from and adapt the language in Rule 424, Item 512 of Regulation S-K,
and Rule 430A \336\ to do so. Although filing a post-qualification
amendment and a review by the Commission staff remains appropriate in
some circumstances, we recognize that additional flexibility could be
provided in other circumstances. Under the proposed rules, we borrow
from the experience in registered offerings under Rule 415 to permit
offering circular supplements for continuous or delayed offerings where
the offering statement is not required to be amended by Regulation A
and there is no fundamental change in the offering statement's
disclosure. We also propose to allow the use of offering circular
supplements for final pricing information, where the offering statement
is qualified on the basis of a bona fide price range estimate.\337\
Additionally, offering circulars would be permitted to omit information
with respect to the underwriting syndicate analogous to the provisions
for registered offerings under Rule 430A.\338\ The volume of securities
(the number of equity securities or aggregate principal amount of debt
securities) to be offered would not, however, be allowed to be
omitted.\339\ As proposed, an offering circular supplement could also
be used to indicate a decrease in the volume of, or to change the price
range of, the securities offered in reliance on a qualified offering
statement under Regulation A, provided that, in the aggregate, such
changes represent no more than a 20% change from the maximum aggregate
offering price calculable using the information in the qualified
offering statement.\340\ In such circumstances, offering circular
supplements would not be available where the maximum aggregate offering
price resulting from any changes in the price of the securities would
exceed the offering amount limitation set forth in proposed Rule 251(a)
or if the increase in aggregate offering price would result in a Tier 1
offering becoming a Tier 2 offering. Allowing for the use of offering
circular supplements in the situations outlined above would not alter
the legal determination as to whether such information must be provided
to investors, but would align Regulation A with prevailing market and
Commission staff practices.\341\
---------------------------------------------------------------------------

    \336\ 17 CFR 230.430A.
    \337\ See proposed Rule 252(h). Relatedly, the Commission noted
in the 1992 amendments to Regulation A that pricing information
under Rule 430A did not necessarily need to be included in the final
offering circular. See SEC Rel. No. 33-6949, at fn. 58. As proposed,
the bona fide price range estimate could not exceed $2 for offerings
where the upper end of the range is $10 or less and 20% if the upper
end of the price range is over $10. See proposed Rule 253(b)(2).
    \338\ See proposed Rule 253(b) (also permitting the omission of
underwriting discounts or commissions, discounts or commissions to
dealers, amount of proceeds, conversion rates, call prices and other
items dependent upon the offering price, delivery dates, and terms
of the securities dependent upon the offering date, so long as
certain conditions are met); Cf. Rule 430A, 17 CFR 430A.
    \339\ See proposed Rule 253(b)(4).
    \340\ See note to proposed Rule 253(b); Cf. Instruction to
paragraph (a) in Rule 430A(a), 17 CFR 230.430A(a).
    \341\ Cf. SEC Rel. No. 33-6714 [52 FR 21252] (June 5, 1987)
(noting that the adoption of Rule 430A and the related changes to
the procedures set forth in Rule 424 were ``intended to simplify and
reduce filing obligations without reducing investor protection.'').
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    We further propose provisions similar to Rule 424 that would
require issuers omitting certain information from an offering statement
at the time of qualification, in reliance on proposed Rule 253(b), to
file such information as an offering circular supplement no later than
two business days following the earlier of the date of determination of
such pricing information or the date of first use of the offering
circular after qualification.\342\ Further, these proposed provisions
would require offering circulars that contain substantive

changes (other than information omitted in reliance on proposed Rule
253(b)) in information previously provided in the last offering
circular to be filed within five business days after the date such
offering circular is first used after qualification.\343\ Offering
circular supplements that are not filed within the required time frames
provided by the proposed rules would be required to be filed as soon as
practicable after the discovery of the failure to file.\344\ We are
soliciting comment on the scope of changes that should require a post-
qualification amendment instead of an offering circular supplement.
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    \342\ See proposed Rule 253(g).
    \343\ See proposed Rule 253(g)(2).
    \344\ See proposed Rule 253(g)(4).
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Request for Comment
    72. Should Regulation A continue to permit traditional shelf
offerings, as proposed? Are there types of transactions not currently
covered by Rule 415 that should be included in the rules relating to
continuous offerings under Regulation A? If so, provide justification
for including those transactions in Regulation A.
    73. Should we use the time limits for continuous offerings found in
Rule 415 for similar Regulation A offerings or should we lengthen or
shorten such requirements? If so, please suggest new time limits and
explain why they are preferable to the proposed time limits.
    74. As proposed, should we permit continuous offerings that would
be offered in an amount that, at the time the offering statement is
qualified, the issuer reasonably expects to offer and sell within two
years from the initial qualification date? Or should we limit this time
period to one year from the initial qualification date?
    75. We propose to no longer require issuers to amend an offering
statement every time any information contained in the offering
statement is changed, as is currently required in Rule 252(h), and
instead require amendments to the offering statement to be filed and
requalified annually to include updated financial statements, and
otherwise as necessary to reflect facts or events arising after
qualification which, in the aggregate, represent a fundamental change
in the information set forth in the offering statement. Are there other
types of changes in information or disclosure that should require a
post-qualification amendment that must be qualified, rather than an
offering circular supplement? Should we use a standard different from
the ``fundamental change'' standard proposed, which is based on Item
512(a) of Regulation S-K? Please provide justifications for your
suggested approach.
    76. As proposed, should we permit issuers to qualify additional
securities in reliance on Regulation A by filing a post-qualification
amendment to a qualified offering statement? Why or why not?
    77. As proposed, should we adopt provisions similar to Rule 430A
that would permit issuers to omit certain information with respect to,
among other things, the underwriting syndicate and related information
analogous to the provisions for registered offerings under Rule 430A?
Why or why not? Additionally, as proposed, should we permit decreases
to the volume of, or deviations from the price range of, the securities
offered in reliance on Regulation A within the described limits?
    78. As proposed, should we include in Regulation A provisions
similar to Rule 424, which would require issuers relying on proposed
Rule 253(b) to omit certain information from an offering statement at
the time of qualification to file such information as an offering
circular supplement no later than two business days following the
earlier of the date of determination of such pricing information or the
date of first use of the offering circular after qualification? Why or
why not? Additionally, as proposed, should we require offering
circulars that contain substantive changes (other than information
omitted in reliance on proposed Rule 253(b)) in information previously
provided in the last offering circular to be filed within five business
days after the date such offering circular is first used after
qualification? Why or why not?
    79. Should we consider additional or alternative amendments to the
proposed provisions for continuous offerings and offering circular
supplements? Why or why not? If so, please explain.
    80. As proposed, Regulation A is not specifically designed for
business combination transactions. While such transactions, outside the
context of acquisition shelf business combination transactions, are not
prohibited, would Part II of proposed Form 1-A provide for appropriate
disclosure of business combination transactions? Why or why not? If so,
what additional narrative or financial disclosure provisions, if any,
should apply to issuers with respect to such transactions?
    81. As proposed, should the rules preclude primary and secondary at
the market offerings? Or should the rules only preclude primary at the
market offerings? Why or why not? If the rules should not prohibit at
the market offerings how should the offering size be calculated for
purpose of determining whether the offering exceeds the proposed
applicable annual offering amount limitations? Please explain.
5. Qualification
    Under Regulation A, an offering statement is generally only
qualified by order of the Commission in a manner similar to a
registration statement being declared effective.\345\ In such
instances, the issuer includes a delaying notation on the cover of the
Form 1-A that states the offering statements shall only be qualified by
order of the Commission.\346\ In order to remove a delaying notation,
an issuer must file an amendment to the offering statement indicating
that the offering statement will become qualified on the 20th calendar
day after filing.\347\ An offering statement that does not include a
delaying notation will be qualified without Commission action on the
20th calendar day after filing.\348\
---------------------------------------------------------------------------

    \345\ See Rule 252(g)(2).
    \346\ Id.
    \347\ See Rule 252(g)(3).
    \348\ See Rule 252(g)(1).
---------------------------------------------------------------------------

    We propose to alter the qualification process of existing
Regulation A. As proposed, an offering statement could only be
qualified by order of the Commission, and the process associated with
the delaying notation would be eliminated. This not only conforms to
the general practice of issuers under both Regulation A and registered
offerings, but eliminates the risk that an issuer may exclude a
delaying notation either in error or in an effort to become qualified
automatically without review and comment by the Commission staff. Given
our proposed electronic filing processes,\349\ scaled disclosure
requirements for Tier 1 and Tier 2 offerings,\350\ and the preemption
of state securities law registration and qualification requirements for
Tier 2 offerings,\351\ we believe it is appropriate to ensure that the
Commission staff has a chance to review and comment on the offering
statement before it becomes effective. We do, however, solicit comment
on whether we should retain provisions for the automatic effectiveness
of an offering statement in a manner similar to the current rules, in
order to provide issuers with some flexibility and control over the
timing of the qualification process.
---------------------------------------------------------------------------

    \349\ See discussion in Section II.C.1. above.
    \350\ See discussion in Section II.C.3. above.
    \351\ See discussion in Section II.H. below.
---------------------------------------------------------------------------

Request for Comment
    82. Should we amend the qualification process, as proposed, so that
an offering statement can only

become qualified by order of the Commission? Or should we preserve the
existing qualification provisions of Regulation A, which permit
offering statements to become qualified without an order of the
Commission on the 20th calendar day after filing? Why or why not? What
effect, if any, would this have on issuers and their ability to control
the timing of the qualification process?

D. Solicitation of Interest (``Testing the Waters'')

    Under Securities Act Section 3(b)(2)(E), issuers are to be
permitted to test the waters for interest in an offering before filing
an offering statement on such terms and conditions as the Commission
prescribes. Testing the waters is currently permitted under Rule 254 of
Regulation A, which requires, among other things, that issuers submit
all solicitation material to the Commission no later than the time of
first use. Issuers are further required to file all solicitation
materials used in reliance on Rule 254 as an exhibit under Part III of
Form 1-A, and are prohibited from making sales under Regulation A until
20 calendar days after the last publication or delivery of such
materials. Under Rule 254(b)(3), issuers must cease using test the
waters solicitation materials after the initial filing of the offering
statement.
    Testing the waters under Rule 254 of Regulation A is different from
testing the waters for a registered offering by an emerging growth
company under Section 5(d) of the Securities Act. Under Section 5(d),
testing the waters is limited to communications with QIBs and
institutional accredited investors. Under current Rule 254, however,
there is no limitation on the type of investors that may be solicited,
as the provision is meant to assist smaller issuers in evaluating
potential interest in a public offering before incurring costs
associated with preparing mandated disclosure documents.\352\ New
Securities Act Section 3(b)(2)(E) also does not limit the type of
investors that may be solicited, but instead specifies that we can
prescribe terms and conditions. We do not believe it is appropriate to
adopt provisions in proposed Regulation A that are more restrictive
than currently exist in Rule 254 and therefore do not propose to alter
the permissible target audience of testing the waters materials.
---------------------------------------------------------------------------

    \352\ SEC Rel. No. 33-6924, at 10-11 (discussing the capital
needs of smaller companies, and, in comparison to ``limited
[private] offerings to more sophisticated professional investors,''
the need to facilitate greater ``access to the public market[s] for
startup and developing companies, and . . . lower[] the costs for
small businesses that undertake to have their securities traded in
the public market.'').
---------------------------------------------------------------------------

    While one commenter suggested that the Commission permit the use of
solicitation materials before the filing of an offering statement,\353\
another commenter simply suggested that all such solicitation materials
be made readily available.\354\ Another commenter suggested that, in
addition to the existing requirements of Rule 254(b)(2), the Commission
limit the use of testing the waters materials before the filing of an
offering statement to solicitations conducted by registered broker-
dealers or solicitations in firm commitment underwritings.\355\
---------------------------------------------------------------------------

    \353\ McCarter & English Letter.
    \354\ Beacon Investment Letter.
    \355\ NASAA Letter 2.
---------------------------------------------------------------------------

    Testing the waters was first proposed and approved for use in
Regulation A in 1992, to address the risk that small companies faced
when expending funds to prepare for an offering of securities without
knowing whether there would be any interest in the offering.\356\ We do
not believe, however, that the existing provisions of Rule 254 have
proven as useful as originally intended. We are concerned that the
amount of time that typically elapses between initial filing of the
Form 1-A and qualification (which, on average, from 2002 through 2012
was approximately 241 days) may limit the possible benefits of testing
the waters in advance of initial filing. In addition, we understand
that testing the waters activities may not be permissible under many
state securities laws.
---------------------------------------------------------------------------

    \356\ SEC Rel. No. 33-6924, at 12.
---------------------------------------------------------------------------

    To address the potential impact of the review period, we propose to
permit issuers to use testing the waters solicitation materials both
before and after the offering statement is filed, subject to issuer
compliance with the rules on filing and disclaimers.\357\ In our view,
to do otherwise would unnecessarily limit the intended benefits to
issuers of testing the waters. As with existing Regulation A, investor
protections with respect to such solicitation materials would remain in
place, as these materials remain subject to the antifraud and other
civil liability provisions of the federal securities laws.\358\ In
addition, under the proposal, testing the waters materials used by an
issuer or its intermediaries after publicly filing an offering
statement would be required to include a current preliminary offering
circular or contain a notice informing potential investors where and
how the most current preliminary offering circular can be obtained.
This requirement could be satisfied by providing the URL where the
preliminary offering circular or the offering statement may be obtained
on EDGAR.
---------------------------------------------------------------------------

    \357\ This timing is similar to the ``testing the waters''
permitted for emerging growth companies under new Section 5(d) of
the Securities Act, added by the JOBS Act, which can also be
conducted both before and after filing of a registration statement.
Under Section 5(d), no legending or disclaimers are required, but
testing the waters is limited to potential investors that are
``qualified institutional buyers'' or institutional ``accredited
investors.''
    \358\ The Commission's antifraud liability provisions in Section
17 of the Securities Act, 15 U.S.C. 77q, apply to any person who
commits fraud in connection with the offer or sale of securities.
Section 3(b)(2)(D) of the Securities Act, 15 U.S.C. 77c(b)(2)(D),
states that the civil liability provisions of Section 12(a)(2) apply
to any person offering or selling securities under Regulation A. See
also SEC Rel. No. 33-6924, at fn. 48.
---------------------------------------------------------------------------

    Since we propose to require issuers to publicly file their offering
statements not later than 21 calendar days before qualification, this
timing requirement would ensure that, at a minimum, any solicitation
made in the 21 calendar days before the earliest date of potential
sales of securities would be conducted using the most recent version of
preliminary offering circular.\359\ While the proposed expansion on use
of solicitation materials after filing would potentially result in
investors receiving more sales literature in marketed offerings, in
such circumstances, potential investors would also be afforded more
time with the preliminary offering circular before making an investment
decision.\360\ Issuers and intermediaries that use testing the waters
materials after publicly filing the offering statement would be
required to update and redistribute--through any electronic or print
media or television or radio broadcast distribution channels previously
relied upon by the issuer or its intermediaries to market the offering
during this period--such material to the extent that either the
material itself or the preliminary offering circular attached
thereafter becomes inadequate or inaccurate in any material
respect.\361\

Additionally, whether or not an issuer or its intermediaries tests the
waters, as provided for by proposed Regulation A, such parties would
remain obligated in the pre-qualification period to deliver a copy of
the preliminary offering circular to prospective purchasers at least 48
hours in advance of sale under proposed Rule 251(d)(2)(i).\362\
---------------------------------------------------------------------------

    \359\ See discussion of non-public submissions of offering
statements in Section II.C.2. above, which proposes to require an
issuer to file its offering statement with the Commission not later
than 21 calendar days before qualification.
    \360\ Cf. The Regulation of Securities Offerings, SEC Rel. No.
33-7606A, at 78 (Nov. 17, 1998) [63 FR 67174] (discussing the
importance of providing a preliminary prospectus in conjunction with
the distribution of sales materials).
    \361\ Issuers would not, however, be required to update and
redistribute solicitation materials to the extent that: i) any such
changes occur only with respect to the preliminary offering
circular, ii) no similar changes are required in the solicitation
materials previously relied upon, and iii) such materials included
(when originally distributed) a URL where the preliminary offering
circular or the offering statement filed on the issuer's EDGAR
filing page and that URL continues to link to the most recent
version of the preliminary offering circular.
    \362\ Proposed Rule 251(d)(2)(i) is discussed in Section II.C.1.
above.
---------------------------------------------------------------------------

    We further propose to amend the Rule 254 requirements for
submission or filing of solicitation material, so that such material
would be submitted or filed as an exhibit when the offering statement
is either submitted for non-public review or filed (and updated for
substantive changes in such material after the initial non-public
submission or filing) but would no longer be required to be submitted
at or before the time of first use. This approach is generally
consistent with the Commission staff's treatment of solicitation
materials used by emerging growth companies under Title I of the JOBS
Act, with two exceptions:
     solicitation materials used in Regulation A offerings
would be required to be filed; \363\ and
---------------------------------------------------------------------------

    \363\ In practice, however, Commission staff reviewing filings
by emerging growth companies regularly requests and receives such
material as part of the review process to ensure consistency between
the information contained in the solicitation materials and the
registration statement. See 17 CFR 230.418 (Supplemental
Information).
---------------------------------------------------------------------------

     solicitation materials used by Regulation A issuers that
file an offering statement with the Commission would be publicly
available as a matter of course.\364\
---------------------------------------------------------------------------

    \364\ Where an issuer non-publicly submits an offering statement
under Regulation A that is later abandoned before filing, and where
that issuer properly submitted the offering statement pursuant to a
confidential treatment request pursuant to Commission Rule 83 (17
CFR 200.83), the offering statement and solicitation materials may,
under certain circumstances, qualify for an exemption from
production pursuant to the FOIA. See http://www.sec.gov/foia/conftreat.htm for more information. Such materials, however, will be
publicly available on EDGAR if, and when, an offering statement is
eventually filed with the Commission.
---------------------------------------------------------------------------

    We believe this approach would be consistent with the 1992
amendments to Regulation A that first allowed issuers to test the
waters, and would make the use of solicitation materials more
beneficial for issuers and investors, reduce the filing requirements
for issuers, and entirely eliminate the filing requirement for issuers
that, after testing the waters, decide not to proceed with an offering.
Additionally, from an investor protection standpoint, it is important
to note that sales under Regulation A may occur only under a qualified
offering statement that reflects staff review and comment, including,
where appropriate, disclosure addressing potentially incomplete or
misleading statements made in test the waters solicitation material.
For this reason, in addition to the statutory language of Section
3(b)(2)(E), which indicates that ``issuer[s] may solicit interest in
the offering,'' we do not believe it is necessary, as one commenter
suggested, to limit the availability of this provision to solicitations
carried out by registered broker-dealers or by underwriters in firm
commitment underwritings.\365\
---------------------------------------------------------------------------

    \365\ See NASAA Letter 2 (suggests limiting the use of
solicitation materials to solicitations made by broker-dealers, or
in the context of firm commitment underwritten offerings).
---------------------------------------------------------------------------

    Currently, Rule 254(b)(2) requires all soliciting materials to bear
a legend or disclaimer indicating: (i) That no money or other
consideration is being solicited, and if sent, will not be accepted;
(ii) that no sales will be made or commitments to purchase accepted
until a complete offering circular is delivered; (iii) that a
prospective purchaser's indication of interest is non-binding; and (iv)
the identity of the issuer's chief executive officer and a brief
description of the issuer's business and products.\366\ We propose to
amend Rule 254(b)(2)(ii) to more closely follow similar provisions in
the context of registered offerings.\367\ The amended language would
recognize that, similar to the framework for registered offerings,
sales made pursuant to Regulation A would be contingent upon the
qualification of the offering statement, not the delivery of a final
offering circular. Additionally, to provide greater flexibility when
using solicitation materials, we propose to eliminate the requirement
in Rule 254(b)(2)(iv) to identify the issuer's chief executive officer,
business, and products.
---------------------------------------------------------------------------

    \366\ 17 CFR 230.254(b)(2).
    \367\ See Rule 134(d), 17 CFR 230.134(d), (required disclaimer
for solicitations of interest in registered offerings).
---------------------------------------------------------------------------

    Further, as noted above, we do not propose to limit testing the
waters to QIBs and institutional accredited investors (as is currently
the case with testing the waters under Title I of the JOBS Act), as we
do not believe it is appropriate to adopt provisions in proposed
Regulation A that are more restrictive than currently exist in the
regulation.
Request for Comment
    83. As proposed, should we differentiate between the requirements
for the use of testing the waters materials before the issuer publicly
files an offering statement and after filing (when it is proposed that
a preliminary offering circular would have to be provided)? Why or why
not? Is the proposed time period during which a preliminary offering
circular would be required to be provided together with testing the
waters materials appropriate, or should it be longer or shorter? Is the
48-hour period for the delivery of a preliminary offering circular
under proposed Rule 251(d)(2)(i) sufficient to address any concerns
about the use of solicitation materials at or near the time of
qualification? \368\ Should we distinguish between the use of testing
the waters materials after an offering statement is non-publicly
submitted versus publicly filed?
---------------------------------------------------------------------------

    \368\ See discussion of delivery requirements in Section II.C.1.
above.
---------------------------------------------------------------------------

    84. Should we amend Rule 254, as proposed, so that solicitation
material would no longer be required to be submitted to the Commission
at or before the time of first use? If not, in the absence of a
confidential treatment request under Commission Rule 83 (17 CFR
200.83), should solicitation material be made publicly available
immediately after submission on EDGAR? Or, as proposed, should we only
require solicitation materials to be publicly available when included
as an exhibit to an offering statement that is filed with the
Commission not later than 21 calendar days before the offering
statement is qualified?
    85. Is the legend or disclaimer required to be included in the
solicitation materials under proposed Rule 254 appropriately tailored
for the likely recipients of such materials in Regulation A offerings?
Why or why not? Should solicitation materials used by the issuer and
its intermediaries before the initial public filing of the offering
statement be required to include specific information about the issuer
or the offering similar to current rules? If so, what information
should be required?
    86. While not currently proposed, should we limit the use of
testing the waters materials to communications with QIBs and
institutional accredited investors in order to be consistent with the
treatment of emerging growth companies under Title I of the JOBS Act?
Would QIBs or institutional accredited investors be the likely target
audience for issuers testing the waters in reliance on Regulation A?
Why or why not? As proposed, should issuers and intermediaries that use
testing the waters materials after publicly filing an offering
statement be required to update and redistribute--through any
electronic or print media or television or

radio broadcast distribution channels previously relied upon by the
issuer or its intermediaries to market the offering during this
period--such material if either the material itself or the preliminary
offering circular attached thereafter becomes inadequate or inaccurate
in any material respect? \369\ Why or why not? Would this requirement
unduly limit the utility, and potentially raise the costs, of testing
the waters after publicly filing an offering statement, or would it
help to ensure that issuers and intermediaries that solicit interest in
a potential offering during this period of time do so in a measured and
judicious manner? Please explain.
---------------------------------------------------------------------------

    \369\ But see fn. 361 above for an exception to the general
requirements for updates and redistribution.
---------------------------------------------------------------------------

    87. Should we make the submission or filing of solicitation
materials a condition to the Regulation A exemption, such that an
issuer that fails to submit such materials as part of an offering
statement submitted for non-public review, or to file such materials as
part of a filed offering statement, loses its ability to rely on the
exemption? If so, should we provide for a cure period for inadvertent
failures to submit or file solicitation materials as an exhibit to an
offering statement?

E. Ongoing Reporting

    Currently, Regulation A requires issuers to file a Form 2-A with
the Commission every six months after qualification to report sales
under Regulation A, with a final filing due within 30 calendar days
after the termination, completion, or final sale of securities in the
offering.\370\ Section 3(b)(2) requires issuers to provide annual
audited financial information on an ongoing basis, and expressly
provides that the Commission may consider whether additional ongoing
reporting should be required. Specifically, Section 3(b)(4) grants the
Commission authority to require issuers ``to make available to
investors and file with the Commission periodic disclosures regarding
the issuer, its business operations, its financial condition, its
corporate governance principles, its use of investor funds, and other
appropriate matters, and also provide for the suspension and
termination of such requirement.''
---------------------------------------------------------------------------

    \370\ See 17 CFR 230.257; see also 17 CFR 239.91 (Form 2-A).
---------------------------------------------------------------------------

    Most commenters agree that the Commission should require some form
of ongoing reporting in revised Regulation A, but differ on the degree
and frequency of such reporting.\371\ In general, the comments received
acknowledge that the Commission's task in determining the appropriate
level of ongoing reporting requires balancing the risks of imposing
issuer disclosure requirements that are too prescriptive \372\ or
onerous \373\ with the risks of providing too little information to
either support,\374\ or adequately protect investors in,\375\ the
secondary market. Some commenters suggested that the Commission require
ongoing reporting only to the extent necessary to support an active
secondary market, such as by requiring quarterly and material event
reporting,\376\ or semiannual performance updates.\377\ Alternatively,
one commenter suggested that the Commission only require annual filings
under a two-year pilot program to determine whether such reports,
without more, provide sufficient information to the market.\378\ One
commenter suggested that ongoing reporting requirements under
Regulation A should be similar to, but less onerous than, Exchange Act
reporting.\379\ This commenter suggested that the rules require
periodic reports that follow the disclosure requirements applicable to
smaller reporting companies, or those of Exchange Act Rule 15c2-11. In
its view, though, current reporting in a fashion similar to Form 8-K
under the Exchange Act might be too burdensome for smaller issuers,
while the OTC Markets' proprietary Alternative Reporting System might
be more appropriate. The commenter also suggested that, if required,
current reporting should be limited to material agreements, financial
obligations, unregistered sales of securities, changes in accountants,
changes in and the compensation of directors and officers, and charter
amendments. Another commenter suggested periodic reporting that is less
prescriptive than Exchange Act reporting, and using Form 1-A disclosure
requirements as a base.\380\ Several commenters suggested that--to the
extent the Commission permits Regulation A offerings to be
simultaneously listed, or approved for listing, on a national
securities exchange--it should permit Exchange Act reporting to satisfy
Title IV's ongoing reporting requirements.\381\ Another commenter
suggested that any ongoing reporting requirements eventually adopted
should be meaningful enough to provide investors with current
information about issuers and to permit better informed investment
decisions.\382\
---------------------------------------------------------------------------

    \371\ See, e.g., Letter from Mike Liles, Jr., Attorney, Karr
Tuttle Campbell, April 12, 2012 (``Karr Tuttle Letter''); Letter
from Kurt N. Schacht, CFA, Managing Director, Standards and
Financial Market Integrity, and Linda L. Rittenhouse, Director,
Capital Markets Policy, CFA Institute, Aug. 16, 2012 (``CFA
Institute Letter''); Fallbrook Letter. But see Letter from Robert R.
Kaplan, Jr., Esq., Kaplan Voekler, May 10, 2012 (``Kaplan Voekler
Letter 1'') (suggesting that, in light of the relative costs to
issuers in smaller dollar amount offerings, the Commission not
require ongoing reports for Regulation A offerings of up to $5
million in securities annually); NSBA Letter (suggesting the only
change the Commission should make in Regulation A is raising the
dollar limitations from $5 million to $50 million); see also ECTF
Report (suggesting ongoing periodic reporting that is reasonable in
scope and balances investor protection concerns with regulatory and
compliance costs).
    \372\ ABA Letter.
    \373\ McCarter & English Letter.
    \374\ Kaplan Voekler Letter 1.
    \375\ NASAA Letter 1; NASAA Letter 2.
    \376\ Kaplan Voekler Letter 1.
    \377\ CFA Institute Letter.
    \378\ Fallbrook Letter.
    \379\ McCarter & English Letter.
    \380\ ABA Letter.
    \381\ ABA Letter; WR Hambrecht + Co. Letter.
    \382\ NASAA Letter 1; NASAA Letter 2.
---------------------------------------------------------------------------

    The sole advance comment received on how and when to permit
terminating ongoing reports suggested that the Commission permit
automatic termination (or suspension) of ongoing reporting obligations
in a fashion similar to that permitted under Section 15(d) of the
Exchange Act.\383\ That is, the Commission should allow ongoing
reporting to be suspended as to any fiscal year, other than the fiscal
year in which the offering was qualified, if at the beginning of such
fiscal year the securities of the class sold in the offering are held
of record by fewer than 300 persons.
---------------------------------------------------------------------------

    \383\ ABA Letter.
---------------------------------------------------------------------------

    We are mindful that an ongoing reporting regime that is suitable
for one type of entity and its investor base may prove too onerous for
another entity or provide its investors with more or more frequent
information than they necessarily need or seek, resulting in undue
costs to the issuer. In the discussion and proposals that follow, we
have endeavored to address the potential added costs and benefits
associated with the provision of ongoing information about issuers of
Regulation A securities to investors in such securities and any market
that develops as a result.
1. Continuing Disclosure Obligations
    As noted above, Regulation A currently requires issuers to file a
Form 2-A with the Commission to report sales and the termination of
sales made under Regulation A every six months after qualification and
within 30 calendar days after the termination, completion, or final
sale of securities in

the offering.\384\ The summary information about the issuer and its
offering required to be disclosed in the Form 2-A is intended to
provide the Commission with valuable data about Regulation A offerings
and the effectiveness of Regulation A as a capital formation tool for
smaller issuers. Currently, however, issuers of securities under
Regulation A often neglect to file the form, thereby limiting the
amount and utility of the data received.\385\ We propose to rescind
Form 2-A, but to continue to require Regulation A issuers to file the
information generally disclosed in Form 2-A with the Commission
electronically on EDGAR.\386\ We believe that summary information and
data about an issuer and its Regulation A offering, however, is most
valuable when obtained after the offering is completed or terminated.
We therefore propose to require issuers to disclose such information
only after the termination or completion of the offering. Issuers
conducting Tier 1 offerings would be required to provide this
information on Part I of proposed new Form 1-Z not later 30 calendar
days after termination or completion of the offering,\387\ while
issuers conducting Tier 2 offerings would be required to provide this
information on either Part I of Form 1-Z at the time of filing an exit
report or proposed new Form 1-K as part of their annual report.
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    \384\ See 17 CFR 230.257; see also 17 CFR 239.91 (Form 2-A).
    \385\ Currently, the filing of the Form 2-A is not a condition
to an issuer's ability to rely on Regulation A. See Rule 257, 17 CFR
230.257. As proposed, the filing of the information required under
current Form 2-A would not be a condition to an issuer's ability to
rely on Regulation A for the current offering, but would affect the
issuer's ability to conduct a follow-on Regulation A offering in the
future. See the discussion in Section II.B.1. above regarding
proposed issuer eligibility requirements.
    \386\ We do not propose to continue to require issuers to
disclose the use of proceeds currently disclosed in Form 2-A, as
issuers must disclose this information in Part II of Form 1-A and
any changes in the use of proceeds after qualification not
previously disclosed would require issuers to determine whether a
post-qualification amendment or offering circular supplement is
necessary. See discussion of continuous or delayed offerings and
offering circular supplements in Section II.C.4. above.
    \387\ Proposed new Form 1-Z (exit report) is discussed in
Section II.E.4. below.
---------------------------------------------------------------------------

    As proposed, issuers in Tier 2 offerings would be subject to a
Regulation A ongoing reporting regime that would, in addition to filing
summary information on a recently completed offering and annual reports
on proposed new Form 1-K, require issuers to file semiannual updates on
proposed new Form 1-SA, current event reporting on proposed new Form 1-
U, and to provide notice to the Commission of the suspension of their
ongoing reporting obligations on Part II of proposed new Form 1-Z. All
of these reports would be filed electronically on EDGAR.
    We are concerned that uniform ongoing reporting requirements for
all issuers of Regulation A securities could disproportionately affect
issuers in smaller offerings.\388\ For that reason, we do not propose
to require any ongoing reporting for issuers conducting Tier 1
offerings, other than the summary information discussed above, which is
already required under the existing rules.\389\ Section 3(b)(2)(F)
requires issuers to file audited financial statements with the
Commission annually, which does not apply to current Regulation A.\390\
While Section 3(b)(2) directs the Commission to ``add a class of
securities exempted pursuant to this section,'' it does not also direct
the Commission to supplant the provisions associated with the existing
class of securities exempted under Section 3(b)(1) and Regulation A. We
therefore propose to preserve this aspect of current Regulation A for
Tier 1 offerings. As proposed, however, issuers in smaller offerings
would have the option to conduct a Tier 2 offering and subject
themselves to the more expansive ongoing reporting regime and otherwise
comply with the proposed Tier 2 requirements.\391\
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    \388\ See also Kaplan Voekler Letter 1 (recommending that, in
light of the relative costs to issuers in smaller dollar amount
offerings, the Commission not require ongoing reports for Regulation
A offerings of up to $5 million in securities annually).
    \389\ See proposed Rule 257(a).
    \390\ As noted in Section I.A. above, current Regulation A was
issued under Section 3(b)(1) of the Securities Act.
    \391\ An issuer offering up to $5 million in a Tier 2 offering
would, in addition to providing ongoing reports to the Commission on
the proposed annual and semiannual basis, with interim current event
updates, be required to file audited financial statements in the
offering statement, see Section II.C.3.b(2). above, and may be
required to file a Form 1-Z to terminate its ongoing reporting
obligations as described in Section II.E.4. below.
---------------------------------------------------------------------------

    We believe the proposed approach to ongoing reporting should
support a regular flow of information about issuers conducting Tier 2
offerings, which would benefit investors and foster the development of
a market in such securities, without imposing unnecessary costs on
issuers that elect to conduct a Tier 1 offering. We believe our
proposal strikes an appropriate balance between the investor
protections associated with the provision of ongoing information about
an existing or contemplated investment to potential investors and our
goal of facilitating capital formation for smaller companies by not
requiring too heavy a reporting obligation.
    The following are the proposed ongoing reporting requirements for
Tier 2 offerings:
a. Annual Reports on Form 1-K
    Proposed new Form 1-K would be comprised of two parts: Part I
(Notification) and Part II (Information to be included in the report).
(1) Part I (Notification)
    As with Part I of Form 1-A,\392\ Part I of Form 1-K would be an
online XML-based fillable form that would include certain basic
information about the issuer, prepopulated on the basis of information
previously disclosed in Part I of Form 1-A, which can be updated by the
issuer at the time of filing. Additionally, if, at the time of filing
the Form 1-K, an issuer has terminated or completed a qualified
Regulation A offering, we propose to require the issuer to provide
certain updated summary information about itself and the offering in
Part I, including, e.g., the date the offering was qualified and
commenced, the number of securities qualified, the number of securities
sold in the offering, the price of the securities, any fees associated
with the offering, and the net proceeds to the issuer. As discussed
above, this information is generally already required to be disclosed
under current Regulation A on Form 2-A, which we propose to eliminate.
---------------------------------------------------------------------------

    \392\ See discussion in Section II.C.3.a. above.
---------------------------------------------------------------------------

    The portion of the fillable form relating to a completed Regulation
A offering would appear when the issuer indicates in Part I that the
offering has terminated or been completed. Issuers would only be
required to fill out the XML-based portion of Part I that relates to
the summary information on a terminated or completed offering once.
Alternatively, an issuer that elects to terminate its ongoing reporting
obligation under Regulation A after terminating or completing an
offering, in a fiscal year other than the fiscal year in which the
offering statement was qualified, but before reporting the required
summary information on Form 1-K,\393\ could satisfy its obligation to
file the summary offering information in Part I of Form 1-K by filing a
Form 1-

Z (exit report) that includes such information.\394\
---------------------------------------------------------------------------

    \393\ An issuer that has completed a Regulation A offering under
Tier 2 in a fiscal year other than the fiscal year in which the
offering was qualified could, however, continue filing the ongoing
reports required in Tier 2 offerings in order to, for example,
continually provide updated information to its shareholder or to
broker-dealers for purposes of proposed Exchange Act Rule 15c2-11.
See discussion in Section II.E.2. below.
    \394\ For a discussion of the requirements for terminating an
ongoing reporting obligation under Regulation A and proposed new
Form 1-Z, see Section II.E.4. below.
---------------------------------------------------------------------------

    The summary information disclosed would facilitate analysis of
Regulation A offerings by the Commission, other regulators, third-party
data providers, and market participants, while facilitating the capture
of important summary information about an offering that would enable
the Commission to monitor the use and effectiveness of Regulation A as
a capital formation tool.\395\ The fillable form would enable issuers
to provide the required information in a convenient medium and only
capture relevant data about the recently terminated or completed
Regulation A offering. The required disclosure would be publicly
available on EDGAR. As with proposed requirements for Part I of Form 1-
A, Part I of Form 1-K would not require the issuer to obtain specialty
software.
---------------------------------------------------------------------------

    \395\ See also discussion in Section II.E.4.a. below.
---------------------------------------------------------------------------

(2) Part II (Information To Be Included in the Report)
    As with Part II of Form 1-A, Part II of Form 1-K would be submitted
electronically by the issuer as a text file attachment containing the
body of the disclosure document and financial statements, formatted in
HTML or ASCII to be compatible with the EDGAR filing system. Part II
would contain information about the issuer and its business based on
the financial statement and narrative disclosure requirements of Form
1-A. Form 1-K would further permit issuers to incorporate by reference
certain information previously filed on EDGAR, but require issuers to
include a hyperlink to such material on EDGAR.\396\ Form 1-K would
cover:
---------------------------------------------------------------------------

    \396\ The hyperlink to EDGAR need only be active at the time of
filing of the Form 1-K.
---------------------------------------------------------------------------

     Business operations of the issuer for the prior three
fiscal years (or, if in existence for less than three years, since
inception);
     Transactions with related persons, promoters, and certain
control persons;
     Beneficial ownership of voting securities by executive
officers, directors, and 10% owners;
     Identities of directors, executive officers, and
significant employees, with a description of their business experience
and involvement in certain legal proceedings;
     Executive compensation data for the most recent fiscal
year for the three highest paid officers or directors;
     MD&A of the issuer's liquidity, capital resources, and
results of operations covering the two most recently completed fiscal
years; \397\ and
---------------------------------------------------------------------------

    \397\ As proposed, Form 1-K would not include the additional
MD&A disclosure required in Form 1-A for issuers that have not
received revenue from operations during each of the three fiscal
years immediately before the filing of the offering statement. See
discussion in Section II.C.3.b(1). above.
---------------------------------------------------------------------------

     Two years of audited financial statements.

We anticipate that issuers would generally be able to use the offering
materials as a basis to prepare their ongoing disclosure.
    We propose that Form 1-K includes financial statements prepared on
the same basis, and subject to the same requirements as to audit
standards and auditor independence, as the financial statements
required in the Regulation A offering circular for Tier 2
offerings.\398\ Form 1-K would be required to be filed within 120
calendar days after the issuer's fiscal year end. A manually-signed
copy of the Form 1-K would have to be executed by the issuer and
related signatories before or at the time of filing and retained by the
issuer for a period of five years.\399\ Issuers would be required to
produce the manually signed copy to the Commission, upon request.\400\
Any amendments to the form would have to comply with the requirements
of the applicable items and be filed under cover of Form 1-K/A.\401\
---------------------------------------------------------------------------

    \398\ See Section II.C.3.b(2). above.
    \399\ See General Instruction C. to proposed Form 1-K.
    \400\ Id.
    \401\ See proposed Rule 257(c) (also requiring the signature on
behalf of an authorized representative of the issuer and the
inclusion of any specified certifications).
---------------------------------------------------------------------------

b. Semiannual Reports on Form 1-SA
    We are proposing semiannual interim reporting for Regulation A
issuers. We believe this would strike an appropriate balance between
the need to provide information to the market and the cost of
compliance for smaller issuers. Issuers would be required to provide
semiannual updates on proposed Form 1-SA that, much like Form 10-Q,
would consist primarily of financial statements and MD&A.\402\ Unlike
Form 10-Q, however, Form 1-SA would not, among other things, require
disclosure about quantitative and qualitative market risk, controls and
procedures, updates to risk factors, or defaults on senior securities,
as we believe such disclosure is not applicable to, or appropriately-
tailored for, issuers in the context of an ongoing report under
Regulation A.\403\ In addition, Form 1-SA would require disclosure of
updates otherwise reportable on Form 1-U. Financial statements included
in semiannual reports would not be required to be audited or reviewed
by independent auditors. Form 1-SA would permit issuers to incorporate
by reference certain information previously filed on EDGAR, but require
issuers to include a hyperlink to such material on EDGAR.\404\
---------------------------------------------------------------------------

    \402\ See Part I (Financial Information) of Form 10-Q, 17 CFR
249.308a.
    \403\ See Item 3 and Item 4 of Part I of Form 10-Q.
    \404\ The hyperlink to EDGAR need only be active at the time of
filing of the Form 1-SA.
---------------------------------------------------------------------------

    We propose to require that Form 1-SA be filed within 90 calendar
days after the end of the issuer's second fiscal quarter. A manually-
signed copy of the Form 1-SA would have to be executed by the issuer
and related signatories before or at the time of filing and retained by
the issuer for a period of five years.\405\ Issuers would be required
to produce the manually signed copy to the Commission, upon
request.\406\ Any amendments to the form would have to comply with the
requirements of the applicable items and be filed under cover of Form
1-SA/A.\407\
---------------------------------------------------------------------------

    \405\ See General Instruction C. to proposed Form 1-SA.
    \406\ Id.
    \407\ See proposed Rule 257(c).
---------------------------------------------------------------------------

c. Current Reports on Form 1-U
    In addition to the annual report on Form 1-K and semiannual report
on Form 1-SA, we further propose to require issuers to submit current
reports on Form 1-U. Issuers would be required to submit such reports
in the following events:
     Fundamental changes in the nature of business; \408\
---------------------------------------------------------------------------

    \408\ A fundamental change in the nature of an issuer's business
would include major and substantial changes in the issuer's business
or plan of operations or changes reasonably expected to result in
such changes, such as significant acquisitions or dispositions, or
the entry into, or termination of, a material definitive agreement
that has or will result in major and substantial changes to the
nature of an issuer's business or plan of operations.
---------------------------------------------------------------------------

     Bankruptcy or receivership;
     Material modification to the rights of securityholders;
     Changes in the issuer's certifying accountant;
     Non-reliance on previous financial statements or a related
audit report or completed interim review;
     Changes in control of the issuer;
     Departure of the principal executive officer, principal
financial officer, or principal accounting officer; and
     Unregistered sales of 5% or more of outstanding equity
securities.

As proposed, the requirement that issuers file a Form 1-U in the event
they experience, or would reasonably expect to experience, a
fundamental change in the nature of their business would incorporate
aspects of each of Item 1.01, 1.02 and 2.01 of Form 8-K under the
Exchange Act and change the threshold for reporting from a materiality
to a fundamental change standard.\409\ Under the proposal, Form 1-U
would be required to be filed within four business days after the
occurrence of any such event, and, where applicable, permit issuers to
incorporate by reference certain information previously filed on EDGAR,
but require issuers to include a hyperlink to such material on
EDGAR.\410\ A manually-signed copy of the Form 1-U would have to be
executed by the issuer and related signatories before or at the time of
filing and retained by the issuer for a period of five years.\411\
Issuers would be required to produce the manually signed copy to the
Commission, upon request.\412\ Any amendments to the Form 1-U would
have to comply with the requirements of the applicable items, and be
filed under cover of Form 1-U/A.\413\
---------------------------------------------------------------------------

    \409\ See Form 8-K, Item 1.01 (Entry into a Material Definitive
Agreement), Item 1.02 (Termination of a Material Definitive
Agreement), and Item 2.01 (Completion of Acquisition or Disposition
of Assets), 17 CFR 249.308.
    \410\ The hyperlink to EDGAR need only be active at the time of
filing of the Form 1-U.
    \411\ See General Instruction C to proposed Form 1-U.
    \412\ Id.
    \413\ See proposed Rule 257(c).
---------------------------------------------------------------------------

d. Special Financial Reports on Form 1-K and Form 1-SA
    While not currently a requirement of Regulation A, we propose to
require issuers conducting Tier 2 offerings to provide special
financial reports analogous to those required under Exchange Act Rule
15d-2.\414\ The special financial report would require audited
financial statements for the issuer's last completed fiscal year to be
filed not later than 120 calendar days after qualification of the
offering statement if the offering statement did not include such
financial statements. The special financial report would require
semiannual financial statements for the first six months of the
issuer's fiscal year, which may be unaudited, to be filed 90 calendar
days after qualification of the offering statement if the offering
statement did not include such financial statements and the offering
statement was qualified in the second half of the issuer's current
fiscal year. The special financial report would be filed under cover of
Form 1-K if it included audited year-end financial statements and under
cover of Form 1-SA if it included semiannual financial statements for
the first six months of the issuer's fiscal year. The financial
statement and auditing requirements would follow the requirements of
those forms. Similarly to the special financial report under Exchange
Act Rule 15d-2, the issuer would indicate on the front page of the
applicable form that only financial statements are included. This
report would serve to close lengthy gaps in financial reporting between
the financial statements included in Form 1-A and the issuer's first
periodic report due after qualification of the offering statement.
---------------------------------------------------------------------------

    \414\ 17 CFR 240.15d-2.
---------------------------------------------------------------------------

e. Reporting by Successor Issuers
    Where in connection with a succession by merger, consolidation,
exchange of securities, acquisition of assets or otherwise, securities
of an issuer that is not subject to the reporting requirements of
Regulation A, as proposed to be amended, are issued to the holders of
any class of securities of an issuer that is subject to ongoing
reporting under Tier 2, we propose to require the issuer succeeding to
that class of securities to continue filing reports required for Tier 2
offerings on the same basis as would have been required of the original
issuer. The successor issuer may, however, suspend or terminate its
reporting obligations on the same basis as the original issuer under
proposed Rule 257(d).\415\
---------------------------------------------------------------------------

    \415\ See Section II.E.4. below for a discussion of the
suspension or termination of disclosure obligations.
---------------------------------------------------------------------------

Request for Comment
    88. Would the proposed requirement that issuers conducting Tier 2
offerings file annual, semiannual, and current reports provide a
meaningful benefit for investors by helping to foster a transparent
market for securities issued under Regulation A? Should this
requirement apply to all issuers of securities under Regulation A,
regardless of whether the issuer is conducting a Tier 1 or Tier 2
offering? Alternatively, should we not impose ongoing reporting
requirements beyond the statutory mandate of annual audited financial
statements? Or should we require only annual reporting of the type of
information required by proposed Form 1-K, without interim periodic
reporting or current updates? Should we require only annual reporting
and current updates? If we require interim periodic reporting, should
it be quarterly instead of the proposed semiannual reporting
requirement? Should quarterly or semiannual financial statements be
required to be reviewed by an independent auditor?
    89. While not currently proposed, should we exempt issuers
conducting Tier 1 offerings from the requirement to report certain
summary information about the issuer and the offering after termination
or completion of the offering? Alternatively, should issuers conducting
Tier 1 offerings be required to report on a more frequent basis than
currently proposed? Why or why not?
    90. If we exempt some issuers from ongoing reporting, should we do
so on the basis of criteria other than offering size, such as issuer
size or whether the issuer has taken steps to foster a secondary market
for their securities? Why or why not?
    91. Should the rules require issuers that conduct a Tier 2 offering
to file their annual report on new Form 1-K within 120 calendar days of
the fiscal year end, and their semiannual report on new Form 1-SA with
90 calendar days of the end of the second fiscal quarter, as proposed?
Or should we require such issuers to file reports on a different
timetable? For example, should the timetable be the same as for non-
accelerated filers under the Exchange Act, who are required to file
annual reports within 90 calendar days of the fiscal year end and
interim periodic reports within 45 calendar days of the end of a fiscal
quarter? What effect, if any, would altering the proposed filing
deadlines for annual and semiannual reporting have on the costs to
issuers of preparing such reports? Please provide supporting data, if
possible.
    92. As proposed, does the new Form 1-K provide for the disclosure
of adequate information about the issuer on an annual basis? Similarly,
does the new Form 1-SA provide for the disclosure of adequate
information about the issuer on a semiannual basis? Or should the
form(s) require more (or less) disclosure? If so, what additional
disclosure should the form(s) require, or what items of proposed
disclosure should not be required? Please explain.
    93. Should we require current updates, as proposed on new Form 1-U?
If not, please explain why. If we require current reporting, should we
include more, fewer, or different triggering events for current
reporting than are currently proposed? Should the requirement to
provide current reporting apply to all Regulation A issuers? Is there
an appropriate segment of Regulation A issuers, other than as proposed,
for which current reporting

would be the most useful or should otherwise be required?
    94. Does the proposed requirement that issuers disclose material
transactions that would result in, or would reasonably be expected to
result in, fundamental changes to the issuer's business or corporate
events on new Form 1-U provide enough guidance to issuers? If not,
should we provide more guidance as to what constitutes a material
transaction or corporate event? If so, please provide suggestions.
    95. As proposed, should we permit issuers to incorporate by
reference certain information into the Form 1-K, Form 1-SA and Form 1-U
that was previously filed on EDGAR under Regulation A, while also
requiring issuers to include a hyperlink to such exhibit on EDGAR? Why
or why not? Should we permit issuers to incorporate by reference
information from other documents, such as Exchange Act reports or
Securities Act registration statements?
    96. As proposed, should we require special financial reporting
similar to that which is required for a registered offering under
Exchange Act Rule 15d-2? As proposed, should the rules require audited
financial statements for the issuer's last completed fiscal year to be
filed 120 calendar days after qualification of the offering statement
if the offering statement did not include such financial statements or,
alternatively, require semiannual financial statements for the first
six months of the issuer's fiscal year to be filed 90 calendar days
after qualification of the offering statement if the offering statement
did not include such financial statements and the issuer's first
required periodic report would be a Form 1-SA? Why or why not?
    97. As proposed, should issuers that succeed to a class of
securities, in connection with a succession by merger, consolidation,
exchange of securities, acquisition of assets or otherwise, that are
currently subject to a Tier 2 ongoing reporting obligation, as proposed
to be amended, be required to continue filing reports on the same basis
as would have been required of the original issuer? Why or why not?
Please explain.
    98. Would the proposed ongoing reporting requirements and
termination provisions of Regulation A induce companies to migrate to
the Regulation A capital raising and reporting regime, such that we may
see a decline in smaller reporting companies subject to full Exchange
Act reporting? \416\ If so, what effect would any population shift of
issuers in the registered and reporting regime under the Securities Act
and Exchange Act migrating to the Regulation A exemptive scheme have on
investor protection?
---------------------------------------------------------------------------

    \416\ See discussion of proposed termination of ongoing
reporting requirements under Regulation A in Section II.E.4. below.
---------------------------------------------------------------------------

2. Exchange Act Rule 15c2-11 and Other Implications of Ongoing
Reporting Under Regulation A
    Exchange Act Rule 15c2-11 governs broker-dealers' publication of
quotations for securities in a quotation medium other than a national
securities exchange.\417\ The Commission adopted Rule 15c2-11 in 1971
to prevent fraudulent and manipulative trading schemes that had arisen
in connection with the distribution and trading of certain unregistered
securities.\418\ The rule prohibits broker-dealers from publishing
quotations (or submitting quotations for publication) in a ``quotation
medium'' for covered over-the-counter securities without first
reviewing basic information about the issuer, subject to certain
exceptions.\419\ A broker-dealer also must have a reasonable basis for
believing that the issuer information is accurate in all material
respects and that it was obtained from a reliable source.
---------------------------------------------------------------------------

    \417\ 17 CFR 240.15c2-11.
    \418\ SEC Rel. No. 34-9310 (Sept. 13, 1971) [36 FR 18641]. See
17 CFR 240.15c2-11(e)(1) (defining quotation medium as any
``interdealer quotation system'' or any publication or electronic
communications network or other device which is used by brokers or
dealers to make known to others their interest in transactions in
any security, including offers to buy or sell at a stated price or
otherwise, or invitations of offers to buy or sell).
    \419\ See SEC Rel. No. 34-29094 (April 17, 1991) [56 FR 19148].
---------------------------------------------------------------------------

    A broker-dealer can, however, satisfy its obligations under Rule
15c2-11 if it has reviewed and maintained in its records certain
specified information. The particular information that is required by
the rule varies depending on the nature of the issuer, including, among
other things:
     For an issuer that has filed a registration statement
under the Securities Act, a copy of the prospectus;
     for an issuer that has filed an offering statement under
the Securities Act pursuant to Regulation A, a copy of the offering
circular; or
     for an issuer subject to ongoing reporting under Sections
13 or 15(d) of the Exchange Act, the issuer's most recent annual report
and any quarterly or current reports filed thereafter.\420\
---------------------------------------------------------------------------

    \420\ A broker-dealer can also satisfy its review requirements
under Rule 15c2-11 by reviewing certain information published
pursuant to a Rule 12g3-2(b) exemption for foreign issuers that
claim the registration exemption or information specified in
paragraph (a)(5) of the Rule for non-reporting issuers.
---------------------------------------------------------------------------

    We believe that the proposed ongoing reports for Tier 2 offerings
under Regulation A, which would update the narrative and financial
statement disclosures previously provided in Form 1-A on an annual and
semi-annual basis, with additional provisions for current reporting,
should also satisfy a broker-dealer's obligations under Rule 15c2-11 to
review and maintain records of basic information about an issuer and
its securities. We propose to amend Rule 15c2-11 to permit an issuer's
ongoing reports filed in a Tier 2 offering under Regulation A to
satisfy a broker-dealer's obligations to review specified information
about an issuer and its security before publishing a quotation for a
security (or submitting a quotation for publication) in a quotation
medium.\421\ The single comment we have received to date on the
interaction of Rule 15c2-11 and Regulation A also advocated this
approach.\422\
---------------------------------------------------------------------------

    \421\ In addition, we are proposing a technical amendment to
Rule 15c2-11 to amend subsection (d)(2)(i) of the rule to update the
outdated reference to the ``Schedule H of the By-Laws of the
National Association of Securities Dealers, Inc.'' which is now
known as the ``Financial Industry Regulatory Authority, Inc.'' and
to reflect the correct rule reference.
    \422\ McCarter & English Letter.
---------------------------------------------------------------------------

    We are also soliciting comment on other potential effects that Tier
2 ongoing reporting under Regulation A could have under other
provisions of the federal securities laws. For example, it may be
appropriate for timely ongoing Regulation A reporting under Tier 2 to
constitute ``adequate current public information'' for purposes of
paragraph (c) of Rule 144.\423\ Currently, most non-reporting issuers
can satisfy the Rule 144 current public information requirement if
there is publicly available the information specified in paragraphs
(a)(5)(i) to (a)(5)(xiv) and (a)(5)(xvi) of Rule 15c2-11.\424\ This
information consists of:
---------------------------------------------------------------------------

    \423\ 17 CFR 230.144(c).
    \424\ 17 CFR 230.144(c)(2). Issuers that are insurance companies
are subject to different requirements.
---------------------------------------------------------------------------

     The exact name of the issuer and any predecessor;
     The address of its principal executive offices;
     The state of incorporation, if it is a corporation;
     The exact title and class of the security;
     The par or stated value of the security;
     The number of shares or total amount of the securities
outstanding as of the end of the issuer's most recent fiscal year;
     The name and address of the transfer agent;

     The nature of the issuer's business;
     The nature of products or services offered;
     The nature and extent of the issuer's facilities;
     The name of the chief executive officer and members of the
board of directors;
     The issuer's most recent balance sheet and profit and loss
and retained earnings statements;
     Similar financial information for such part of the two
preceding fiscal years as the issuer or its predecessor has been in
existence;
     Whether the broker or dealer initiating or resuming
quotation or any associated person is affiliated, directly or
indirectly with the issuer; and
     Whether the quotation is being submitted or published
directly or indirectly on behalf of the issuer, or any director,
officer or any person, directly or indirectly the beneficial owner of
more than 10 percent of the outstanding units or shares of any equity
security of the issuer, and, if so, the name of such person, and the
basis for any exemption under the federal securities laws for any sales
of such securities on behalf of such person.\425\
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    \425\ 17 CFR 240.15c2-11(a)(5).

With the exception of the last two items, all of this information would
be included in our proposed ongoing Regulation A reporting for Tier 2
offerings.
    We are also soliciting comment on whether ongoing Regulation A
reporting for Tier 2 offerings should satisfy the information
requirements of paragraph (d)(4) of Rule 144A.\426\ Under that
provision, holders of Rule 144A securities must have the right to
obtain from the issuer, upon request, a very brief statement of the
nature of the issuer's business and the products and services it
offers, the issuer's most recent balance sheet and profit and loss and
retained earnings statements, and similar financial statements for each
of the two preceding fiscal years, which information must be
``reasonably current.'' \427\
---------------------------------------------------------------------------

    \426\ 17 CFR 230.144A(d)(4).
    \427\ Id.
---------------------------------------------------------------------------

Request for Comment
    99. In a Tier 2 offering, should the review of an issuer's most
recent annual report and any semiannual or current reports filed under
Regulation A, as contemplated in this proposal, satisfy a broker-
dealer's obligation to review company information in order to quote a
security in the over-the-counter market pursuant to Exchange Act Rule
15c2-11? Why or why not? Should the annual or other forms require
additional information in order for a broker-dealer to be able to rely
on such information for purposes of quotations under Rule 15c2-11?
    100. Should ongoing Regulation A reports in Tier 2 offerings be
deemed to provide ``adequate current public information'' about the
issuer for purposes of paragraph (c) of Rule 144? Why or why not? What
impact would broadening Rule 144 in this way have on affiliate resales
of securities of Regulation A issuers? What impact would broadening
Rule 144 in this way have on investors?
    101. Should ongoing Regulation A reports in Tier 2 offerings
satisfy the informational requirements of paragraph (d)(4) of Rule
144A? Why or why not? Are investors or Regulation A issuers likely to
benefit?
3. Exchange Act Registration of Regulation A Securities
    Under Section 15(d) of the Exchange Act, an issuer that has had a
Securities Act registration statement declared effective must comply
with the periodic reporting requirements of the Exchange Act.\428\
Qualification of a Regulation A offering statement does not have the
same effect. An issuer of Regulation A securities would not take on
Exchange Act reporting obligations unless it separately registered a
class of securities under Section 12 of the Exchange Act, or conducted
a registered public offering.
---------------------------------------------------------------------------

    \428\ While issuers with a Section 15(d) reporting obligation
are required to file the same periodic reports as issuers that have
registered a class of securities under Section 12, Section 15(d)
reporting issuers are not subject to additional Exchange Act
obligations (e.g., proxy rules, short-swing profit rules, and
beneficial ownership reporting) that apply to Exchange Act
registrants.
---------------------------------------------------------------------------

    An issuer registering a class of securities under Section 12 of the
Exchange Act must file either a Form 10 \429\ or Form 8-A \430\ with
the Commission. Form 10 is the general form an issuer must use for
Exchange Act registration, while Form 8-A is a short-form registration
statement. An issuer must use a Form 10 if, at the time it files its
registration statement, it is not already subject to a Section 13 or
Section 15(d) reporting obligation. An issuer may use Form 8-A if it is
already subject to the provisions of either Section 13 or Section
15(d). Additionally, when an issuer that is not already subject to the
provisions of either Section 13 or 15(d) plans to list its securities
on a national securities exchange contemporaneously with the
effectiveness of a Securities Act registration statement, the
Commission staff will not object if that issuer files a Form 8-A in
lieu of a Form 10, in order for the issuer to avoid having to restate
the contents of its Securities Act registration statement in its
Exchange Act registration statement.\431\
---------------------------------------------------------------------------

    \429\ 17 CFR 249.210. Foreign private issuers must file a Form
20-F, 17 CFR 249.220f, or, where available, a Form 8-A.
    \430\ 17 CFR 249.208a.
    \431\ See SEC Rel. No. 34-38850 (Sept. 2, 1997) [62 FR 39755],
at 39757 (``[A]n issuer registering an initial public offering will
be permitted to use Form 8-A even though it will not be subject to
reporting until after the effectiveness of that Securities Act
registration statement.'').
---------------------------------------------------------------------------

    Issuers conducting offerings under Regulation A that seek to list
the securities on a national securities exchange or otherwise enter the
Exchange Act registration system would be required to file Form 10 in
order to do so. We solicit comment, however, on whether we should
provide a simplified means for Regulation A issuers to register a class
of securities under the Exchange Act by, for example, permitting such
issuers to file a Form 8-A rather than a Form 10 in conjunction with,
or following, the qualification of a Regulation A offering statement on
Form 1-A, as some commenters have suggested.\432\ The 2010 Government-
Business Forum on Small Business Capital Raising made a similar
recommendation.\433\ Proponents of this approach argue that it would
facilitate IPOs and encourage Exchange Act registration and the listing
of securities on national securities exchanges, which would provide
benefits to both issuers and investors.\434\
---------------------------------------------------------------------------

    \432\ ABA Letter; WR Hambrecht + Co. Letter.
    \433\ See Final Report of the 29th Annual SEC Government-
Business Forum on Small Business Capital Formation, Recommendation
5, at 18 (Nov. 18, 2010) (suggesting that issuers be permitted to
file reports under Section 13 of the Exchange Act for a one-year
period following a Regulation A offering, and thereafter file a Form
8-A to register the securities under Section 12 of the Exchange Act)
(available at: http://www.sec.gov/info/smallbus/gbfor29.pdf).
    \434\ ABA Letter; WR Hambrecht + Co. Letter.
---------------------------------------------------------------------------

    We also invite comment on ways to facilitate secondary market
trading in the securities of Regulation A issuers, such as by
encouraging the development of ``venture exchanges'' or other trading
venues that are focused on attracting such issuers. The Commission's
Advisory Committee on Small and Emerging Companies, for example, has
recommended the establishment of separate U.S. equity markets for small
and emerging companies, which it believes could encourage initial
public offerings of the securities of these companies.\435\ One
commenter similarly

expressed support for the creation of an equity market venture exchange
populated with small and emerging growth companies.\436\ In recent
years, the Commission has approved more flexible listing standards for
an exchange designed for smaller issuers,\437\ and some alternative
trading systems today trade small company stocks.\438\ We solicit
comment on how these or similar market models might be used by
Regulation A issuers, and how they can be made more viable for
facilitating secondary markets for small issuers.
---------------------------------------------------------------------------

    \435\ Recommendation Regarding Separate U.S. Equity Market for
Securities of Small and Emerging Companies, Securities and Exchange
Commission, Advisory Committee on Small and Emerging Companies
(February 1, 2013), available at: http://www.sec.gov/info/smallbus/acsec/acsec-recommendation-032113-emerg-co-ltr.pdf.
    \436\ Paul Hastings Letter.
    \437\ See SEC Rel. No. 34-64437 (May 6, 2011) [76 FR 27710].
    \438\ See, e.g., Global OTC (f/k/a ArcaEdge), Shares Post
Financial Corporation, Second Market, Inc., and OTC Link LLC.
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Request for Comment
    102. While not currently proposed, should we permit issuers to
register under the Exchange Act classes of securities that are
qualified under Regulation A by allowing them to file a Form 8-A rather
than a Form 10? Why or why not? Would providing a short form
registration encourage more Regulation A issuers to list their
securities on national securities exchanges? Conversely, would
permitting eligible issuers to use their Regulation A offering
statement in conjunction with a Form 8-A reduce the likelihood that
such issuers would use the Securities Act registration process,
including the ``IPO on-ramp'' provisions of Title I of the JOBS Act?
Would it serve the intended purpose of Regulation A to make such an
accommodation?
    103. The disclosure and financial statement requirements of
Regulation A, currently and as proposed to be amended, require fewer
items of disclosure or less detailed information than Securities Act
registrants are required to provide. Would it cause confusion in the
market or otherwise create risks for investors if issuers could
transition from Regulation A disclosure in Form 1-A to Exchange Act
registration without filing Form 10 or providing all the information
otherwise called for by Form 10 or Form S-1? Alternatively, while not
currently proposed, should simplified Exchange Act registration be
available only for issuers that prepare an offering circular based on
Part I of Form S-1?
    104. What effect, if any, would the ongoing reporting obligations
of Section 13 of the Exchange Act have on an issuer considering the
potential use of Form 8-A in conjunction with a Regulation A offering
as the means by which to become an Exchange Act reporting issuer? Would
ongoing reporting under Section 13 of the Exchange Act be an attractive
alternative for Regulation A issuers? Or some subset of Regulation A
issuers? Please explain.
    105. While not currently proposed, should we make Form 8-A
available in connection with issuers that are subject to ongoing
reporting requirements under Regulation A? Why or why not? Do the
proposed ongoing reporting requirements in Regulation A, in addition to
the requirement to meet the listing standards of, and be certified by,
a national securities exchange provide an adequate justification for
the extension of the Form 8-A accommodation to issuers subject to such
an obligation? \439\ Or should we provide a different means of
simplified Exchange Act registration for issuers subject to an ongoing
reporting obligation under Regulation A? Please explain.
---------------------------------------------------------------------------

    \439\ See discussion of proposed Regulation A ongoing reporting
requirements in Section II.E. above.
---------------------------------------------------------------------------

    106. Would encouraging the development of ``venture exchanges'' or
other trading venues that are focused on attracting such issuers
facilitate secondary market trading in the securities of Regulation A
issuers? If so, how? How could the Commission adjust the regulatory
regime to provide for a more viable secondary market for small issuers,
with sufficient participation by liquidity providers, that maintains
investor protections and fair and orderly markets?
4. Exit Report on Form 1-Z
a. Summary Information on Terminated or Completed Offerings
    As discussed in Section II.E.1. above, we propose to rescind Form
2-A, but to continue to require Regulation A issuers to file the
information generally disclosed in Form 2-A with the Commission
electronically on EDGAR. Consistent with the related portion of
proposed new Form 1-K,\440\ the Form 2-A information would be converted
into an online XML-based fillable form with indicator boxes or buttons
and text boxes and filed electronically with the Commission as Part I
of proposed new Form 1-Z (exit report). Issuers conducting Tier 1
offerings would be required to provide this information on Form 1-Z not
later 30 calendar days after termination or completion of the offering,
while issuers conducting Tier 2 offerings would be required to provide
this information on Form 1-Z at the time of filing the exit report, if
not previously provided on Form 1-K as part of their annual
report.\441\ The summary offering information disclosed on Form 1-Z
would be publicly available on EDGAR, but not otherwise required to be
distributed to investors.
---------------------------------------------------------------------------

    \440\ See also discussion in Section II.C.1. (Electronic Filing;
Delivery Requirements) and Section II.C.3.a. (Part I (Notification))
above.
    \441\ See Section II.E.1.a. above for a discussion of the
requirements for proposed new Form 1-K.
---------------------------------------------------------------------------

    The XML-based fillable form would enable issuers to provide
information in a convenient medium and capture relevant data about the
recently terminated or completed Regulation A offering. As with the
related portions of Form 1-K discussed above, the fillable form would
be available online and not require issuers to obtain specialty
software. The summary information disclosed would, however, facilitate
analysis of Regulation A offerings by the Commission, other regulators,
third-party data providers, and market participants. Additionally,
facilitating the capture of important summary information about an
offering would enable the Commission to monitor the use and
effectiveness of Regulation A as a capital formation tool.
    As noted above in the related proposals for Form 1-K, the summary
information collected in Form 1-Z would include the date the offering
was qualified and commenced, the number of securities qualified, the
number of securities sold in the offering, the price of the securities,
any fees associated with the offering, and the net proceeds to the
issuer.
b. Termination or Suspension of Tier 2 Disclosure Obligations
    In light of the proposed ongoing reporting obligations for Tier 2
offerings, we are proposing to permit issuers that conduct a Tier 2
offering to terminate or suspend their ongoing reporting obligations on
a basis similar to the provisions that allow issuers to suspend their
ongoing reporting obligations under Section 13 and Section 15(d) of the
Exchange Act.\442\ We acknowledge that, similar to the Exchange Act
reporting context, there may be circumstances when an issuer would like
to exit the reporting system. We received a comment letter that
suggested we adopt a provision similar to Section 15(d) of the
Securities Act that would permit an issuer to automatically

terminate its Regulation A reporting obligation as to any fiscal year,
other than the year in which the offering was made, if at the beginning
of such fiscal year, the securities of the class sold in reliance on
Regulation A are held of record by fewer than 300 persons.\443\ We
propose to permit an issuer in a Tier 2 offering that has filed all
ongoing reports required by Regulation A for the shorter of (i) the
period since the issuer became subject to such reporting obligation, or
(ii) its most recent three fiscal years and the portion of the current
year preceding the date of filing Form 1-Z to immediately suspend its
ongoing reporting obligation under Regulation A at any time after
completing reporting for the fiscal year in which the offering
statement was qualified, if the securities of each class to which the
offering statement relates are held of record by fewer than 300 persons
and offers or sales made in reliance on a qualified offering statement
are not ongoing.\444\ In such circumstances, an issuer's obligation to
continue to file ongoing reports in a Tier 2 offering under Regulation
A would be suspended immediately upon the filing of a notice to the
Commission on Part II of proposed new Form 1-Z. A manually-signed copy
of the Form 1-Z would have to be executed by the issuer and related
signatories before or at the time of filing and retained by the issuer
for a period of five years.\445\ Issuers would be required to produce
the manually signed copy to the Commission, upon request.\446\
---------------------------------------------------------------------------

    \442\ See Exchange Act Section 15(d), 15 U.S.C. 78o(d); Exchange
Act Rule 12h-3, 17 CFR 240.12h-3.
    \443\ ABA Letter.
    \444\ See proposed Rule 257(d)(2).
    \445\ See Instruction to proposed Form 1-Z.
    \446\ Id.
---------------------------------------------------------------------------

    We further propose that issuers' obligations to file ongoing
reports in a Tier 2 offering under Regulation A would be automatically
suspended upon registration of a class of securities under Section 12
of the Exchange Act or registration of an offering of securities under
the Securities Act, such that Exchange Act reporting obligations would
always supersede ongoing reporting obligations under Regulation A. If
an issuer terminates or suspends its reporting obligations under the
Exchange Act and the issuer would be eligible to suspend its Regulation
A reporting obligation by filing a Form 1-Z at that time, the ongoing
reporting obligations would terminate automatically and no Form 1-Z
filing would be required to terminate the issuer's Regulation A
reporting obligation. If the issuer would not be eligible to file a
Form 1-Z at that time, it would need to recommence its Regulation A
reporting with the report covering any financial period not completely
covered by a registration statement or Exchange Act report.\447\
---------------------------------------------------------------------------

    \447\ See proposed Rule 257(d)(1) and (e).
---------------------------------------------------------------------------

Request for Comment
    107. As currently proposed, should we modify the current
requirement in Regulation A that issuers file a Form 2-A to report
sales and the termination of sales made under Regulation A to instead
require issuers conducting Tier 1 offerings to report such information
only after the termination or completion of the offering on Part I of
proposed new Form 1-Z and issuers in Tier 2 offerings to report such
information on either Part I of Form 1-Z or proposed new Form 1-K? Why
or why not?
    108. Is there any additional information about an issuer's recently
completed or terminated Regulation A offering that should be required
to be disclosed? Alternatively, should we not require any disclosure of
summary information about an issuer's recently completed Regulation A
offering? Why or why not?
    109. Should we permit issuers to suspend their reporting
obligations in a Tier 2 offering under Regulation A, as proposed, when
they take on Exchange Act reporting obligations? Should we otherwise
alter the proposed provisions regarding the suspension or termination
of an issuer's ongoing reporting obligations in Tier 2 offering? Should
issuers in Tier 2 offerings be able to suspend or terminate ongoing
reporting under Regulation A on some other basis? For example, should
we permit issuers to terminate their ongoing reporting obligations
immediately upon completion of the offering, provided, at that time,
they have less than 300 holders of record? Why or why not? Should we
require a Form 1-Z filing for issuers that would be eligible to
immediately file that form upon the suspension or termination of their
Exchange Act reporting obligations?
    110. Should we alter the number of record holders below which an
issuer in a Tier 2 offering can suspend or terminate its ongoing
reporting obligations from the proposed 300 record holders? Or should
we alter the threshold below which certain types of issuers that are
subject to a Tier 2 ongoing reporting obligation would be able to
suspend or terminate reporting (e.g., 2,000 or 500 holders of record)?
For example, similar to the provisions of Title VI of the JOBS Act,
should we allow banks and bank holding companies to terminate their
ongoing Regulation A reporting obligations by falling below a higher
threshold of record holders (e.g., 1,200 holders of record)? \448\ Or
should we increase or decrease the number of record holders below which
all issuers in Tier 2 offerings, irrespective of issuer-type, could
suspend or terminate their ongoing reporting obligations? Why or why
not? Please explain.
---------------------------------------------------------------------------

    \448\ See Title VI of the JOBS Act, Public Law 112-106,--601
(Capital Expansion).
---------------------------------------------------------------------------

F. Insignificant Deviations From a Term, Condition or Requirement

    Currently, Rule 260 provides that certain insignificant deviations
from a term, condition or requirement of Regulation A will not result
in the issuer's loss of the exemption from registration under Section 5
of the Securities Act.\449\ Under Rule 260, the provisions of current
Rule(s) 251(a) (issuer eligibility), 251(b) (aggregate offering price),
251(d)(1) (offers) and 251(d)(3) (continuous or delayed offerings) of
Regulation A are, however, deemed to be significant to the offering as
a whole, and any deviations from these provisions would result in the
issuer's loss of the exemption. We have not received any comment on
Rule 260, nor do we propose to amend the rule. We do, however, solicit
comment on whether the provision should be amended to, for example,
alter the list of significant deviations.
---------------------------------------------------------------------------

    \449\ 17 CFR 230.260.
---------------------------------------------------------------------------

Request for Comment
    111. Should we amend Rule 260 to alter the list of deviations that
would be deemed significant to the offering as a whole? Why or why not?
If so, which provision(s) should be amended? Alternatively, are there
other provisions within Rule 260 that should be amended? If so, please
state which provisions and describe why they should be amended.

G. Bad Actor Disqualification

    Under Securities Act Section 3(b)(2)(G)(ii), the Commission has
discretion to issue rules disqualifying certain ``felons and other `bad
actors' '' from using the new exemption. Such rules, if adopted, must
be ``substantially similar'' to those adopted to implement Section 926
of the Dodd-Frank Act, which requires the Commission to adopt
disqualification rules for securities offerings under Rule 506 of
Regulation D. The Commission adopted the disqualification provisions
required by Section 926 in Rule 506(d), and a

related disclosure requirement in Rule 506(e).\450\
---------------------------------------------------------------------------

    \450\ SEC Rel. No. 33-9414 (July 10, 2013) [78 FR 44729]. The
Commission recently proposed rules substantially similar to those
adopted pursuant Section 926 of the Dodd-Frank Act in the proposing
release for securities-based crowdfunding transactions under Title
III of the JOBS Act. See SEC Rel. No. 33-9470, at 284.
---------------------------------------------------------------------------

    All commenters on potential ``bad actor'' disqualification
provisions in the context of Title IV of the JOBS Act suggest that the
Commission apply the same standards for bad actor disqualification
under Regulation A as under Rule 506.\451\ One commenter further
suggested that the Commission adopt uniform disqualification rules
across Regulation D, Section 4(a)(5), and the expanded Regulation A
exemption.\452\
---------------------------------------------------------------------------

    \451\ ABA Letter; WR Hambrecht + Co. Letter; NASAA Letter 2;
Kaplan Voekler Letter 2. See also Final Report of the 31st Annual
SEC Government-Business Forum on Small Business Capital Formation,
Recommendation 13B, at 25 (Nov. 15, 2012) (available at: http://www.sec.gov/info/smallbus/gbfor31.pdf).
    \452\ NASAA Letter 2.
---------------------------------------------------------------------------

    Regulation A currently provides for the disqualification of ``bad
actors'' in Rule 262.\453\ We propose to amend Rule 262 to include bad
actor disqualification provisions in substantially the same form as
recently adopted under Rule 506(d), but without the categories of
covered persons specific to fund issuers, which would not be eligible
to use Regulation A under the proposal.\454\ Such ``bad actor''
disqualification requirements would disqualify securities offerings
from reliance on Regulation A if the issuer or other relevant persons
(such as underwriters, placement agents, and the directors, officers
and significant shareholders of the issuer) have been convicted of, or
are subject to court or administrative sanctions for, securities fraud
or other violations of specified laws.
---------------------------------------------------------------------------

    \453\ 17 CFR 230.262.
    \454\ See proposed Rule 262.
---------------------------------------------------------------------------

    Under the proposed amendment, the disqualification provisions would
apply to the following categories of persons (``covered persons''):
     The issuer and any predecessor of the issuer or affiliated
issuer;
     any director, executive officer, or other officer
participating in the offering, general partner, or managing member of
the issuer;
     any beneficial owner of 20% or more of the issuer's
outstanding voting equity securities, calculated on the basis of voting
power;
     any promoter connected with the issuer in any capacity at
the time of filing of the offering statement or any offers or sales
after qualification;
     any underwriter or person that has been or will be paid
(directly or indirectly) remuneration for solicitation of purchasers in
connection with sales of securities in the offering;
     any general partner or managing member of any such
solicitor; and
     any director, executive officer or other officer
participating in the offering of any such underwriter or solicitor or
of a general partner or managing member of any such underwriter or
compensated solicitor.
    An offering would be disqualified from reliance on the Regulation A
exemption if any covered person had been the subject of the following
disqualifying events:
     Criminal convictions (felony or misdemeanor) entered
within five years before the filing of the offering statement in the
case of issuers, their predecessors and affiliated issuers, and ten
years in the case of other covered persons:
     In connection with the purchase or sale of any security;
     involving the making of a false filing with the
Commission; or
     arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, investment
adviser, or paid solicitor of purchasers of securities; \455\
---------------------------------------------------------------------------

    \455\ See proposed Rule 262(a)(1).
---------------------------------------------------------------------------

     Court injunctions and restraining orders, including any
order, judgment, or decree of any court of competent jurisdiction,
entered no more than five years before the filing of the offering
statement, that, at the time of such filing, restrains or enjoins such
person from engaging or continuing to engage in any conduct or
practice:
     In connection with the purchase or sale of any security;
     involving the making of a false filing with the
Commission; or
     arising out of the conduct of the business of an
underwriter, broker, dealer, municipal securities dealer, investment
adviser, or paid solicitor of purchasers of securities; \456\
---------------------------------------------------------------------------

    \456\ See proposed Rule 262(a)(2).
---------------------------------------------------------------------------

     Final orders issued by state securities, banking, credit
union, and insurance regulators, federal banking regulators, the U.S.
Commodity Futures Trading Commission, and the National Credit Union
Administration that at the time of filing of the offering statement
either:
     Bar the covered person from association with any entity
regulated by the regulator issuing the order, or from engaging in the
business of securities, insurance or banking, or from savings
association or credit union activities; or
     are based on a violation of any law or regulation that
prohibits fraudulent, manipulative, or deceptive conduct within the
last ten years; \457\
---------------------------------------------------------------------------

    \457\ See proposed Rule 262(a)(3).
---------------------------------------------------------------------------

     Commission disciplinary orders entered pursuant to Section
15(b) or 15(B)(c) of the Exchange Act or Section 203(e) or (f) of the
Investment Advisers Act of 1940 (the ``Advisers Act'') that, at the
time of filing of the offering statement:
     Suspend or revoke a person's registration as a broker,
dealer, municipal securities dealer, or investment adviser;
     place limitations on the activities, functions, or
operations of such person; or
     bar such person from being associated with any entity or
from participating in the offering of any penny stock; \458\
---------------------------------------------------------------------------

    \458\ See proposed Rule 262(a)(4).
---------------------------------------------------------------------------

     Commission cease and desist orders entered no more than
five years before the filing of the offering statement that, at the
time of such filing, order the person to cease and desist from
committing or causing a violation or future violation of any scienter-
based anti-fraud provision of the federal securities laws or Section 5
of the Securities Act; \459\
---------------------------------------------------------------------------

    \459\ See proposed Rule 262(a)(5).
---------------------------------------------------------------------------

     Suspension or expulsion from membership in, or suspension
or a bar from association with a member of, an SRO, i.e., a registered
national securities exchange or a registered national or affiliated
securities association for any act or omission to act constituting
conduct inconsistent with just and equitable principles of trade; \460\
---------------------------------------------------------------------------

    \460\ See proposed Rule 262(a)(6).
---------------------------------------------------------------------------

     Stop orders applicable to a registration statement and
orders suspending the Regulation A exemption for an offering statement
that an issuer filed or in which the person was named as an underwriter
no more than five years before the filing of the offering statement,
and proceedings pending at the time of such filing as to whether such a
stop or suspension order should be issued; \461\ and
---------------------------------------------------------------------------

    \461\ See proposed Rule 262(a)(7).
---------------------------------------------------------------------------

     U.S. Postal Service false representation orders including
temporary or preliminary orders entered no more than five years before
the filing of the offering statement.\462\
---------------------------------------------------------------------------

    \462\ See proposed Rule 262(a)(8).
---------------------------------------------------------------------------

    The proposed triggering events are substantially the same as the
triggering events included in Rule 506(d).\463\ We believe that
creating a uniform set of

bad actor triggering events should simplify diligence, particularly for
issuers that may engage in different types of exempt offerings. It
could also foster the creation of third-party databases or other data
sources regarding bad actors that could aid issuers in conducting
diligence. As noted above, however, the proposed rules in Regulation A
would specify that an order must bar the covered person at the time of
filing \464\ of the offering statement, as opposed to the requirement
in Rule 506(d) that the order must bar the covered person at the time
of the relevant sale. This clarification accords with the current
provisions of Rule 262 and is appropriate in the context of Regulation
A because there is no filing requirement before the time of first sale
in Rule 506.\465\
---------------------------------------------------------------------------

    \463\ 17 CFR 230.506(d).
    \464\ In order to simplify the application of the rules, we do
not propose to require that an order bar the covered person at the
time of non-public submission of the offering statement. As a
practical matter, if a covered person is involved with a proposed
Regulation A offering at the time of non-public submission or
filing, the issuer would be ineligible to qualify the offering in
reliance on Regulation A under either circumstance.
    \465\ Under Rule 503 of Regulation D, issuers must file a notice
of sales on Form D no later than 15 calendar days after the first
sale of securities. 17 CFR 230.503(a).
---------------------------------------------------------------------------

    We further propose a reasonable care exception under Regulation A
on a basis consistent with Rule 506.\466\ Under proposed Rule
262(b)(4), an issuer would not lose the benefit of the Regulation A
exemption if it could show that it did not know, and in the exercise of
reasonable care could not have known, of the existence of a
disqualification.
---------------------------------------------------------------------------

    \466\ See proposed Rule 262(b)(4).
---------------------------------------------------------------------------

    Proposed Rule 262 is very similar in substance to existing Rule
262, although the format is different. In its current form, Rule 262
provides three different categories of offering participants and
related persons, with different disqualification triggers for each
category. The amendments we propose are based on a simplified framework
of potentially disqualified persons and disqualifying events, which
aligns with Rule 506(d). The covered persons are the same as under
current Rule 262, except that the proposal includes references to
managing members of limited liability companies and, like Rule 506(d),
would cover compensated solicitors of investors in addition to
underwriters; executive officers and other officers participating in
the offering, rather than all officers, of the issuer and any
underwriter or compensated solicitor; and beneficial owners of 20% or
more of the issuer's outstanding voting equity securities, calculated
on the basis of voting power, rather than beneficial owners of 10% of
any class of the issuer's equity securities. The proposals would also
add two new disqualification triggers: proposed Rule 262(a)(3), which
covers final orders and bars of certain state and other federal
regulators, and proposed Rule 262(a)(5), which covers Commission cease-
and-desist orders relating to violations of scienter-based anti-fraud
provisions of the federal securities laws or Section 5 of the
Securities Act. Finally, the proposals include a ``reasonable care''
exception modeled on the Rule 506(d) provision. We believe these
changes to Rule 262 are appropriate in light of the Section
3(b)(2)(G)(ii) mandate and the benefits of creating a more uniform set
of standards for all exemptions that include bad actor
disqualification.\467\
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    \467\ If adopted, the amendments to Rule 262 would also
effectively modify the bad actor disqualification provisions of Rule
505 of Regulation D, which incorporate Rule 262 by reference. We are
proposing technical amendments to Rule 505 to update the citations
to Rule 262.
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    Under the proposal, offerings that would have been disqualified
from reliance on Regulation A under Rule 262 as currently in effect
would continue to be disqualified. Triggering events that are not
currently covered by Rule 262--namely, the events specified in proposed
Rule 262(a)(3) and 262(a)(5)--and that pre-date effectiveness of any
rule amendments would not cause disqualification, but would be required
to be disclosed on a basis consistent with new Rule 506(e).
Specifically, issuers would be required to indicate in Part I of Form
1-A that disclosure of triggering events that would have triggered
disqualification, but occurred before the effective date of the
Regulation A amendments, will be provided in Part II of Form 1-A.\468\
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    \468\ As discussed in Section II.C.3.a. above, Part I of Form 1-
A focuses, in part, on issuer eligibility, and forces issuers to
make an eligibility determination at the outset of filling out Form
1-A, while also facilitating quick eligibility determinations by
Commission staff reviewing Regulation A offering materials.
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    In addition to soliciting comment on the proposed amendments to
Rule 262, we are also soliciting comment more broadly on the
interpretation of the phrase ``voting equity securities,'' as it
appears in ``any beneficial owner of 20% or more of the issuer's
outstanding voting equity securities, calculated on the basis of voting
power,'' a category of covered persons in Rule 506(d) and proposed Rule
201(r)(2) of Regulation Crowdfunding, as well as in Rule 262, as
proposed to be amended. When we adopted Rule 506(d), we did not define
``voting equity securities,'' but rather indicated that our initial
intention would be to consider securities as voting equity securities
if ``securityholders have or share the ability, either currently or on
a contingent basis, to control or significantly influence the
management and policies of the issuer through the exercise of a voting
right.'' \469\ In light of numerous questions and concerns raised about
the implications of such an interpretation, however, we are
reconsidering our initial views. In particular, we are concerned that
our initial interpretation may be overbroad, and that a ``bright-line''
test may be more workable and would facilitate compliance. We are
therefore soliciting comment about alternative interpretations of the
phrase ``voting equity securities'' as it appears in current and
proposed bad actor disqualification rules.
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    \469\ SEC Rel. No. 33-9414 (July 10, 2013) [78 FR 44729], text
accompanying fn. 62.
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Request for Comment
    112. Should we amend Rule 262, as proposed, to align with Rule
506(d)? Are there proposed amendments to the covered persons or
disqualification triggering events of Rule 262 that we should not make?
Why not? Are there other amendments consistent with the statutory
mandate of Section 3(b)(2)(G)(ii) that we should consider?
    113. How should the phrase ``voting equity securities'' as it
appears in ``any beneficial owner of 20% or more of the issuer's
outstanding voting equity securities, calculated on the basis of voting
power'' in Rule 506(d), proposed Rule 201(r)(2) of Regulation
Crowdfunding, and Rule 262 as proposed to be amended, be interpreted?
Should we interpret it consistently with the definition of ``voting
securities'' in Rule 405, as equity securities ``the holders of which
are presently entitled to vote for the election of directors''? Are
there factors other than the current ability to vote for directors (or
their equivalents) that should be taken into account?

H. Relationship With State Securities Law

    Commenters have suggested that the cost of state securities law
compliance, which they identify as an obstacle to the use of existing
Regulation A, would discourage market participants from using the new
exemption. In addition, as discussed previously, Section 402 of the
JOBS Act required the Comptroller General to conduct a study on the
impact of state ``blue sky'' laws on

offerings conducted under Regulation A, and to report its findings to
Congress. The resulting GAO report to Congress indicates that state
securities laws were among several central factors that may have
contributed to the lack of use of Regulation A.\470\
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    \470\ See Section I.C. above.
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    NASAA recently proposed a coordinated review process for Regulation
A offerings, which, if implemented, could potentially reduce the state
law disclosure and compliance obligations of Regulation A issuers.\471\
As proposed, the coordinated review program would permit issuers to
file Regulation A offering materials with the states using an
electronic filing depository system currently in development by NASAA.
The administrator of the coordinated review program would select a lead
disclosure examiner and, where applicable, a lead merit examiner, which
would be responsible for drafting and circulating a comment letter to
the participating jurisdictions, and for seeking resolution of those
comments with the issuer and its counsel. The draft review protocol
also contemplates that certain NASAA statements of policy would be
modified or would not apply to offerings undergoing coordinated review.
There are a number of open questions about the proposal: Whether NASAA
will adopt a coordinated review program as proposed; if the proposal
were to be adopted in the future, how many states would elect to
participate; when such a program, if adopted, could be implemented; and
if adopted as proposed, whether the protocol would address the concerns
related to state securities law compliance identified by the GAO and
commenters.\472\ NASAA has stated that its members broadly support the
proposed program and would be able to implement it promptly.\473\
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    \471\ See NASAA Release, dated October 30, 2013, Notice of
Request for Public Comment: Proposed Coordinated Review Program for
Section 3(b)(2) Offerings (the comment period for NASAA's proposal
was scheduled to close on November 30, 2013), available at: http://www.nasaa.org/27427/notice-request-public-comment-proposed-coordinated-review-program-section-3b2-offerings/.
    \472\ See, e.g., GAO-12-839, at 14 (discussing the varying
standards and degrees of stringency applied during the qualification
and review process in merit review states); see also Paul Hastings
Letter.
    \473\ Letter from Andrea Seidt, President, NASAA, December 12,
2013 (``NASAA Letter 3''). If the proposed coordinated review
program were not adopted by every state, we could consider adoption
of a ``qualified purchaser'' definition that would provide
preemption as to the non-participating states.
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    In the absence of any such coordinated review, issuers would be
required to analyze and comply with separate registration or
qualification requirements, or to identify and comply with applicable
exemptions, in each state in which they intend to offer or sell
securities under revised Regulation A, as is currently the case under
Regulation A. Depending on the nature of any such coordinated review
process, state securities laws could impose additional requirements and
limitations on offerings beyond those imposed by Regulation A, either
currently or as proposed to be amended.\474\
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    \474\ For example, under the proposed coordinated review
protocol, Regulation A offerings would be subject to most aspects of
current NASAA policies regarding lock-up of shares held by promoters
and disclosure and procedural requirements for loans and other
material transactions involving issuer affiliates.
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    As a result, most commenters strongly supported some form of state
securities law preemption.\475\ Section 18 of the Securities Act
generally provides for exemption from state law registration and
qualification requirements for certain categories of securities,
defined as ``covered securities.'' \476\ Although Section 401(b) of the
JOBS Act does not itself exempt offerings made under Section 3(b)(2)
and the related rules from state law registration and qualification
requirements, it did add Section 18(b)(4)(D) to the Securities Act.
That provision states that Section 3(b)(2) securities are covered
securities for purposes of Section 18 if they are ``offered or sold on
a national securities exchange'' or ``offered or sold to a qualified
purchaser, as defined by the Commission pursuant to [Section 18(b)(3)]
with respect to that purchase or sale.'' Section 18(b)(3) provides that
``the Commission may define the term `qualified purchaser' differently
with respect to different categories of securities, consistent with the
public interest and the protection of investors.''
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    \475\ Karr Tuttle Letter; Letter from Robert J. Tresslar, Title
Company Data Provider, Property Tax Lien Investor, June 28, 2012
``Tresslar Letter''; McCarter & English Letter; ABA Letter; Letter
from Paul Getty, Managing Director, Satwik Ventures LLC, Nov. 7,
2012 (``Satwik Ventures Letter''); Campbell Letter; WR Hambrecht +
Co. Letter; Kaplan Voekler Letter 2; Fallbrook Letter; Paul Hastings
Letter. See also Final Report of the 29th Annual SEC Government-
Business Forum on Small Business Capital Formation, Recommendation
7B, at 19 (Nov. 18, 2010) (available at: http://www.sec.gov/info/smallbus/gbfor29.pdf); Final Report of the 30th Annual SEC
Government-Business Forum on Small Business Capital Formation,
Recommendation 8, at 30 (Nov. 17, 2011) (available at: http://www.sec.gov/info/smallbus/gbfor30.pdf); Final Report of the 31st
Annual SEC Government-Business Forum on Small Business Capital
Formation, Recommendations 12 and 14, at 25 (Nov. 15, 2012)
(available at: http://www.sec.gov/info/smallbus/gbfor31.pdf); ECTF
Report (Recommendations 1.2, 1.3, and 1.4).
    \476\ See Section 18(c), 15 U.S.C. 77r(c). State securities
regulators retain authority to impose certain filing and fee
requirements and general antifraud enforcement authority with
respect to covered securities. See Section 18(c), 15 U.S.C. 77r(c).
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    Some commenters suggested that the Commission preempt state
securities laws by permitting Section 3(b)(2) securities to be listed
and traded on a national securities exchange,\477\ others suggested
preemption by means of a ``qualified purchaser'' definition,\478\ while
others still suggested some combination of both approaches.\479\
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    \477\ See, e.g., Karr Tuttle Letter.
    \478\ See, e.g., Tresslar Letter; McCarter & English Letter;
Campbell Letter; Kaplan Voekler Letter 2; see also Final Report of
the 31st Annual SEC Government-Business Forum on Small Business
Capital Formation, Recommendations 12 and 14, at 25 (Nov. 15, 2012);
ECTF Report (Recommendation 1.3).
    \479\ See, e.g., ABA Letter; Satwik Ventures Letter; WR
Hambrecht + Co. Letter.
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    Commenters advocating listing and trading of Section 3(b)(2)
securities on a national securities exchange have suggested we permit
such listing without attendant registration of the securities under
Section 12(b) of the Exchange Act \480\ or through short-form Exchange
Act registration on Form 8-A.\481\ Commission action would not be
required to effect the preemption of state securities laws for
Regulation A securities that are listed or traded on an exchange. Under
Section 18(b)(1) of the Securities Act, any securities that are listed
or authorized for listing on a national securities exchange are exempt
from state securities law registration and qualification
requirements.\482\ Section 401(b) of the JOBS Act in effect restated
this provision specifically for Regulation A securities, by adding
Section 18(b)(4)(D)(i) to the Securities Act.\483\ We expect, however,
that this approach to preemption will have limited impact, because many
Regulation A issuers would not meet the standards for listing on a
national securities exchange.\484\
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    \480\ Karr Tuttle Letter (suggesting a lower tier of exchange-
listed security).
    \481\ WR Hambrecht + Co. Letter (suggesting upper tier exchange
listing, but on a shorter form Exchange Act registration statement);
see also Final Report of the 29th Annual SEC Government-Business
Forum on Small Business Capital Formation, Recommendation 5, at 18
(Nov. 18, 2010) (available at: http://www.sec.gov/info/smallbus/gbfor29.pdf).
    \482\ Section 18(b)(1), 15 U.S.C. 77r(b)(1).
    \483\ Section 18(b)(4)(D)(i) uses the language ``offered or sold
on a national securities exchange,'' whereas Section 18(b)(1) uses
the language, ``listed, or authorized for listing, on a national
securities exchange.''
    \484\ See also ECTF Report. As discussed in Section II.E.3.
above, we solicit comment on whether we should facilitate the
listing of Regulation A securities on a national securities exchange
by permitting issuers to file a short-form Exchange Act registration
statement on Form 8-A concurrently with the qualification of a
Regulation A offering statement.

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    From those commenters advocating preemption through a qualified
purchaser definition, suggested definitions included:
     Any purchaser in a Regulation A offering; \485\
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    \485\ Campbell Letter.
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     Any purchaser meeting a specified net worth standard, set
at or lower than the current ``accredited investor'' definition in Rule
501 of Regulation D; \486\
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    \486\ Tresslar Letter; McCarter & English Letter; ABA Letter;
Satwik Ventures Letter; WR Hambrecht + Co. Letter. See also Final
Report of the 31st Annual SEC Government-Business Forum on Small
Business Capital Formation, Recommendation 14, at 25 (Nov. 15, 2012)
(available at: http://www.sec.gov/info/smallbus/gbfor31.pdf).
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     Any purchaser meeting a net worth or income test based on
thresholds below accredited investor thresholds, combined with an
investment cap; \487\ or
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    \487\ Kaplan Voekler Letter 2.
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     Any purchaser who purchased through a registered broker-
dealer.\488\
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    \488\ ABA Letter; WR Hambrecht + Co. Letter; Paul Hastings
Letter (suggesting that, in addition to primary offerings, the
qualified purchaser definition apply in connection with secondary
trading in Regulation A securities, where the issuer is subject to
an ongoing reporting obligation under Regulation A); see also ECTF
Report (Recommendation 1.2).
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    One commenter stated that it did not object to the Commission's
defining ``qualified purchaser'' for Section 3(b)(2) securities, but
objected to a definition based on transactions effected through a
broker-dealer or on purchaser criteria commensurate with or less
stringent than current ``accredited investor'' thresholds.\489\ In its
view, Congress intended a qualified purchaser definition under Section