179 new Form D filings reporting
reliance on Rule 505 in 2015, 10 new Form D filings were made by
reporting issuers under the Exchange Act and 169 new Form D filings
were made by non-reporting issuers under the Exchange Act. For
purposes of the PRA estimates, and based on the data provided for
Rule 504 and Rule 505 offerings in 2015, we assume that
approximately 800 issuers would file a Form D indicating reliance on
Rule 504 after the effectiveness of the amendments to Rule 504
(calculated as follows: 519 new Rule 504 filings and 169 new Rule
505 filings by non-reporting issuers in 2015, rounded to the nearest
hundredth, or 700 new Form D filings, plus 100 additional new Form D
filings attributable to the amendments to Rule 504). This figure
includes non-reporting issuers under the Exchange Act that, before
adoption of amendments to Rule 504, would have conducted offerings
pursuant to Rule 505, but that after adoption of the amendments to
Rule 504 and repeal of Rule 505 will likely conduct their offerings
pursuant to Rule 504.
---------------------------------------------------------------------------

     On the basis of the factual inquiry, approximately eight
issuers (or approximately 1%) will spend ten hours to prepare a
disclosure statement describing matters that would have triggered
disqualification under Rule 504(b)(3) of Regulation D had they occurred
on or after the effective date of the amendments; and
     For purposes of the Rule 504(b)(3) disclosure statement,
approximately eight issuers will retain outside professional firms to
spend three hours on disclosure preparation at an average cost of $400
per hour.
    The increase in burdens and costs associated with conducting a
factual inquiry for the disclosure statement requirement should be
minimal given that issuers are likely to conduct simultaneously a
similar factual inquiry for purposes of determining disqualification
from Rule 504.
    It is difficult to provide any standardized estimates of the costs
involved with the factual inquiry. There is no central repository that
aggregates information from all federal and state courts and regulators
that would be relevant in determining whether a covered person has a
disqualifying event in his or her past. In this regard, we are
currently unable to estimate the burdens and costs for issuers in a
verifiable way. We expect, however, that the costs to issuers may be
higher or lower depending on the size of the issuer and the number and
roles of covered persons. We realize there may be a wide range of
issuer sizes, management structures, and offering participants
associated with Rule 504 offerings and that different issuers may
develop a variety of different factual inquiry procedures.
    Where the issuer or any covered person will be subject to an event
covered by Rule 504(b)(3) that existed before the effective date of
these rules, the issuer will be required to prepare disclosure for each
relevant Rule 504 offering. The estimates include the time and the cost
of data gathering systems, the time and cost of preparing and reviewing
disclosure by in-house and outside counsel and executive officers, and
the time and cost of delivering or furnishing documents and retaining
records.
    Issuers conducting ongoing or continuous offerings may need to
update their factual inquiry and disclosure as necessary to address
additional covered persons. The annual incremental paperwork burden,
therefore, depends on an issuer's Rule 504 offering activity and the
changes in covered persons from offering to offering. For example, some
issuers may only conduct one Rule 504 offering during a year while
other issuers may have multiple, separate Rule 504 offerings during the
course of the same year involving different financial intermediaries,
newly hired executive officers or new 20% shareholders, any of which
will result in a different group of covered persons. In deriving our
estimates, we recognize that the burdens will likely vary among
individual companies based on a number of factors, including the size
and complexity of their organizations. We believe that some companies
will experience costs in excess of this estimated average and other
companies may experience less than the estimated average costs.

VII. Final Regulatory Flexibility Act Analysis

    The Regulatory Flexibility Act (``RFA'') \516\ requires the
Commission, in promulgating rules under Section 553 of the
Administrative Procedure Act,\517\ to consider the impact of those
rules on small entities. The Commission has prepared this Final
Regulatory Flexibility Analysis (``FRFA'') in accordance with Section
604 of the RFA.\518\ This FRFA relates to the amendments to Rules 147
and 504, new Rule 147A and the repeal of Rule 505, all of which rules
are under the Securities Act. An Initial Regulatory Flexibility
Analysis (IRFA) was prepared in accordance with the RFA and included in
the Proposing Release.
---------------------------------------------------------------------------

    \516\ 5 U.S.C. 601 et seq.
    \517\ 5 U.S.C. 553.
    \518\ 5 U.S.C. 604.
---------------------------------------------------------------------------

A. Need for the Rules

    The amendments to Rule 147 are designed to modernize the safe
harbor, consistent with the Section 3(a)(11) exemption from
registration for intrastate securities offerings. New Rule 147A, which
will be similar to amended Rule 147 but will have no restriction on
offers and will allow issuers to be incorporated or organized out-of-
state, establishes a new Securities Act exemption for intrastate
offerings of securities by local companies. Together, the amendments to
Rule 147 and new Rule 147A are designed to facilitate capital formation
by making it easier to engage in exempt intrastate offerings while
maintaining appropriate protections for investors who purchase
securities in these offerings.
    The amendments to Rule 504 are designed to facilitate capital
formation by increasing the flexibility of state securities regulators
to implement regional coordinated review programs that will facilitate
regional offerings. The amendments to Rule 504 will raise the aggregate
amount of securities an issuer may offer and sell in any 12-month
period from $1 million to $5 million and disqualify certain bad actors
from participating in Rule 504 offerings. We believe that raising the
aggregate offering limitation and disqualifying certain bad actors will
maximize the flexibility of state securities regulators to implement
regional coordinated review programs and provide for greater
consistency across Regulation D. We believe our amendment to Rule 504
to increase its aggregate offering ceiling from $1 million to $5
million will significantly diminish the utility of Rule 505 of
Regulation D, and we are therefore repealing that rule.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on all aspects of
the IRFA, including the number of small entities that would be affected
by the proposed amendments, the existence or nature of the potential
impact of the proposals on small entities discussed in the analysis,
and how to quantify the impact of the proposed amendments. We did not
receive any comments specifically addressing the IRFA. We did, however,
receive comments from members of the public on matters that could
potentially impact small entities. These comments are discussed at
length by topic in the corresponding subsections of Sections II. and
III. above.
    Many commenters recommended making changes to the proposed rules
that, in their view, would make the exemptions a more viable capital
raising option for smaller issuers. Numerous commenters supported \519\
the proposal to eliminate the Rule 147 limitation on offers to in-state
residents while continuing to require that all sales be made to in-
state residents. However, many commenters also supported \520\ and the
2015 Small Business Forum recommended \521\ retaining Rule 147 as a
safe harbor under Section 3(a)(11), while adopting a substantially
similar new exemption pursuant to the Commission's general exemptive
authority under Section 28 as an alternative to the Section 3(a)(11)
exemption for companies that are conducting an intrastate offering.
Many commenters opposed any limits at the federal level on offering
size or investment size,\522\ and the 2015 Small Business Forum
recommended permitting the states to set their own limits as
appropriate.\523\ In addition, several commenters supported \524\ and
the 2015 Small Business Forum recommended \525\ exempting securities
issued in reliance upon Rule 147 from the reporting requirements of
Section 12(g) of the Exchange Act. Several commenters also supported
interpreting the intrastate broker-dealer exemption under the Exchange
Act to include intermediaries whose activities are limited to
facilitating intrastate offerings using the Internet.\526\
---------------------------------------------------------------------------

    \519\ ABA Letter; City of Adrian Letter; Bishop Letter; Brelion
Letter; CFA Letter; CFIRA Letter; CrowdCheck Letter; CrwdCorp
Letter; Ely Letter; Guzik Letter; Love Letter; MacDougall Letter;
Milken Letter; NASAA Letter; Newcomer Letter; NextSeed Letter; Pearl
Letter; Terdal Letter; Wolff Letter; Zeoli Letter. See also
Congressional Letter (expressing general support for the proposed
amendments to Rule 147).
    \520\ ABA Letter; City of Adrian Letter; Bishop Letter;
California Bar Letter; CFIRA Letter; Congressional Letter;
CrowdCheck Letter; Guzik Letter; Milken Letter; NASAA Letter;
NextSeed Letter; Pearl Letter; Wallin Letter; Orloff Letter; Zeoli
Letter. No commenters supported eliminating Rule 147 as a safe
harbor under Section 3(a)(11).
    \521\ See 2015 Small Business Forum Recommendations.
    \522\ ABA Letter; Campbell Letter; CFIRA Letter; Congressional
Letter; CrowdCheck Letter; Guzik Letter; Milken Letter; NASAA
Letter; NextSeed Letter; WBA Letter.
    \523\ See 2015 Small Business Forum Recommendations.
    \524\ CFIRA Letter; CrowdCheck Letter; Guzik Letter; Milken
Letter; City of Adrian Letter.
    \525\ See 2015 Small Business Forum Recommendations.
    \526\ NASAA Letter; NextSeed Letter; WBA Letter.
---------------------------------------------------------------------------

    Amended Rule 147 and new Rule 147 take into account some of the
suggestions by commenters and the recommendations of the 2015 Small
Business Forum on ways to make the intrastate offering exemptions more
useful for small entities. For example, the final rules retain Rule 147
as a safe harbor under Section 3(a)(11), while adopting a substantially
similar new exemption pursuant to the Commission's general exemptive
authority under Section 28 as an alternative to the Section 3(a)(11)
exemption for companies that are conducting an intrastate offering. As
described above, the final rules will modernize existing Rule 147 and
maintain a consistent approach across the two intrastate offering
provisions, where possible. Also, given the comments received, the
recommendations of the 2015 Small Business Forum and the local
intrastate nature of the exemptions, amended Rule 147 and new Rule 147A
will not contain any limits at the federal level on offering size or
investment size.
    As noted in Section II.C above, however, we are not persuaded that
securities issued in reliance upon Rule 147 or Rule 147A should be
exempt from the reporting requirements of Section 12(g) of the Exchange
Act. Given the lack of ongoing reporting requirements under these
rules, we believe that the Section 12(g) record holder and asset
thresholds continue to provide an important baseline above which
issuers should generally be subject to the disclosure obligations of
the Exchange Act. As the shareholder base and total assets of these
issuers grow, we believe that the additional protections that will be
provided by registration under Section 12(g) are necessary and
appropriate.
    Additionally, as noted in Section II.B.2.c above, in response to
the request by several commenters to interpret the intrastate broker-
dealer exemption

under the Exchange Act to include intermediaries whose activities are
limited to facilitating intrastate offerings using the Internet,\527\
we are providing guidance that a broker-dealer whose business otherwise
meets the requirements of the intrastate broker-dealer exemption should
not cease to qualify for the intrastate broker-dealer exemption solely
because it has a Web site that may be viewed by out-of-state persons,
so long as the broker-dealer takes measures reasonably designed to
ensure that its business remains exclusively intrastate.
---------------------------------------------------------------------------

    \527\ NASAA Letter; NextSeed Letter; WBA Letter.
---------------------------------------------------------------------------

    A few commenters also recommended changes to Rules 504 and 505
that, in their view, would make the exemptions a more viable capital
raising option for smaller issuers. Two commenters suggested \528\ and
the 2015 Small Business Forum recommended \529\ that the Rule 504
offering amount limit be increased to $10 million. In addition, one
commenter suggested \530\ and the 2015 Small Business Forum recommended
\531\ that securities sold under Rule 504 be exempt from the
requirements of Section 12(g). For Rule 505, one commenter suggested
that the Commission consider changes to Rule 505 to facilitate very
small offerings by early stage companies, such as a simple debt-only
offering exemption for smaller issuers.\532\ Another commenter noted
that, if the proposed changes to Rule 504 are adopted, Rule 505 would
be substantially similar to Rule 504, making Rule 505 unnecessary,
unless the Commission increases the aggregate offering amount that may
be raised under Rule 505 in any twelve-month period.\533\
---------------------------------------------------------------------------

    \528\ CrowdCheck Letter; CFIRA Letter.
    \529\ See 2015 Small Business Forum Recommendations.
    \530\ Milken Letter.
    \531\ See 2015 Small Business Forum Recommendations.
    \532\ Milken Letter.
    \533\ ABA Letter. This commenter recommended, for example, that
the offering amount limit could be raised from $5 million to $10
million or some larger amount, thereby preserving Rule 505 as a
viable alternative exemption.
---------------------------------------------------------------------------

    As supported by many commenters, the final amendments to Rule 504
will increase the offering amount limit from $1 million to $5
million.\534\ We believe that the $5 million threshold will facilitate
issuers' ability to raise capital, while remaining within the statutory
requirements of Section 3(b)(1). As noted in Section III.B above,
although two commenters and the 2015 Small Business Forum recommended
that the Commission increase the Rule 504 offering amount limit to $10
million, we are not exceeding the maximum offering amount permitted
under Section 3(b)(1). Although, as several commenters noted, we could
use our exemptive authority under Section 28 of the Securities Act to
raise the maximum offering amount above $5 million,\535\ in accord with
the suggestion of one of those commenters,\536\ we believe it
appropriate to first observe market activity under a new maximum
offering amount of $5 million before raising the Rule 504 offering
limit any higher.
---------------------------------------------------------------------------

    \534\ ABA Letter; CFA Letter; CFIRA Letter; CrowdCheck Letter;
Milken Letter; NASAA Letter.
    \535\ ABA Letter; Milken Letter.
    \536\ ABA Letter (``If the increase to $5 million is adopted,
after there is experience with the use and operation of new Rule
504, the Commission may wish to consider using its exemption
authority under Section 28 to increase the dollar limitation amount
that may be offered under Rule 204.'').
---------------------------------------------------------------------------

    As noted in Section III.B above, we are not persuaded that
securities issued in reliance upon Rule 504 should be exempt from the
reporting requirements of Section 12(g) of the Exchange Act. Similar to
Rules 147 and 147A, given the lack of ongoing reporting requirements
under Rule 504, we believe that the Section 12(g) record holder and
asset thresholds continue to provide an important baseline above which
issuers should generally be subject to the disclosure obligations of
the Exchange Act. As the shareholder base and total assets of these
companies grow, we believe that the additional protections that will be
provided by registration under Section 12(g) are necessary and
appropriate.
    After considering the comments, we are repealing Rule 505. As
discussed in Section III.C, amending Rule 504 to increase the aggregate
offering amount limit from $1 million to $5 million may further reduce
the incentives to use Rule 505 by issuers contemplating an exempt
offering. We also believe that, even if we were to raise the Rule 505
aggregate offering amount limit from $5 million to $10 million, or some
higher amount, such a higher limit would not increase the utility of
the Rule 505 exemption as compared to Rule 506 which has no limit,
given the historically diminished utility of Rule 505 as compared to
Rule 506.\537\ Further, although Rule 505 provides issuers the ability
to sell securities to up to 35 non-accredited investors without having
to make a finding, as in Rule 506(b)(2)(ii), that such persons have the
knowledge and experience in financial matters that they are capable of
evaluating the merits and risks of the prospective investment, \538\
this provision does not appear to have historically resulted in the
Rule 505 exemption being widely utilized.\539\ We will continue to
evaluate whether we should replace Rule 505 with a substantially
different exemption with new criteria, such as an exemption limited to
a very small aggregate offering amount by early stage companies, or an
exemption limited only to ``simple debt securities'' with very modest
compliance requirements.
---------------------------------------------------------------------------

    \537\ See note 22 above.
    \538\ Cf. 17 CFR 230.506(b)(2)(ii).
    \539\ See Unregistered Offerings White Paper.
---------------------------------------------------------------------------

    In the light of the changes discussed above, we believe that the
final rules provide smaller issuers with an appropriately tailored
regulatory regime that takes into account the needs of small entities
to have viable intrastate capital formation options, while maintaining
appropriate investor protections.

C. Small Entities Subject to the Rules

    For purposes of the RFA, under our rules, an issuer, other than an
investment company, is a ``small business'' or ``small organization''
if it has total assets of $5 million or less as of the end of its most
recent fiscal year and is engaged or proposing to engage in an offering
of securities which does not exceed $5 million.\540\ For purposes of
the RFA, an investment company is a small entity if it, together with
other investment companies in the same group of related investment
companies, has net assets of $50 million or less as of the end of its
most recent fiscal year.\541\
---------------------------------------------------------------------------

    \540\ 17 CFR 230.157.
    \541\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

    While we lack data on the number and size of Rule 147 offerings or
the type of issuers currently relying on the Rule 147 safe harbor, the
nature of the eligibility requirements and other restrictions of the
rule lead us to believe that it is used by U.S. incorporated entities
that are likely small businesses seeking to raise small amounts of
capital locally without incurring the costs of registering with the
Commission. Currently, most states that have enacted crowdfunding
provisions require issuers that intend to conduct intrastate
crowdfunding offerings to rely upon Rule 147. Since December 2011, when
the first state crowdfunding provision was enacted, 179 state
crowdfunding offerings have been reported to be filed with the
respective state regulators.\542\ Of these offerings, 166 were reported
to be approved or cleared, as of June 20,

2016.\543\ We expect that almost all of the entities conducting these
offerings were small issuers.
---------------------------------------------------------------------------

    \542\ Based on estimates provided by NASAA in a meeting with
staff of the SEC Division of Corporation Finance on July 20, 2016,
available athttps://www.sec.gov/comments/s7-22-15/s72215-32.pdf.
    \543\ Id.
---------------------------------------------------------------------------

    It is difficult to predict the number of small entities that will
use amended Rule 147 and new Rule 147A due to the many variables
included in the amendments. Nevertheless, we believe that the final
rules will increase the overall number of offerings relying on the
intrastate exemptions due to the ability to make out-of-state offers
under Rule 147A, the expanded number of issuers that will be eligible
to use the intrastate exemptions due to the lack of an in-state
incorporation requirement in Rule 147A and the modernized ``doing
business'' requirements of Rules 147 and 147A, and other significant
changes summarized in Section II above.
    The amendments to Rule 504 will affect small issuers that rely on
this exemption from Securities Act registration. All issuers that sell
securities in reliance on Regulation D are required to file a Form D
with the Commission reporting the transaction. For the year ended
December 31, 2015, 20,736 issuers made 22,854 new Form D filings, and
of these Form D filings, 493 issuers relied on the Rule 504 exemption.
Based on the information reported by issuers on Form D, we estimate
that there were 269 small issuers \544\ relying on the Rule 504
exemption in 2015. This number likely underestimates the actual number
of small issuers relying on the Rule 504 exemption, however, because
41% of issuers that are not pooled investment funds and 38% of issuers
that are pooled investment funds declined to report their amount of
revenues or assets on their Form D filed with the Commission.
---------------------------------------------------------------------------

    \544\ Of this number, 265 of these issuers are not pooled
investment funds, and 4 are pooled investment funds. We also note
that issuers that are not pooled investment funds disclose only
revenues on Form D, and not total assets. To estimate the number of
small issuers, for non-pooled investment funds, we have included
issuers that disclosed up to $5 million in revenues, including those
with no revenues, and for pooled investment funds, we have included
issuers that disclosed up to $5 million in net asset value,
including those with no asset value.
---------------------------------------------------------------------------

    It is difficult to predict the number of small entities that will
use amended Rule 504 due to the variables included in the amendments.
Nevertheless, we believe that the final rules for Rule 504 will
increase the overall number of offerings relying on the exemption due
to the increase in the offering amount limit from $1 million to $5
million, as summarized in Section III above.
    The repeal of Rule 505 will affect small issuers that rely on this
exemption from Securities Act registration. For the year ended December
31, 2015, of the 20,736 issuers that made new Form D filings, 163
issuers relied on the Rule 505 exemption. Based on the information
reported by issuers on Form D, we estimate that there were 112 small
issuers \545\ relying on the Rule 505 exemption in 2015. This number
likely underestimates the actual number of small issuers relying on the
Rule 504 exemption, however, because 25% of issuers that are not pooled
investment funds and 38% of issuers that are pooled investment funds
declined to report their amount of revenues or assets on their Form D
filed with the Commission.
---------------------------------------------------------------------------

    \545\ Of this number, 107 are not pooled investment funds, and 5
are pooled investment funds. We also note that issuers that are not
pooled investment funds disclose only revenues on Form D and not
total assets. To estimate the number of small issuers, for non-
pooled investment funds, we have included issuers that disclosed up
to $5 million in revenues, including those with no revenues, and for
pooled investment funds, we have included issuers that disclosed up
to $5 million in net asset value, including those with no asset
value.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping and Other Compliance Requirements

    Amended Rule 147 and new Rule 147A will not impose any reporting or
recordkeeping requirements, but will require that issuers conducting
offerings in reliance on these rules make certain specific disclosures
to each offeree and purchaser in the offering. These disclosures will
be made to each offeree in the manner in which any such offer is
communicated and to each purchaser of a security in writing. Amended
Rule 147 and new Rule 147A will also require that issuers place a
specific legend on the certificate or other document evidencing the
securities that are being offered in reliance on the rules.
    In order to comply with Rules 147(d) and 147A(d), sales of
securities must be made only to residents of the state or territory in
which the issuer has its residence or who the issuer reasonably
believes, at the time of sale, are residents of the state or territory
in which the issuer has its residence. In light of the comments
received on the proposal, Rules 147 and 147A will include a requirement
that issuers obtain a written representation from each purchaser as to
his or her residence.\546\ This written representation, however, will
not be sufficient, by itself, to establish reasonable belief. In
addition to the written representation, an issuer will need to consider
other facts and circumstances.
---------------------------------------------------------------------------

    \546\ See Rules 147(f)(1)(iii) and 147A(f)(1)(iii).
---------------------------------------------------------------------------

    The amendments to Rule 504 will increase the aggregate offering
ceiling from $1 million to $5 million and disqualify certain bad actors
from participating in Rule 504 offerings. Issuers will need to comply
with all the current requirements of Rule 504, including the filing of
a Form D.\547\ Also, as is the case under current Rule 504, issuers
relying on the rule that wish to engage in general solicitation and
issue freely tradable securities may also be required to register their
offering with at least one state regulator. The amendments to Rule 504
will also impose a disclosure requirement with respect to bad actor
disqualifying events that occurred before the effective date of the
disqualification provisions and that would have triggered
disqualification had they occurred after that date.\548\ Such
disclosure will be required to be in writing and furnished to each
purchaser a reasonable time prior to sale. There no prescribed format
for such disclosure.
---------------------------------------------------------------------------

    \547\ Rule 503 requires an issuer relying on any exemption under
Regulation D to file a Form D within 15 calendar days after the
first sale of securities in the offering.
    \548\ See Rule 504(b)(3).
---------------------------------------------------------------------------

    In addition, we assume that issuers will exercise reasonable care
to ascertain whether a disqualification exists with respect to any
covered person and document their exercise of reasonable care. The
steps undertaken by issuers to exercise reasonable care may vary with
the circumstances. In addition, issuers will have to prepare any
necessary disclosure about preexisting events. We expect that the costs
of compliance will vary depending on the size and nature of the
offering but will generally be lower for small entities than for larger
ones because of the relative simplicity of their organizational
structures and securities offerings and the generally smaller numbers
of individuals and entities involved.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives of our
amendments, while minimizing any significant adverse impact on small
entities. Specifically, we considered the following alternatives: (1)
Establishing different compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) clarifying, consolidating or simplifying compliance and
reporting requirements for small entities under the rule; (3) using
performance rather than design

standards; and (4) exempting small entities from coverage of all or
part of the amendments.
    With respect to clarification, consolidation and simplification of
the final rules' compliance and reporting requirements for small
entities, amended Rule 147 and new Rule 147A do not impose any new
reporting requirements. To the extent the final rules may be considered
to create a new compliance requirement to have a reasonable belief that
a prospective purchaser is a resident of the state or territory in
which the issuer is a resident, including a requirement that issuers
obtain a written representation from each purchaser as to his or her
residence (as currently required in Rule 147), the precise steps
necessary to meet the ``reasonable belief'' requirement will vary
according to the circumstances, and this flexible standard will be
applicable to all issuers, regardless of size. Overall, the final rules
are designed to streamline and modernize the rule for all issuers, both
large and small.
    In connection with amended Rule 147 and new Rule 147A, we do not
think it feasible or appropriate to establish different compliance or
reporting requirements or timetables for small entities. The final
rules are designed to facilitate access to capital for both large and
small issuers, but particularly smaller issuers who may satisfy their
financing needs by limiting the sales of their securities only to
residents of the state or territory in which the issuers are resident.
The final rules do not contain any reporting standards and the
compliance requirements they do include are minimal and designed with
the limited resources of smaller issuers in mind. Similarly, we do not
believe it is necessary to clarify, consolidate or simplify reporting
or compliance requirements for small entities as the final rules
contain more streamlined requirements for all issuers, both large and
small. For example, the rules simplify the ``doing business'' in-state
determination by amending the current requirements in Rule 147 so that
an issuer's ability to rely on the safe harbor will be based on its
ability to satisfy updated and modernized issuer requirements, while
continuing to require issuers to have an in-state presence sufficient
to justify reliance on the Section 3(a)(11) exemption. New Rule 147A
includes similar modernized ``doing business'' in-state requirements.
With respect to using performance rather than design standards, we note
that the final rules establish a ``reasonable belief'' standard for the
determination of a prospective purchaser's residency status, which we
believe is a performance standard. Although the final rules will
require a written representation from investors, the rules recognize
that reasonable belief can be established in a variety of ways (e.g.,
through pre-existing knowledge of the purchaser, obtaining supporting
documentation, or using other appropriate methods). We believe that the
use of a performance standard accommodates different types of offerings
and purchasers without imposing overly burdensome methods that may be
ill-suited or unnecessary to a particular offering or purchaser, given
the facts and circumstances.
    With respect to exempting small entities from amended Rule 147 and
new Rule 147A, we believe such an approach would increase, rather than
decrease, their regulatory burden. The final rules are designed to
facilitate an issuer's access to capital, regardless of the size of the
issuer. We have endeavored throughout these rules to minimize the
regulatory burden on all issuers, including small entities, while
meeting our regulatory objectives.
    In connection with our amendments to Rule 504 of Regulation D, we
do not think it is feasible or appropriate to establish different
compliance or reporting requirements or timetables for small entities.
Our amendments are intended to facilitate issuers' access to capital
and are particularly designed for smaller issuers who are not subject
to the reporting requirements of Section 13 or 15(d) of the Exchange
Act and who are offering no more than $5 million of their securities in
any twelve month period. The amendments also exclude felons and other
``bad actors'' from involvement in Rule 504 offerings, which we believe
could benefit small issuers by increasing investor protection and trust
in such offerings. Increased investor trust could potentially reduce
the cost of capital and create greater opportunities for small
businesses to raise capital.
    With respect to clarification, consolidation and simplification of
the compliance and reporting requirements for small entities, the
amendments to Rule 504 do not impose any new reporting requirements. To
the extent the amendments may be considered to create a new compliance
requirement to exercise reasonable care to ascertain whether a
disqualification exists with respect to any offering and to furnish a
written description of preexisting triggering events, the precise steps
necessary to meet that requirement will vary according to the
circumstances. In general, we believe the requirement will more easily
be met by small entities than by larger ones because we believe that
their structures and securities offerings would be generally less
complex and involve fewer participants.
    With respect to the use of performance or design standards, we note
that the ``reasonable care'' exception is a performance standard. With
respect to exempting small entities from coverage of these amendments,
we believe that such an approach would increase, rather than decrease,
their regulatory burden. Regulation D was designed, in part, to provide
exemptive relief for smaller issuers. Furthermore, exempting small
entities from Rule 504's bad actor provisions could result in a
decrease in investor protection and trust in this small offerings
market, thereby potentially increasing the issuer's cost of capital. We
have endeavored to minimize the regulatory burden on all issuers,
including small entities, while meeting our regulatory objectives, and
have included a ``reasonable care'' exception and waiver authority for
the Commission to provide additional flexibility with respect to the
application of these amendments.

VIII. Statutory Basis and Text of Final Amendments

    The amendments contained in this release are being adopted under
the authority set forth in Sections 3(b)(1), 19 and 28 of the
Securities Act of 1933, as amended, Sections 12, 13, 15, 23(a) and 36
of the Securities Exchange Act of 1934, Section 38(a) of the Investment
Company Act of 1940 and Section 211(a) of the Investment Advisers Act.

List of Subjects

17 CFR Part 200

    Administrative practice and procedure, Authority delegations
(Government agencies), Organization and functions (Government
agencies).

17 CFR 230, 239, 240, 249, 270 and 275

    Reporting and recordkeeping requirements, Securities.

Text of Final Amendments

    For the reasons set out above, the Commission is amending Title 17,
chapter II of the Code of Federal Regulations, as follows:

PART 200--ORGANIZATION; CONDUCT AND ETHICS; AND INFORMATION AND
REQUESTS

Subpart A--Organization and Program Management

0
1. The authority citation for Part 200, Subpart A, continues to read,
in part as follows:

    Authority: 15 U.S.C. 77c, 77o, 77s, 77z-3, 77sss, 78d, 78d-1,
78d-2, 78o-4, 78w, 78ll(d), 78mm, 80a-37, 80b-11, 7202, and 7211 et
seq., unless otherwise noted.
* * * * *

Sec.  200.30-1   [Amended]

0
2. Amend Sec.  200.30-1 by:
0
a. In paragraph (a)(7), removing the references to ``4(3)'',
``4(3)(b)'' and ``77d(3)(B)'' and adding in their places ``4(a)(3)'',
``4(a)(3)(B)'' and ``77d(a)(3)(B)'' respectively; and
0
b. In paragraph (c), removing the reference to ``Sec. Sec.
230.505(b)(2)(iii)(C)'' and adding in its place ``Sec. Sec.
230.504(b)(3)''.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

0
3. The authority citation for part 230 continues to read in part as
follows:

    Authority:  15 U.S.C. 77b, 77b note, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78o-
7 note, 78t, 78w, 78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-
30, and 80a-37, and Public Law 112-106, sec. 201(a), sec. 401, 126
Stat. 313 (2012), unless otherwise noted.
* * * * *

0
4. Sec.  230.147 is revised to read as follows:

Sec.  230.147   Intrastate offers and sales.

    (a) This section shall not raise any presumption that the exemption
provided by section 3(a)(11) of the Act (15 U.S.C. 77c(a)(11)) is not
available for transactions by an issuer which do not satisfy all of the
provisions of this section.
    (b) Manner of offers and sales. An issuer, or any person acting on
behalf of the issuer, shall be deemed to conduct an offering in
compliance with section 3(a)(11) of the Act (15 U.S.C. 77c(a)(11)),
where offers and sales are made only to persons resident within the
same state or territory in which the issuer is resident and doing
business, within the meaning of section 3(a)(11) of the Act, so long as
the issuer complies with the provisions of paragraphs (c), (d), and (f)
through (h) of this section.
    (c) Nature of the issuer. The issuer of the securities shall at the
time of any offers and sales be a person resident and doing business
within the state or territory in which all of the offers and sales are
made.
    (1) The issuer shall be deemed to be a resident of the state or
territory in which:
    (i) It is incorporated or organized, and it has its principal place
of business, if a corporation, limited partnership, trust or other form
of business organization that is organized under state or territorial
law. The issuer shall be deemed to have its principal place of business
in a state or territory in which the officers, partners or managers of
the issuer primarily direct, control and coordinate the activities of
the issuer;
    (ii) It has its principal place of business, as defined in
paragraph (c)(1)(i) of this section, if a general partnership or other
form of business organization that is not organized under any state or
territorial law;
    (iii) Such person's principal residence is located, if an
individual.
    Instruction to paragraph (c)(1): An issuer that has previously
conducted an intrastate offering pursuant to this section (Sec.
230.147) or Rule 147A (Sec.  230.147A) may not conduct another
intrastate offering pursuant to this section (Sec.  230.147) in a
different state or territory, until the expiration of the time period
specified in paragraph (e) of this section (Sec.  230.147(e)) or
paragraph (e) of Rule 147A (Sec.  230.147A(e)), calculated on the basis
of the date of the last sale in such offering.
    (2) The issuer shall be deemed to be doing business within a state
or territory if the issuer satisfies at least one of the following
requirements:
    (i) The issuer derived at least 80% of its consolidated gross
revenues from the operation of a business or of real property located
in or from the rendering of services within such state or territory;
    Instruction to paragraph (c)(2)(i): Revenues must be calculated
based on the issuer's most recent fiscal year, if the first offer of
securities pursuant to this section is made during the first six months
of the issuer's current fiscal year, and based on the first six months
of the issuer's current fiscal year or during the twelve-month fiscal
period ending with such six-month period, if the first offer of
securities pursuant to this section is made during the last six months
of the issuer's current fiscal year.
    (ii) The issuer had at the end of its most recent semi-annual
fiscal period prior to an initial offer of securities in any offering
or subsequent offering pursuant to this section, at least 80% of its
assets and those of its subsidiaries on a consolidated basis located
within such state or territory;
    (iii) The issuer intends to use and uses at least 80% of the net
proceeds to the issuer from sales made pursuant to this section (Sec.
230.147) in connection with the operation of a business or of real
property, the purchase of real property located in, or the rendering of
services within such state or territory; or
    (iv) A majority of the issuer's employees are based in such state
or territory.
    (d) Residence of offerees and purchasers. Offers and sales of
securities pursuant to this section (Sec.  230.147) shall be made only
to residents of the state or territory in which the issuer is resident,
as determined pursuant to paragraph (c) of this section, or who the
issuer reasonably believes, at the time of the offer and sale, are
residents of the state or territory in which the issuer is resident.
For purposes of determining the residence of offerees and purchasers:
    (1) A corporation, partnership, limited liability company, trust or
other form of business organization shall be deemed to be a resident of
a state or territory if, at the time of the offer and sale to it, it
has its principal place of business, as defined in paragraph (c)(1)(i)
of this section, within such state or territory.
    Instruction to paragraph (d)(1): A trust that is not deemed by the
law of the state or territory of its creation to be a separate legal
entity is deemed to be a resident of each state or territory in which
its trustee is, or trustees are, resident.
    (2) Individuals shall be deemed to be residents of a state or
territory if such individuals have, at the time of the offer and sale
to them, their principal residence in the state or territory.
    (3) A corporation, partnership, trust or other form of business
organization, which is organized for the specific purpose of acquiring
securities offered pursuant to this section (Sec.  230.147), shall not
be a resident of a state or territory unless all of the beneficial
owners of such organization are residents of such state or territory.
    Instruction to paragraph (d): Obtaining a written representation
from purchasers of in-state residency status will not, without more, be
sufficient to establish a reasonable belief that such purchasers are
in-state residents.
    (e) Limitation on resales. For a period of six months from the date
of the sale by the issuer of a security pursuant to this section (Sec.
230.147), any resale of such security shall be made only to persons
resident within the state or territory in which the issuer was
resident, as determined pursuant to paragraph (c) of this section, at
the time of the sale of the security by the issuer.
    Instruction to paragraph (e): In the case of convertible
securities, resales of either the convertible security, or if it is
converted, the underlying security, could be made during the period
described in paragraph (e) only to persons resident within such state
or territory. For purposes of this paragraph

(e), a conversion in reliance on section 3(a)(9) of the Act (15 U.S.C.
77c(a)(9)) does not begin a new period.
    (f) Precautions against interstate sales. (1) The issuer shall, in
connection with any securities sold by it pursuant to this section:
    (i) Place a prominent legend on the certificate or other document
evidencing the security stating that: ``Offers and sales of these
securities were made under an exemption from registration and have not
been registered under the Securities Act of 1933. For a period of six
months from the date of the sale by the issuer of these securities, any
resale of these securities (or the underlying securities in the case of
convertible securities) shall be made only to persons resident within
the state or territory of [identify the name of the state or territory
in which the issuer was resident at the time of the sale of the
securities by the issuer].'';
    (ii) Issue stop transfer instructions to the issuer's transfer
agent, if any, with respect to the securities, or, if the issuer
transfers its own securities, make a notation in the appropriate
records of the issuer; and
    (iii) Obtain a written representation from each purchaser as to his
or her residence.
    (2) The issuer shall, in connection with the issuance of new
certificates for any of the securities that are sold pursuant to this
section (Sec.  230.147) that are presented for transfer during the time
period specified in paragraph (e), take the steps required by
paragraphs (f)(1)(i) and (ii) of this section.
    (3) The issuer shall, at the time of any offer or sale by it of a
security pursuant to this section (Sec.  230.147), prominently disclose
to each offeree in the manner in which any such offer is communicated
and to each purchaser of such security in writing a reasonable period
of time before the date of sale, the following: ``Sales will be made
only to residents of [identify the name of the state or territory in
which the issuer was resident at the time of the sale of the securities
by the issuer]. Offers and sales of these securities are made under an
exemption from registration and have not been registered under the
Securities Act of 1933. For a period of six months from the date of the
sale by the issuer of the securities, any resale of the securities (or
the underlying securities in the case of convertible securities) shall
be made only to persons resident within the state or territory of
[identify the name of the state or territory in which the issuer was
resident at the time of the sale of the securities by the issuer].''
    (g) Integration with other offerings. Offers or sales made in
reliance on this section will not be integrated with:
    (1) Offers or sales of securities made prior to the commencement of
offers and sales of securities pursuant to this section (Sec.
230.147); or
    (2) Offers or sales made after completion of offers and sales of
securities pursuant to this section (Sec.  230.147) that are:
    (i) Registered under the Act, except as provided in paragraph (h)
of this section (Sec.  230.147);
    (ii) Exempt from registration under Regulation A (Sec. Sec.
230.251 through 230.263);
    (iii) Exempt from registration under Rule 701 (Sec.  230.701);
    (iv) Made pursuant to an employee benefit plan;
    (v) Exempt from registration under Regulation S (Sec. Sec.  230.901
through 230.905);
    (vi) Exempt from registration under section 4(a)(6) of the Act (15
U.S.C. 77d(a)(6)); or
    (vii) Made more than six months after the completion of an offering
conducted pursuant to this section (Sec.  230.147).
    Instruction to paragraph (g): If none of the safe harbors applies,
whether subsequent offers and sales of securities will be integrated
with any securities offered or sold pursuant to this section (Sec.
230.147) will depend on the particular facts and circumstances.
    (h) Offerings limited to qualified institutional buyers and
institutional accredited investors. Where an issuer decides to register
an offering under the Act after making offers in reliance on this
section (Sec.  230.147) limited only to qualified institutional buyers
and institutional accredited investors referenced in section 5(d) of
the Act, such offers will not be subject to integration with any
subsequent registered offering. If the issuer makes offers in reliance
on this section (Sec.  230.147) to persons other than qualified
institutional buyers and institutional accredited investors referenced
in section 5(d) of the Act, such offers will not be subject to
integration if the issuer (and any underwriter, broker, dealer, or
agent used by the issuer in connection with the proposed offering)
waits at least 30 calendar days between the last such offer made in
reliance on this section (Sec.  230.147) and the filing of the
registration statement with the Commission.

0
5. Add Sec.  230.147A to read as follows:

Sec.  230.147A   Intrastate sales exemption.

    (a) Scope of the exemption. Offers and sales by or on behalf of an
issuer of its securities made in accordance with this section (Sec.
230.147A) are exempt from section 5 of the Act (15 U.S.C. 77e). This
exemption is not available to an issuer that is an investment company
registered or required to be registered under the Investment Company
Act of 1940 (15 U.S.C. 80a-1 et seq.).
    (b) Manner of offers and sales. An issuer, or any person acting on
behalf of the issuer, may rely on this exemption to make offers and
sales using any form of general solicitation and general advertising,
so long as the issuer complies with the provisions of paragraphs (c),
(d), and (f) through (h) of this section.
    (c) Nature of the issuer. The issuer of the securities shall at the
time of any offers and sales be a person resident and doing business
within the state or territory in which all of the sales are made.
    (1) The issuer shall be deemed to be a resident of the state or
territory in which it has its principal place of business. The issuer
shall be deemed to have its principal place of business in a state or
territory in which the officers, partners or managers of the issuer
primarily direct, control and coordinate the activities of the issuer.
    (2) The issuer shall be deemed to be doing business within a state
or territory if the issuer satisfies at least one of the following
requirements:
    (i) The issuer derived at least 80% of its consolidated gross
revenues from the operation of a business or of real property located
in or from the rendering of services within such state or territory;
    Instruction to paragraph (c)(2)(i): Revenues must be calculated
based on the issuer's most recent fiscal year, if the first offer of
securities pursuant to this section is made during the first six months
of the issuer's current fiscal year, and based on the first six months
of the issuer's current fiscal year or during the twelve-month fiscal
period ending with such six-month period, if the first offer of
securities pursuant to this section is made during the last six months
of the issuer's current fiscal year.
    (ii) The issuer had at the end of its most recent semi-annual
fiscal period prior to an initial offer of securities in any offering
or subsequent offering pursuant to this section, at least 80% of its
assets and those of its subsidiaries on a consolidated basis located
within such state or territory;
    (iii) The issuer intends to use and uses at least 80% of the net
proceeds to the issuer from sales made pursuant to this section (Sec.
230.147A) in connection with the operation of a business or of

real property, the purchase of real property located in, or the
rendering of services within such state or territory; or
    (iv) A majority of the issuer's employees are based in such state
or territory.
    Instruction to paragraph (c): An issuer that has previously
conducted an intrastate offering pursuant to this section (Sec.
230.147A) or Rule 147 (Sec.  230.147) may not conduct another
intrastate offering pursuant to this section (Sec.  230.147A) in a
different state or territory, until the expiration of the time period
specified in paragraph (e) of this section (Sec.  230.147A(e)) or
paragraph (e) of Rule 147 (Sec.  230.147(e)), calculated on the basis
of the date of the last sale in such offering.
    (d) Residence of purchasers. Sales of securities pursuant to this
section (Sec.  230.147A) shall be made only to residents of the state
or territory in which the issuer is resident, as determined pursuant to
paragraph (c) of this section, or who the issuer reasonably believes,
at the time of sale, are residents of the state or territory in which
the issuer is resident. For purposes of determining the residence of
purchasers:
    (1) A corporation, partnership, limited liability company, trust or
other form of business organization shall be deemed to be a resident of
a state or territory if, at the time of sale to it, it has its
principal place of business, as defined in paragraph (c)(1) of this
section, within such state or territory.
    Instruction to paragraph (d)(1): A trust that is not deemed by the
law of the state or territory of its creation to be a separate legal
entity is deemed to be a resident of each state or territory in which
its trustee is, or trustees are, resident.
    (2) Individuals shall be deemed to be residents of a state or
territory if such individuals have, at the time of sale to them, their
principal residence in the state or territory.
    (3) A corporation, partnership, trust or other form of business
organization, which is organized for the specific purpose of acquiring
securities offered pursuant to this section (Sec.  230.147A), shall not
be a resident of a state or territory unless all of the beneficial
owners of such organization are residents of such state or territory.
    Instruction to paragraph (d): Obtaining a written representation
from purchasers of in-state residency status will not, without more, be
sufficient to establish a reasonable belief that such purchasers are
in-state residents.
    (e) Limitation on resales. For a period of six months from the date
of the sale by the issuer of a security pursuant to this section (Sec.
230.147A), any resale of such security shall be made only to persons
resident within the state or territory in which the issuer was
resident, as determined pursuant to paragraph (c) of this section, at
the time of the sale of the security by the issuer.
    Instruction to paragraph (e): In the case of convertible
securities, resales of either the convertible security, or if it is
converted, the underlying security, could be made during the period
described in paragraph (e) only to persons resident within such state
or territory. For purposes of this paragraph (e), a conversion in
reliance on section 3(a)(9) of the Act (15 U.S.C. 77c(a)(9)) does not
begin a new period.
    (f) Precautions against interstate sales. (1) The issuer shall, in
connection with any securities sold by it pursuant to this section:
    (i) Place a prominent legend on the certificate or other document
evidencing the security stating that: ``Offers and sales of these
securities were made under an exemption from registration and have not
been registered under the Securities Act of 1933. For a period of six
months from the date of the sale by the issuer of these securities, any
resale of these securities (or the underlying securities in the case of
convertible securities) shall be made only to persons resident within
the state or territory of [identify the name of the state or territory
in which the issuer was resident at the time of the sale of the
securities by the issuer].'';
    (ii) Issue stop transfer instructions to the issuer's transfer
agent, if any, with respect to the securities, or, if the issuer
transfers its own securities, make a notation in the appropriate
records of the issuer; and
    (iii) Obtain a written representation from each purchaser as to his
or her residence.
    (2) The issuer shall, in connection with the issuance of new
certificates for any of the securities that are sold pursuant to this
section (Sec.  230.147A) that are presented for transfer during the
time period specified in paragraph (e), take the steps required by
paragraphs (f)(1)(i) and (ii) of this section.
    (3) The issuer shall, at the time of any offer or sale by it of a
security pursuant to this section (Sec.  230.147A), prominently
disclose to each offeree in the manner in which any such offer is
communicated and to each purchaser of such security in writing a
reasonable period of time before the date of sale, the following:
``Sales will be made only to residents of the state or territory of
[identify the name of the state or territory in which the issuer was
resident at the time of the sale of the securities by the issuer].
Offers and sales of these securities are made under an exemption from
registration and have not been registered under the Securities Act of
1933. For a period of six months from the date of the sale by the
issuer of the securities, any resale of the securities (or the
underlying securities in the case of convertible securities) shall be
made only to persons resident within the state or territory of
[identify the name of the state or territory in which the issuer was
resident at the time of the sale of the securities by the issuer].''
    (g) Integration with other offerings. Offers or sales made in
reliance on this section will not be integrated with:
    (1) Offers or sales of securities made prior to the commencement of
offers and sales of securities pursuant to this section (Sec.
230.147A); or
    (2) Offers or sales of securities made after completion of offers
and sales of securities pursuant to this section (Sec.  230.147A) that
are:
    (i) Registered under the Act, except as provided in paragraph (h)
of this section (Sec.  230.147A);
    (ii) Exempt from registration under Regulation A (Sec. Sec.
230.251 through 230.263);
    (iii) Exempt from registration under Rule 701 (Sec.  230.701);
    (iv) Made pursuant to an employee benefit plan;
    (v) Exempt from registration under Regulation S (Sec. Sec.  230.901
through 230.905);
    (vi) Exempt from registration under section 4(a)(6) of the Act (15
U.S.C. 77d(a)(6)); or
    (vii) Made more than six months after the completion of an offering
conducted pursuant to this section (Sec.  230.147A).
    Instruction to paragraph (g): If none of the safe harbors applies,
whether subsequent offers and sales of securities will be integrated
with any securities offered or sold pursuant to this section (Sec.
230.147A) will depend on the particular facts and circumstances.
    (h) Offerings limited to qualified institutional buyers and
institutional accredited investors. Where an issuer decides to register
an offering under the Act after making offers in reliance on this
section (Sec.  230.147A) limited only to qualified institutional buyers
and institutional accredited investors referenced in section 5(d) of
the Act, such offers will not be subject to integration with any
subsequent registered offering. If the issuer makes offers in reliance
on this section (Sec.  230.147A) to persons other than qualified
institutional buyers and institutional accredited investors referenced
in section 5(d) of the Act,

such offers will not be subject to integration if the issuer (and any
underwriter, broker, dealer, or agent used by the issuer in connection
with the proposed offering) waits at least 30 calendar days between the
last such offer made in reliance on this section (Sec.  230.147A) and
the filing of the registration statement with the Commission.

Sec.  230.501   [Amended]

0
6. Amend Sec.  230.501 paragraph (e) introductory text by removing the
reference to ``Sec. Sec.  230.505(b) and 230.506(b)'' and adding in its
place ``Sec.  230.506(b)''.

Sec.  230.502   [Amended]

0
7. Amend Sec.  230.502 by:
0
a. In paragraph (b)(1), removing the reference to ``Sec.  230.505 or'';
0
b. In paragraph (b)(2)(iv), removing the reference to ``Sec.  230.505
or'';
0
c. In paragraph (b)(2)(v), removing the reference to ``Sec.  230.505
or''; and
0
d. In paragraph (b)(2)(vii), removing the reference to ``Sec.  230.505
or'';

Sec.  230.503   [Amended]

0
8. Amend Sec.  230.503 paragraph (a)(1) by removing the comma after
``Sec.  230.504'' and the reference to ``Sec.  230.505,''.

0
9. In Sec.  230.504, the section heading and paragraph (b)(2) are
revised, and paragraph (b)(3) is added, to read as follows:

Sec.  230.504   Exemption for limited offerings and sales of securities
not exceeding $5,000,000.

* * * * *
    (b) * * *
    (2) The aggregate offering price for an offering of securities
under this Sec.  230.504, as defined in Sec.  230.501(c), shall not
exceed $5,000,000, less the aggregate offering price for all securities
sold within the twelve months before the start of and during the
offering of securities under this Sec.  230.504, in violation of
section 5(a) of the Securities Act.
    Instruction to paragraph (b)(2): If a transaction under Sec.
230.504 fails to meet the limitation on the aggregate offering price,
it does not affect the availability of this Sec.  230.504 for the other
transactions considered in applying such limitation. For example, if an
issuer sold $5,000,000 of its securities on January 1, 2014 under this
Sec.  230.504 and an additional $500,000 of its securities on July 1,
2014, this Sec.  230.504 would not be available for the later sale, but
would still be applicable to the January 1, 2014 sale.
    (3) Disqualifications. No exemption under this section shall be
available for the securities of any issuer if such issuer would be
subject to disqualification under Sec.  230.506(d) on or after January
20, 2017; provided that disclosure of prior ``bad actor'' events shall
be required in accordance with Sec.  230.506(e).
    Instruction to paragraph (b)(3): For purposes of disclosure of
prior ``bad actor'' events pursuant to Sec.  230.506(e), an issuer
shall furnish to each purchaser, a reasonable time prior to sale, a
description in writing of any matters that would have triggered
disqualification under this paragraph (b)(3) but occurred before
January 20, 2017.

Sec.  230.505   [Removed and Reserved]

0
10. Sec.  230.505 is removed and reserved.

Sec.  230.507   [Amended]

0
11. Amend Sec.  230.507 by:
0
a. In the section heading, removing the comma after ``Sec. Sec.
230.504'' and the reference to ``230.505''; and
0
b. In paragraph (a), removing the reference to ``Sec.  230.505,'' and
adding in its place ``Sec.  230.504'' and removing the reference to
``Sec.  230.505.''

Sec.  230.508   [Amended]

0
12. Amend Sec.  230.508 by:
0
a. In paragraph (a) introductory text, removing the comma after ``Sec.
230.504'' and the reference to ``Sec.  230.505'';
0