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

    To provide greater certainty to issuers as to the availability of
all of our proposed safe harbors that require the prior offering to be
``terminated or completed,'' \101\ we are proposing that:
---------------------------------------------------------------------------

    \101\ See proposed Rule 152(b)(1), (b)(3) and (b)(4).
---------------------------------------------------------------------------

     Offerings of securities made under Section 4(a)(2),
Regulation D, or Rule 147 or 147A would be considered ``terminated or
completed,'' on the later of the date: (i) The issuer entered into a
binding commitment to sell securities under the offering (subject only
to conditions outside of the investor's control); or (ii) the issuer
and its agents ceased efforts to make further offers to sell the
issuer's securities.\102\
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    \102\ Efforts to sell securities through the offering include,
but are not limited to, the distribution of any offering materials.
For purposes of exemptions permitting the use of general
solicitation, the cessation of selling efforts would require the
removal of any publicly available general solicitation materials, to
the extent possible.
---------------------------------------------------------------------------

     Offerings under Regulation A would be considered
``terminated or completed'' upon the: (i) Withdrawal of an offering
statement under Rule 259(a) of Regulation A; (ii) filing of a Form 1-Z
with respect to that offering; (iii) declaration by the Commission that
the offering statement has been abandoned under Rule 259(b) of
Regulation A; or (iv) third anniversary of the initial qualification
date of the offering statement, in the case of continuous or delayed
offerings.
     Offerings under Regulation Crowdfunding would be
considered ``terminated or completed'' upon the deadline of the
offering identified in the offering materials pursuant to Rule 201(g)
of Regulation Crowdfunding, or indicated by the Regulation Crowdfunding
intermediary in any notice to investors delivered under Rule 304(b) of
Regulation Crowdfunding.
     Offerings for which a Securities Act registration
statement has been filed will be considered, for purposes of the
proposed safe harbors, ``terminated or completed'' upon the: (i)
Withdrawal of the registration statement after the Commission grants
such application under Rule 477; (ii) filing of an amendment or
supplement to the registration statement indicating that the registered
offering has been terminated or completed and the deregistering of any
unsold securities if required by Item 512(a)(3) of Regulation S-K;
\103\ (iii) entry of an order by the Commission declaring that the
registration statement has been abandoned under Rule 479; or (iv) as
set forth in Rule 415(a)(5).\104\
---------------------------------------------------------------------------

    \103\ 17 CFR 229.512(a)(3).
    \104\ 17 CFR 230.415(a)(5).
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b. Rule 701, Employee Benefit Plans and Regulation S
    We are proposing Rule 152(b)(2), which would provide a safe harbor
for all offers and sales made in compliance with Rule 701, pursuant to
an employee benefit plan, or made in compliance with Regulation S,
regardless of when these offerings occur, including offers and sales
made concurrently with other offerings.\105\ Offers and sales pursuant
to Rule 701 \106\ and employee benefit plans are limited to investors,
such as employees, consultants and advisors, with whom the issuer has
written compensation plans or agreements. Given the privity between
these investors and the issuer, these offers and sales may not raise
the same level of investor protection concerns as offerings to other
investors.
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    \105\ The safe harbor integration provisions in current Rule
251(c) and Rules 147(g) and 147A(g) for these offers or sales do not
cover offers or sales concurrent with another offering.
    \106\ The Rule 701 exemption is only available to issuers that
are not subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934. See Rule 701(b). This
proposed safe harbor is in accord with Rule 701(f), which provides
that an offering under Rule 701 will not be integrated with any
other offering, as offers and sales exempt under Rule 701 are deemed
to be a part of a single, discrete offering and are not subject to
integration with any other offers or sales, whether registered under
the Securities Act or otherwise exempt from the registration
requirements of the Securities Act.
---------------------------------------------------------------------------

    We are proposing a similar safe harbor for all offers and sales
made in compliance with Regulation S, regardless of when the Regulation
S offering occurs in relation to another domestic registered or exempt
offering in the United States. In adopting Regulation S, the Commission
stated

that ``[o]ffshore transactions made in compliance with Regulation S
will not be integrated with registered domestic offerings or domestic
offerings that satisfy the requirements for an exemption from
registration under the Securities Act.'' \107\ Proposed Rule 152(b)(2)
would codify this position. Specifically, concurrent offshore offerings
that are conducted in compliance with Regulation S are not currently,
and would not be, integrated with registered domestic offerings or
domestic offerings that are conducted in compliance with any exemption.
When determining the availability of this safe harbor, it would still
be necessary to assess each transaction for compliance with Regulation
S and the conditions of the other exemption.
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    \107\ See Offshore Offers and Sales, Release No. 33-6863 (April
24, 1990) [55 FR 18306 (May 2, 1990)], at Section III.C.1. In
addressing the offshore transaction component of the Regulation S
safe harbor, the Commission stated, ``Offers made in the United
States in connection with contemporaneous registered offerings or
offerings exempt from registration will not preclude reliance on the
safe harbors.'' Id. at note 36. Likewise, in addressing directed
selling efforts, the Commission stated, ``Offering activities in
contemporaneous registered offerings or offerings exempt from
registration will not preclude reliance on the safe harbors.'' Id.
at note 47. See also Rule 500(g) of Regulation D (formerly
Preliminary Note No. 7 to Regulation D) (``Regulation S may be
relied upon for such offers and sales even if coincident offers and
sales are made in accordance with Regulation D inside the United
States.''); and Note to Rule 502(a) (``Generally, transactions
otherwise meeting the requirements of an exemption will not be
integrated with simultaneous offerings being made outside the United
States in compliance with Regulation S.'').
---------------------------------------------------------------------------

    Although, as noted above, the Commission has provided guidance
similar to the proposed safe harbor, we have become aware that there
may be some uncertainty among market participants about whether it is
possible to conduct concurrent Regulation S and Rule 506(c) offerings,
particularly when the offerings are conducted using the internet, and
if so, how to comply with the requirement that separate offering
materials be used in each offering. Two commenters on the Concept
Release suggested that the Commission clarify that general solicitation
under Rule 506(c) would not constitute ``directed selling efforts'' for
purposes of Regulation S,\108\ which Rule 902(c) defines as any
activity undertaken for the purpose of, or that could reasonably be
expected to have the effect of, conditioning the market in the United
States for securities offered in reliance on Regulation S.\109\
---------------------------------------------------------------------------

    \108\ See CoinList Letter; and NYSBA Letter.
    \109\ See Rule 902(c)(1).
---------------------------------------------------------------------------

    In light of these concerns, we are proposing amendments to
Regulation S that would permit an issuer that is conducting an exempt
offering that allows general solicitation, such as under Rule 506(c),
and uses widely accessible internet or similar communications, to
continue to be able to rely on Regulation S for a concurrent offshore
offering even though the general solicitation activity would likely be
deemed ``directed selling efforts'' under current Rule 902(c). Under
the proposal, an issuer that engages in general solicitation activity
under an exemption that allows general solicitation would not be
considered to have engaged in ``directed selling efforts'' in
connection with an offering under Regulation S, if the general
solicitation activity is not undertaken for the purpose of conditioning
the market in the United States for any of the securities being offered
in reliance on Regulation S. The definition of ``directed selling
efforts'' currently covers any activity undertaken for the purpose of,
or that could reasonably be expected to have the effect of,
conditioning the market in the United States for the Regulation S
securities. Due to the nature of a widely accessible general
solicitation communication, it is likely that the ``reasonably be
expected to have the effect of'' provision would be implicated by such
activity, even though the issuer may not have undertaken the activity
``for the purpose of'' conditioning the U.S. market. Under the
proposal, this definition would be narrowed, only for the purposes of
general solicitation activities undertaken in connection with offers
and sales under an exemption from registration, such that general
solicitation activity that may have the effect of conditioning the U.S.
market but is not undertaken for the purpose of doing so would not be
covered.
    We are mindful that, regardless of the issuer's intent, such
activities may increase the risk of flowback of the Regulation S
securities to the United States when there is a concurrent exempt
offering of the securities in the United States using general
solicitation. Therefore, we are proposing new Rule 906 of Regulation S,
applicable to securities offered and sold in a transaction subject to
the conditions of Rule 901 or Rule 903, that would require an issuer
that engages in general solicitation activity covered by the proposed
exclusion from the definition of ``directed selling efforts'' to
prohibit resales to U.S. persons (or for the account or benefit of a
U.S. person) of the Regulation S securities for a period of six months
from the date of sale except to QIBs or IAIs. We preliminarily believe
that this restriction on resales would appropriately guard against
potential flowback of such securities to the United States. We are
proposing to limit resales during the six-month period to QIBs and
IAIs, investors that the Commission has long recognized as having the
ability to fend for themselves. This approach may help alleviate
possible concerns about less-sophisticated investors not fully
appreciating the distinctions between the securities sold in each of
the offerings, and help guard against flowback to the United States by
limiting the potential pool of investors who may purchase in the
resale. This six-month limitation on resales would apply regardless of
the Regulation S category applicable to the securities, and
notwithstanding, and in addition to, any applicable distribution
compliance period.\110\
---------------------------------------------------------------------------

    \110\ See Rule 902(f).
---------------------------------------------------------------------------

c. Subsequent Registered Offerings
    The safe harbor in proposed Rule 152(b)(3) would provide a safe
harbor for certain offerings made prior to the commencement of an
offering for which a Securities Act registration statement has been
filed. Proposed Rule 152(b)(3)(i) would provide that an offering for
which a Securities Act registration statement has been filed will not
be integrated with terminated or completed offerings for which general
solicitation is not permitted.\111\ Proposed Rule 152(b)(3)(ii) would
provide that an offering for which a Securities Act registration
statement has been filed will not be integrated with a terminated or
completed offering for which general solicitation is permitted made
only to QIBs and IAIs.\112\ Finally, Proposed Rule 152(b)(3)(iii) would
make clear that an offering for which a registration statement under
the Securities Act has been filed will not be integrated with any
offering for which general solicitation is permitted that terminated or
completed more than 30

calendar days prior to the registered offering.\113\
---------------------------------------------------------------------------

    \111\ Proposed Rule 152(b)(3)(i) builds on the Commission's
existing integration guidance relating to offerings for which
general solicitation is not permitted. Offers and sales preceding
registered offerings that do not involve general solicitation are
generally not the type of offerings that, when taken together,
appear to be susceptible to concerns relating to the prior offers
and sales conditioning the market for the registered offering.
    \112\ Proposed Rule 152(b)(3)(ii) builds on current Rule 255(e)
of Regulation A, and current Rules 147(h) and 147A(h), which
provides that offerings limited to QIBs and IAIs are not integrated
with a subsequently filed registered offering. Similarly, where an
issuer has solicited interest in a contemplated, but subsequently
abandoned Regulation A offering only to QIBs or IAIs, the abandoned
Regulation A offering would not be subject to integration with a
subsequently filed registered offering.
    \113\ Proposed Rule 152(b)(3)(iii) would work in coordination
with proposed Rule 152(b)(1) to clarify the application of the 30-
day safe harbor to subsequent registered offerings.
---------------------------------------------------------------------------

    Rule 152 currently provides that the phrase ``transactions by an
issuer not involving any public offering'' in Section 4(a)(2) shall be
deemed to apply to transactions that did not involve any public
offering at the time of the unregistered offering even though the
issuer decides subsequently to make a public offering and/or files a
registration statement. In 2007, the Commission clarified that an
issuer's contemplation of filing a Securities Act registration
statement at the same time that it is conducting an unregistered
offering under Section 4(a)(2) would not cause the Section 4(a)(2)
exemption to be unavailable for that unregistered offering.\114\ So
long as all of the applicable requirements of the exemption prohibiting
general solicitation were met for offers and sales that occurred prior
to the general solicitation, those offers and sales would not be
integrated with the subsequent registered offering.\115\ Once the
public offering is commenced or the registration statement is filed,
the issuer must satisfy all of the applicable requirements for that
subsequent offering.
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    \114\ See Regulation D Proposing Release, at text accompanying
note 124. See also Concept Release, at text accompanying note 499.
    \115\ In these circumstances, companies should be careful to
avoid any pre-filing communications regarding the contemplated
public offering that could render the Section 4(a)(2) exemption
unavailable for what would be an otherwise exempt private placement.
See Regulation D Proposing Release, at note 124.
---------------------------------------------------------------------------

    We continue to believe that capital raising around the time of a
public offering, in particular an initial public offering, including
immediately before the filing of a registration statement, often is
critical if companies are to have sufficient funds to continue to
operate while the public offering process is ongoing.\116\ We believe
that Rule 152 as currently written is unnecessarily restrictive, given
the changing financial requirements and circumstances of issuers,
particularly smaller issuers, immediately prior to a registered public
offering and may be revised without compromising investor protections.
A lengthy waiting period prior to a registered offering combined with a
potentially uncertain registration process are particular concerns for
smaller issuers contemplating a registered public offering, whose
financing needs are often erratic and unpredictable, due in part to
limited amounts of working capital, cash reserves, and access to
credit.\117\ For this reason, we are proposing Rule 152(b)(3), which
would permit companies to conduct offerings shortly before the filing
of a Securities Act registration statement without concern that the two
offerings would be integrated.
---------------------------------------------------------------------------

    \116\ Id. at Section II.C.
    \117\ See, e.g., Final Report of the Advisory Committee on
Smaller Public Companies, at page 96. See also Regulation D
Proposing Release, at note 116 and accompanying text.
---------------------------------------------------------------------------

d. Offers or Sales Preceding Exempt Offerings Permitting General
Solicitation
    Proposed Rule 152(b)(4) would provide a safe harbor for all offers
and sales made in reliance on an exemption for which general
solicitation is permitted that follow any other terminated or completed
offering. Rule 251(c) of Regulation A, Rule 147(g), and Rule 147A(g)
currently provide that offers and sales made in reliance on these
exemptions will not be integrated with terminated or completed offers
and sales made prior to the commencement of these exempt
offerings.\118\ We are proposing to establish a new safe harbor that
would expand these current integration safe harbors in Regulation A and
Rules 147 and 147A to also include offerings relying on: Regulation
Crowdfunding; Rule 504(b)(1)(i), (ii) or (iii) that, depending upon
state registration requirements, permit general solicitation; and Rule
506(c). The following table summarizes the types of offerings that
would not be integrated under this proposed safe harbor:
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    \118\ These integration provisions also provide that offers and
sales subsequent to these exempt offerings will not be integrated if
they are: (1) Registered under the Securities Act; (2) exempt from
registration under Rule 701; (3) made pursuant to an employee
benefit plan; (4) exempt from registration under Regulation S; (5)
exempt from registration under Section 4(a)(6) of the Securities
Act; (6) made more than six months after completion of the offering;
or (7) limited to QIBS and IAIs. See Rule 251(c); Rule 255(e); Rule
147(g) and (h); and Rule 147A(g) and (h).

  Table 6--Summary of Types of Offerings Not Integrated Under the Safe
                                 Harbor
------------------------------------------------------------------------
             Offering 1                           Offering 2
------------------------------------------------------------------------
Exempt offering permitting general    Exempt offering prohibiting
 solicitation, including:              general solicitation, including:
 Regulation A                  Regulation A
 Regulation Crowdfunding       Regulation Crowdfunding
 Rule 147 or 147A              Rule 147 or 147A
 Rule 504(b)(1)(i), (ii), or   Rule 504(b)(1)(i), (ii),
 (iii)                                 or (iii)
 Rule 506(c)                   Rule 506(c)
Exempt offering permitting general
 solicitation, including:
 Rule 504(b)(1)
 Rule 506(b)
 Section 4(a)(2)
Securities Act registered offering.
------------------------------------------------------------------------

    Offers and sales preceding exempt offerings that permit general
solicitation are generally not the type of offerings that, when taken
together, appear to be susceptible to concerns relating to the prior
offers and sales conditioning the market for the subsequent exempt
offering. We do not believe integrating any type of offers or sales
with a subsequent exempt offering permitting general solicitation, such
as an offering pursuant to Regulation A, Rule 147, Rule 147A, Rule
504(b)(1)(i), (ii) or (iii), Rule 506(c) or Regulation Crowdfunding, is
necessary to further investor protection. For example, a subsequent
Regulation A or Regulation Crowdfunding offering would provide
investors in these offerings with an offering document and ongoing
disclosures to provide them with material information about the
offering prior to making their investment decision. Similarly,
intrastate offerings pursuant to Rule 147 and Rule 147A, as well as
regional multi-state offerings under Rule 504(b)(1)(i), (ii) and (iii),
are all subject to state registration requirements which generally
require the delivery of a disclosure document prior to sale. Finally,
Rule 506(c) requires issuers to take reasonable steps to verify that
all investors in the offering are accredited investors who are deemed
to be sophisticated investors who do not need the protections of
Securities Act registration.
3. Conforming Amendments to Securities Act Exemptions
    As part of our effort to modernize and harmonize the integration
framework for registered and exempt offerings, we are also proposing to
replace the integration provisions of several Securities Act exemptions
with references to proposed Rule 152. Specifically, we are proposing to
amend current Rule 502(a), Rule 251(c), Rule 147(g), and Rule 147A(g)
to provide cross-references to the new facts and circumstances analysis
and safe harbors for integration in Rule 152. We are additionally
proposing to eliminate Rule 255(e), Rule 147(h), and Rule 147A(h) since
the relief provided by these rules would be provided by

proposed Rule 152(b)(3). All of these existing integration provisions
currently refer to a facts and circumstances analysis when their
enumerated safe harbors do not apply, and the proposed Rule 152(b) safe
harbors are generally consistent with the current safe harbors in the
individual rules.
    Although Regulation Crowdfunding has no codified integration
provision, in the 2015 adopting release, the Commission provided
guidance on integration using the same facts and circumstances analysis
set forth in the Commission's 2015 amendments to Regulation A and 2016
amendments to Rule 147 and adoption of new Rule 147A.\119\ Market
participants conducting crowdfunding offerings have requested guidance
on the integration of crowdfunding offerings with other exempt
offerings under the Securities Act.\120\ In response, we are proposing
to amend Rule 100 of Regulation Crowdfunding to codify this integration
guidance, and further harmonize how offerings under Regulation
Crowdfunding interrelate with other offerings under the Securities Act
by cross-referencing the proposed Rule 152(b) safe harbors. We believe
codifying the Commission's guidance on integration by adding the cross-
reference to proposed Rule 152 in a new provision in Rule 100 of
Regulation Crowdfunding would provide greater certainty to issuers
contemplating a Regulation Crowdfunding offering who may also be
considering other offerings under the Securities Act.
---------------------------------------------------------------------------

    \119\ Securities Act Section 4A(g) states that ``[n]othing in
the exemption shall be construed as preventing an issuer from
raising capital through means other than [S]ection 4(a)(6).'' Given
this statutory language, the Commission provided guidance in the
Crowdfunding Adopting Release that an offering made in reliance on
Section 4(a)(6) is not required to be integrated with another exempt
offering made by the issuer to the extent that each offering
complies with the requirements of the applicable exemption that is
being relied on for that particular offering. See Crowdfunding
Adopting Release, at text accompanying notes 1343-1344.
    \120\ See, e.g., 2018 Forum Report.
---------------------------------------------------------------------------

Request for Comment
    1. Should we adopt a comprehensive integration framework for
registered and exempt offerings, as proposed? Is the proposed general
principle of integration, which requires an issuer to consider the
particular facts and circumstances of each offering, appropriate?
Should the framework also include provisions applying this general
principle to particular fact patterns? If so, are the proposed
provisions appropriate? Are there other provisions applying the general
principle to specific fact patterns that we should include? In light of
the proposed provisions, should the rules define the terms ``pre-
existing'' and ``substantive relationship''? Should we instead
eliminate the concept of integration altogether and rely on general
anti-evasion principles to prohibit the use of multiple closely-timed
offerings to evade the securities laws?
    2. Should we replace the five factor test of integration, currently
set forth in Rule 502(a), with the more recent approach to integration
adopted in rulemakings involving Regulation A, Regulation Crowdfunding,
and Rules 147 and 147A, as proposed? Is there another integration
principle that should apply in this context? Are there situations in
which the five factor test should continue to apply? If so, should the
current factors be revised, such as by adding new factors, or should we
provide guidance with respect to the relative importance of the factors
to the analysis? Are there uses of the five factor test for purposes
other than the integration of offerings?
    3. Should we adopt specific safe harbors as part of the proposed
integration framework? If so, are the proposed safe harbors
appropriate? Are there additional or different safe harbors we should
codify? What effect, if any, would the proposed safe harbors have on
investor protection or on issuers' ability to raise capital in the
exempt offering markets? Should any of the integration provisions in
proposed Rule 152(a) be reframed as safe harbors in proposed Rule
152(b)? Similarly, should any of the safe harbors in proposed Rule
152(b) be reframed as principles of integration in proposed Rule
152(a)?
    4. Do the proposed rules make clear the interaction between the
integration provisions set forth in proposed Rule 152(a) and the non-
exclusive safe harbors set forth in proposed Rule 152(b)?
    5. Should we include an integration safe harbor that would apply to
any offering made more than 30 calendar days prior to, or more than 30
calendar days after, another offering, as proposed? Is this time period
too short? Would a longer time period such as 45, 90, or 120 days be
more appropriate? Would this proposal raise any investor protection
concerns?
    6. Should we, as proposed, amend Rule 506(b) to provide that where
an issuer conducts more than one offering under Rule 506(b), the number
of non-accredited investors purchasing in all such offerings within 90
calendar days of each other would be limited to 35? If so, is the
proposed timeframe (90 days) and number of purchasers (35) appropriate,
or should these be revised? Should we instead, if we consider 35 non-
accredited investors over a 90-day period to be an appropriate
limitation, set the safe harbor at 90 days to simplify compliance? Do
the risks of sales to large numbers of non-accredited investors in
multiple offerings by the same issuer in reliance on Rule 506(b)
warrant such limits on the number of non-accredited investors
participating in these offerings? Should this limitation apply in all
cases in which an issuer conducts more than one offering under Rule
506(b), or should we only require such limit on the number of non-
accredited investors if the Rule 506(b) offerings are of the same class
of securities, or part of the same plan of financing? Should we only
require such limit on the number of non-accredited investors if the
Rule 506(b) offerings would be integrated if the five factor test were
applied? Alternatively, instead of amending Rule 506(b), should we
include this requirement as a condition to reliance on the proposed 30-
day safe harbor when an issuer conducts two or more Rule 506(b)
offerings?
    7. Should we, as proposed, condition the availability of the 30-day
safe harbor on the requirement that, for an exempt offering for which
general solicitation is not permitted, the purchasers in such offering
were not solicited through the use of general solicitation or that the
purchasers established a substantive relationship with the issuer prior
to commencement of the offering for which general solicitation is not
permitted? Alternatively, is a provision similar to that in proposed
Rule 152(b)(1) more appropriate in Rule 502(c) of Regulation D
concerning purchasers in offerings for which general solicitation is
not permitted? Should the provision be included in both proposed Rule
152(b)(1), as well as in Rule 502?
    8. Should we adopt an integration safe harbor for all offerings
made in compliance with Rule 701, pursuant to an employee benefit plan,
or in compliance with Regulation S, as proposed?
    9. Is it necessary to reference Rule 701 in proposed Rule
152(b)(2), given the integration provision in Rule 701(f)?
    10. Should general solicitation in the United States in connection
with an exempt, U.S. offering constitute directed selling efforts under
Rule 902(c)(1) of Regulation S for purposes of the offshore
transaction? Should we, as proposed, amend the definition of ``directed
selling efforts'' to permit issuers to make concurrent offers under
Regulation S and an exemption from registration that permits general
solicitation? Should we expand the

definition of ``directed selling efforts'' to also exclude activities
that would be ``reasonably expected to'' condition the U.S. market,
regardless of the intent of those activities? Would an issuer be able
to demonstrate the intent underlying general solicitation activities
under the proposed amendment? Would the proposed amendments provide
sufficient clarity to issuers using social media to make concurrent
U.S. and non-U.S. offerings? In such situations, would an issuer have
difficulty separately complying with Regulation S and other exemptions?
Do the proposed amendments to Regulation S raise investor protection
concerns for offshore investors? Should we expand the proposed
exclusion from ``directed selling efforts'' to apply not only to
concurrent exempt offerings that permit general solicitation, but also
to domestic registered offerings?
    11. Should we require the resale restrictions of proposed Rule 906?
Will proposed Rule 906 help prevent flowback of securities to the
United States? Is the proposed six-month time period appropriate, or
should we consider a longer or shorter time period for the resale
restriction to apply? Should the time period during which resales are
restricted instead correspond to the distribution compliance period for
Category 2 or Category 3 offerings under Regulation S, as applicable?
Should we permit resales to QIBs and IAIs during this six-month period,
as proposed? We expect that issuers would consider implementing
measures similar to the ``offering restrictions'' defined in Rule
902(g) to comply with the proposed Rule 906 resale restriction, but
should we specify measures an issuer must take to comply with the
proposed resale restrictions? If so, what type of measures would be
appropriate? Are the proposed definition of ``directed selling
efforts'' and new Rule 906 in keeping with the territorial approach
taken in Regulation S?
    12. Should we adopt the safe harbor in proposed Rule 152(b)(3) that
applies to registered offerings subsequent to a terminated or completed
offering for which general solicitation was not permitted, as proposed?
Should we also, as proposed, include a safe harbor that applies to
registered offerings subsequent to a terminated or completed offering
limited to QIBs and IAIs? Should we additionally include a safe harbor
that applies to registered offerings subsequent to offerings for which
general solicitation is permitted that terminated or completed more
than 30 days prior? Do the safe harbors, as proposed, sufficiently
cover the relief provided by Rule 255(e) of Regulation A, Rule 147(h),
and Rule 147A(h) so as to make them no longer necessary? Alternatively,
should we omit the provision in this safe harbor concerning Rules
255(e), 147(h), and 147A(h), and retain these integration provisions as
currently provided in Rules 255, 147, and 147A? Would this help
simplify the safe harbor in proposed Rule 152(b)(3)? Would this make
the integration provisions of Rules 255, 147, and 147A less clear? Does
the 30 calendar day provision in proposed Rule 152(b)(3)(iii) for
registered offerings appropriately coordinate with the more general
provisions of proposed Rule 152(b)(1)? In addition to registered
offerings, should we revise this safe harbor provision to cover exempt
offerings permitting general solicitation, such as Rule 506(c), as
well?
    13. Should we adopt the safe harbor in proposed Rule 152(b)(4) that
would apply to any offering in reliance on an exemption for which
general solicitation is permitted made subsequent to an offering that
has been terminated or completed?
    14. Should we include any other safe harbors from integration in
Rule 152? For example:
    a. Should we include a safe harbor for all offers or sales to
investors with whom the issuer has a pre-existing substantive
relationship? Should this safe harbor be available for all such offers
or sales, regardless of when they occur in relation to another offering
(i.e., whether prior to, concurrent with, or subsequent to another
offering) and regardless of whether the other offering is exempt or
registered? If we were to adopt such a safe harbor, would that make any
of the proposed safe harbors unnecessary?
    b. Should we include a safe harbor from integration for all
offerings limited to QIBs and accredited investors? Should such a safe
harbor include offers or sales preceding or concurrent with a
registered offering? Alternatively should such a safe harbor apply only
to QIBs and IAIs, regardless of whether the offer or sale was prior to,
concurrent with, or subsequent to other offerings? Do offers and sales
to such investors raise concerns with respect to conditioning the
market for a subsequent registered offering of the issuer's securities?
    c. Should we include a safe harbor available for offers or sales
made in reliance on Rule 506(c) that are made concurrently with an
exempt offering permitting general solicitation, such as in reliance on
Regulation A, Regulation Crowdfunding or Rule 147A, provided that, if
the general solicitation materials used in connection with the Rule
506(c) offering include the material terms of the other concurrent
exempt offering permitting general solicitation, then the Rule 506(c)
materials must conform to the legend and other requirements of the
other exempt offering permitting general solicitation? In this regard,
is our proposed Rule 152(a)(2) more appropriate as a safe harbor or as
an integration principle?
    15. Instead of our proposed approach to replace the current
integration provisions in Securities Act exemptions with a cross-
reference to proposed Rule 152, should we revise the current
integration provisions to reflect the provisions of proposed Rule 152?
Alternatively, should we revise the current safe harbor provisions in
the Securities Act exemptions to reflect the safe harbor provisions of
proposed Rule 152(b) and provide cross-references to Rule 152(a) for
guidance on integration when these safe harbors are not applicable?
    16. Should we codify in Regulation Crowdfunding the Commission's
existing integration guidance providing that offers and sales made in
reliance on Regulation Crowdfunding will not be integrated with other
exempt offerings made by the issuer, provided that each offering
complies with the requirements of the applicable exemption that is
being relied upon for the particular offering in Rule 100 of Regulation
Crowdfunding, as proposed?
    17. Should we define the terms ``terminated or completed,'' as
proposed? Should the analysis of whether an offering is ``terminated or
completed'' be predicated on the issuer's entry into a binding
commitment, subject only to conditions outside of the investor's
control, to sell securities under the offering, as proposed, or should
we consider an alternative such as the closing of the final sale of
securities under the offering? Are there any administrative or
logistical issues that would be raised if the ``termination or
completion'' of an offering were determined based on the closing of the
final sale of securities under the offering? Should anything else be
considered ``terminated or completed'' with respect to offerings under
Regulation A and Regulation Crowdfunding, and registered offerings?
    18. Should we consider revisions to Regulation Crowdfunding that
relate to intermediaries in light of the proposed integration safe
harbors? For example, should we revise the portal requirements under
Regulation Crowdfunding to permit concurrent Rule 506(c) offerings to
be offered and sold via a portal's internet platform? What other
Regulation Crowdfunding rules should be revised to facilitate Rule

506(c) offerings concurrent with Regulation Crowdfunding offerings?
Should we provide guidance regarding issues that may arise when an
intermediary seeks to host concurrent offerings? Should we expand any
of our rules, for example, the rules under Regulation Crowdfunding, to
permit certain entities to act as intermediaries for sales of
securities to accredited investors in concurrent Rule 506(c) offerings?

B. General Solicitation and Offering Communications

    Section 4(a)(2) of the Securities Act exempts from the registration
requirements ``transactions by an issuer not involving any public
offering,'' \121\ but does not define the phrase. The precise limits of
this statutory exemption are also not defined by rule. Whether a
transaction is one not involving any public offering is essentially a
question of fact and necessitates a consideration of the surrounding
circumstances, including such factors as the relationship between the
offerees and the issuer, and the nature, scope, size, type, and manner
of the offering.\122\ An issuer relying on Section 4(a)(2) is
restricted in its ability to make public communications to attract
investors to its offering because public advertising is incompatible
with a claim of exemption under Section 4(a)(2).\123\
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    \121\ 15 U.S.C. 77d(a)(2).
    \122\ See Non-Public Offering Exemption Release. Section 4(a)(2)
was traditionally viewed as a way to provide ``an exemption from
registration for bank loans, private placements of securities with
institutions, and the promotion of a business venture by a few
closely related persons.'' Id. In 1962, prompted by increased use of
the exemption for speculative offerings to unrelated and uninformed
persons, the Commission clarified limitations on the exemption's
availability. See id.
    \123\ See id.
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    The Commission adopted Rule 506 of Regulation D as a non-exclusive
safe harbor under Section 4(a)(2), providing objective standards on
which an issuer could rely to meet the requirements of the Section
4(a)(2) exemption.\124\ This included a prohibition on the use of
general solicitation or advertising to market the securities. In 2012,
Section 201(a) of the JOBS Act directed the Commission to eliminate the
prohibition on using general solicitation in offerings under Rule 506
where all purchasers of the securities are accredited investors and the
issuer takes reasonable steps to verify that the purchasers are
accredited investors.\125\ To implement Section 201(a), the Commission
adopted paragraph (c) of Rule 506, and retained the prior Rule 506 safe
harbor as paragraph (b).\126\ As a result, general solicitation or
advertising continues to be prohibited in an offering under Rule
506(b).
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    \124\ See Regulation D Adopting Release, at Section III.C.
Attempted compliance with any rule in Regulation D does not preclude
an issuer from claiming the availability of another applicable
exemption. For example, an issuer's failure to satisfy all the terms
and conditions of Rule 506(b) does not raise a presumption that the
exemption provided by Section 4(a)(2) is not available. See Rule
500(c).
    \125\ Sec. 201(a), Public Law 112-106, 126 Stat. 306 (Apr. 5,
2012).
    \126\ See Rule 506(c) Adopting Release.
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1. Exemption From General Solicitation for ``Demo Days'' and Similar
Events
    The Securities Act defines, and the Commission has historically
interpreted, the term ``offer'' broadly.\127\ The Commission has
explained that ``the publication of information and publicity efforts,
made in advance of a proposed financing which have the effect of
conditioning the public mind or arousing public interest in the issuer
or in its securities constitutes an offer.'' \128\ Although the terms
``general solicitation'' and ``general advertising'' are not defined in
Regulation D, Rule 502(c) does provide examples of general solicitation
and general advertising, including advertisements published in
newspapers and magazines, communications broadcast over television and
radio, and seminars where attendees have been invited by general
solicitation or general advertising.\129\ The Commission has stated
that other uses of publicly available media, such as unrestricted
websites, also constitute general solicitation and general
advertising.\130\ In this release, we refer to both general
solicitation and general advertising as they relate to an offer of
securities as ``general solicitation.''
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    \127\ See Securities Offering Reform, Release No. 33-8591 (July
19, 2005) [70 FR 44722 (Aug. 3, 2005)] (``Securities Offering Reform
Release''), at note 88 (``The term `offer' has been interpreted
broadly and goes beyond the common law concept of an offer.'')
(citing Diskin v. Lomasney & Co., 452 F.2d 871 (2d. Cir. 1971) and
SEC v. Cavanaugh, 1 F. Supp. 2d 337 (S.D.N.Y. 1998)). See also
Section 2(a)(3) of the Securities Act (noting that an offer includes
every attempt to dispose of a security or interest in a security,
for value; or any solicitation of an offer to buy a security or
interest in a security).
    \128\ See Securities Offering Reform Release.
    \129\ See Rule 502(c).
    \130\ See Use of Electronic Media for Delivery Purposes, Release
No. 33-7233 (Oct. 6, 1995) [60 FR 53458 (Oct. 13, 1995)], at Section
II.A.D; and Use of Electronic Media Release, at Section II.C.2.
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    Commenters have raised questions about issuers that present to
potential investors at ``demo days'' and similar events.\131\ These
events are generally organized by a group or entity (such as a
university, angel investors, an accelerator, or an incubator) that
invites issuers to present their businesses to potential investors,
with the aim of securing investment. If the issuer's presentation at a
``demo day'' or similar event constitutes an offer of securities, the
issuer would not be deemed to have engaged in general solicitation if
the organizer of the event has limited participation in the event to
individuals or groups of individuals with whom the issuer or the
organizer has a pre-existing substantive relationship or that have been
contacted through an informal, personal network of experienced,
financially sophisticated individuals, such as angel investors.
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    \131\ See CCMC Letter (stating that ``the SEC should clarify
that startups and angel investors are permitted to participate in
``demo days'' or other publicity events in which companies serially
present to audiences that may include potential investors but for
which no specific investment solicitation is made''); and letter
from Investment Adviser Association dated October 18, 2019 (``IAA
Letter'') (suggesting that the Commission ``should clarify that
limited communications designed for consumption by a non-public
audience (such as institutional publications or institutionally
focused consultant databases), or participation in a `demo day' or
similar event, would not be considered general solicitation or
general advertising'').
---------------------------------------------------------------------------

    However, we understand that in many cases it may not be practical
for the organizer of the event to limit participation in this manner.
As a result, we are proposing Rule 148, which would provide that
certain ``demo day'' communications would not be deemed general
solicitation or general advertising.\132\ Specifically, as proposed, an
issuer would not be deemed to have engaged in general solicitation if
the communications are made in connection with a seminar or meeting by
a college, university, or other institution of higher education, a
local government, a nonprofit organization, or an angel investor group,
incubator, or accelerator sponsoring the seminar or meeting.\133\
---------------------------------------------------------------------------

    \132\ Because communications that comply with proposed Rule 148
would not be deemed a general solicitation or general advertising,
the limitations on the manner of offering in Rule 502(c) of
Regulation D would be inapplicable.
    \133\ A proposed Instruction to Rule 148 would provide that for
purposes of the rules the term ``angel investor group'' means a
group: (A) Of accredited investors; (B) that holds regular meetings
and has written processes and procedures for making investment
decisions, either individually or among the membership of the group
as a whole; and (C) is neither associated nor affiliated with
brokers, dealers, or investment advisers.
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    With respect to the organization and conduct of the event, the
sponsor would not be permitted to make investment recommendations or
provide investment advice to attendees of the event, nor would it be
permitted to engage in any investment negotiations between the issuer
and investors attending the event. The sponsor would not be permitted
to

charge attendees of the event any fees, other than reasonable
administrative fees, or receive any compensation for making
introductions between attendees and issuers, or for investment
negotiations between the parties. The sponsor also would not be
permitted to receive any compensation with respect to the event that
would require it to register as broker or dealer under the Exchange
Act, or as an investment adviser under the Advisers Act.
    In addition, the proposed rule would specify that the advertising
for the event may not reference any specific offering of securities by
the issuer and that the information conveyed at the event regarding the
offering of securities by the issuer is limited to:
     Notification that the issuer is in the process of offering
or planning to offer securities;
     The type and amount of securities being offered; and
     The intended use of the proceeds of the offering.
    We believe that this tailored approach, which limits the types of
organizations that may sponsor events and the scope of the sponsor's
activities, coupled with the limitation on the information about a
securities offering that an issuer is permitted to provide at the
event, appropriately provides for investor protection while permitting
issuers, particularly small and emerging issuers, and investors, the
opportunity to more efficiently expand and grow their networks. For
issuers that have been reported to have historically had less access to
capital at start up, this approach may offer an opportunity to help
bridge any funding gaps by allowing them to reach broader
audiences.\134\
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    \134\ For example, diverse founders, including women-owned and
minority-owned businesses may have less access to start-up capital
and venture capital (``VC'') funding. See Office of the Advocate for
Small Business Capital Formation Annual Report for Fiscal Year 2019,
available at https://www.sec.gov/files/2019_OASB_Annual%20Report.pdf, at 26 and 30. See also Presentation
at Feb. 4, 2020 Small Business Capital Formation Advisory Committee
meeting by James Gelfer, Senior Strategist, Lead Venture Analyst,
PitchBook, available at https://www.sec.gov/spotlight/sbcfac/2020-02-04-presentation-pitchbook-venture-climate.pdf, at 13 (``Female-
founded companies as a proportion of total US VC deal activity''
(showing the proportion of total U.S. VC deals for companies that
had at least one female founder (22.8 percent of VC deals and 14.2
percent of VC dollars) and for companies with all female founders
(6.8 percent of VC deals and 2.7 percent of VC dollars)). See also
Banerji, Devika & Reimer, Torsten, Startup Founders and Their
LinkedIn Connections: Are Well-Connected Entrepreneurs More
Successful? 90 Computers in Hum. Behavior 46 (2019) (finding that
social connectedness of founders was the best predictor of funds
raised).
---------------------------------------------------------------------------

    In light of recent developments in the capital markets, including
the adoption of Rule 506(c), as well as developments in communications
and technology, we considered, but are not proposing at this time,
adding revised examples of general solicitation to our rules.
Furthermore, several commenters on the Concept Release, as well as the
SEC Small Business Capital Formation Advisory Committee, have suggested
that further guidance and clarification as to the types of
communications that classify as ``general solicitation'' and ``general
advertising'' would be helpful.\135\
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    \135\ See, e.g., NYSBA Letter; letter from Institute for
Portfolio Alternatives dated September 24, 2019 (``IPA Letter'');
CCMC Letter; Dechert Letter; IAA Letter; letter from Association for
Corporate Growth dated September 24, 2019; ABA Letter; and
Transcript of SEC Small Business Capital Formation Advisory
Committee (Feb. 4, 2020), available at https://www.sec.gov/info/smallbus/acsec/sbcfac-transcript-020420.pdf (``2020 Transcript of
Small Business Advisory Committee''), at 172-174 (discussing
confusion surrounding general solicitation).
---------------------------------------------------------------------------

    As a result, we considered whether to update and expand the current
Rule 502(c) examples of general solicitation by adding examples to a
new rule outside of Regulation D, deleting the current examples from
Rule 502(c) and including a reference in Rule 502(c) to the new rule.
For example, we considered stating in the new rule that an issuer would
be considered to be engaging in general solicitation if, among other
things, the issuer or any person acting on the issuer's behalf uses one
or more of the following methods of communication to offer securities:
     Any advertisement, article, notice or other communication
published on a publicly available website or mobile application,
including social media, published in any newspaper, magazine, or
similar media, or broadcast over television, radio or a similar medium;
     Any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising, other than certain
``demo day'' activities covered by proposed Rule 148; or
     Any form of direct mail, telephone, email, text messaging,
or similar method of communication, if the issuer (or any underwriter,
broker, dealer, or agent acting on behalf of the issuer) does not have
a pre-existing, substantive relationship with the offerees, or cannot
otherwise demonstrate the absence of a general solicitation.
    This approach would encompass present day communication methods
that did not exist at the time of Rule 502(c)'s adoption, such as
websites, social media, texts, and email, and would clarify that cold
calling and other similar methods of communication that do not involve
the use of mass media may still be considered general solicitation if
the issuer or its agent does not have a pre-existing, substantive
relationship with the offerees, or cannot otherwise demonstrate the
absence of a general solicitation.
    We note the existence of a pre-existing, substantive relationship
is not the exclusive means of demonstrating the absence of a general
solicitation. For example, an issuer may also demonstrate the absence
of a general solicitation by limiting its communications to direct
contact by the issuer or its agents outside of a public offering
effort. In addition, groups of experienced, sophisticated investors,
such as ``angel investors,'' may share information about offerings
through their network and members who have a relationship with a
particular issuer may introduce that issuer to other members. Issuers
that contact one or more experienced, sophisticated members of the
group through this type of referral may be able to establish a
reasonable belief that other offerees in the network have the necessary
financial experience and sophistication.
Request for Comment
    19. Should we, as proposed, provide a specific exception for
communications in connection with a ``demo-day'' or similar event so
that it would not be considered general solicitation if certain
conditions are met? Should we permit organizations other than those
listed in proposed Rule 148 to act as sponsors of such events? An
instruction to the proposed rule provides that the term ``angel
investor group'' means a group that is composed of accredited investors
that holds regular meetings and has written processes and procedures
for making investment decisions, either individually or among the
membership of the group as a whole, and is neither associated nor
affiliated with brokers, dealers, or investment advisers. Does this
definition appropriately cover the types of groups that sponsor such
events, or are there changes that should be made to the definition?
Should we include, as proposed, accelerators and incubators as
organizations that may act as sponsors of these events? Should we
define the terms ``accelerator'' and ``incubator'' for this purpose?
Alternatively, should we specify only the types of groups that would be
prohibited from acting as sponsors of these events, such as broker-
dealers, investment advisers, or others? Are the proposed conditions to
this exception, such as limitations on the sponsor's fees and the types
of information an issuer may provide at the event appropriate? If

not, how should those conditions be revised? Are there additional
conditions that we should specify with respect to this exception, such
as a requirement that certain disclosures be provided to event
attendees, or limitations on the characteristics of the entities that
may avail themselves of this exception (i.e., entities formed for the
purposes of sponsoring events in order to engage in general
solicitation)?
    20. Should we provide a definition of ``general solicitation'' and
``general advertising''? If so, how should those terms be defined?
Should we instead eliminate all prohibitions on ``general
solicitation'' and ``general advertising'' and focus investor
protections at the time of sale rather than at the time of offer?
    21. Should we move the existing list of examples provided in Rule
502(c) to a new rule? Do the current examples in Rule 502(c) pose any
particular challenges we should consider in formulating a new rule? Are
there different or additional examples that we should provide? For
example, should we include any form of direct mail, telephone, email,
text messaging, or similar method of communication, if the issuer (or
any underwriter, broker, dealer, or agent acting on behalf of the
issuer) does not have a pre-existing, substantive relationship with the
offerees, or cannot otherwise demonstrate the absence of a general
solicitation?
    22. Should we define the term ``pre-existing substantive
relationship'' in the rule? If so, should we define the term
consistently with the guidance set forth in this release? If not, how
should we define this term?
    23. Would the proposed changes positively impact access to capital
by counterbalancing social network effects for underrepresented
founders, such as women, minorities, and entrepreneurs in rural areas?
2. Solicitations of Interest
    The JOBS Act added Securities Act Section 5(d), permitting emerging
growth companies (``EGCs''),\136\ and persons authorized to act on
their behalf, to engage in oral or written communications with
potential investors that are QIBs or IAIs before or after filing a
registration statement to gauge such investors' interest in a
contemplated securities offering.\137\ Securities Act Rule 163B, which
the Commission adopted in September 2019, extended to all issuers the
``test-the-waters'' accommodation previously available only to
EGCs.\138\ Under the new rule, all issuers and those authorized to act
on their behalf are allowed to gauge market interest in a registered
securities offering through discussions with QIBs and IAIs prior to, or
following, the filing of a registration statement.
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    \136\ See 17 CFR 230.405 (defining ``emerging growth company'').
    \137\ Sec. 105(c), Public Law 112-106, 126 Stat. 306 (2012).
    \138\ See Solicitations of Interest Prior to a Registered Public
Offering, Release No. 33-10699 (Sep. 25, 2019) [84 FR 53011 (Oct. 4,
2019)] (``Solicitations of Interest Release'').
---------------------------------------------------------------------------

    Regulation A also permits issuers to ``test-the-waters'' with, or
solicit interest in a potential offering from, the general public
either before or after the filing of the offering statement, provided
that all solicitation materials include certain required legends and,
after publicly filing the offering statement, are preceded or
accompanied by a preliminary offering circular or contain a notice
informing potential investors where and how the most current
preliminary offering circular can be obtained.\139\
---------------------------------------------------------------------------

    \139\ See 17 CFR 230.255.
---------------------------------------------------------------------------

    These solicitations of interest are deemed to be offers of a
security for sale for purposes of the antifraud provisions of the
federal securities laws.\140\ We believe that the existing testing-the-
waters provisions allow issuers to consult effectively with investors
as they evaluate market interest in a contemplated registered or
Regulation A securities offering before incurring the costs associated
with such an offering, while preserving investor protections. This
consultation allows investors to have input into the structuring of the
offering and also allows for investors to convey to the issuer the
types of information about which they are most interested, leading
ultimately to a lower cost of capital for the issuer and potentially
resulting in more investor-friendly deal terms. Because we are of the
view that issuers may similarly benefit from an ability to consult with
investors as they evaluate market interest in other types of offerings,
we are proposing a new exemption that would permit an issuer to solicit
indications of interest in an exempt offering orally or in writing
prior to determining which exemption it would rely upon to conduct the
offering. We are also proposing amendments to Regulation Crowdfunding
to permit an issuer to solicit indications of interest under a new
Regulation Crowdfunding-specific provision, as well as amendments to
Regulation Crowdfunding's and Regulation A's testing-the-waters
provisions to reflect the possibility that an issuer may choose to
test-the-waters using a generic solicitation of interest prior to
determining whether to conduct its offering under Regulation A or
Regulation Crowdfunding.
---------------------------------------------------------------------------

    \140\ See Solicitations of Interest Release; and 17 CFR
230.255(a).
---------------------------------------------------------------------------

a. Generic Solicitation of Interest Exemption
    We are proposing to create a new exemption, using our authority
under Section 28 of the Securities Act, that would permit an issuer to
use generic solicitation of interest materials for an offer of
securities prior to a making a determination as to the exemption under
which the offering may be conducted. This new exemption, which is
substantially based on existing Rule 255 of Regulation A, would be set
forth in proposed Rule 241. We believe that proposed Rule 241 would
further the public interest by allowing issuers significant flexibility
to gauge market interest in an exempt offering, tailor the size and
other terms of the offering, and reduce the costs of conducting an
exempt offering. Investors would also benefit from this flexibility,
because they would potentially have input into the structuring of the
offering and be able to convey to the issuer the types of information
about which they are most interested, leading ultimately to a lower
cost of capital for the issuer. As discussed below, the proposed rule
also includes several conditions intended to ensure appropriate
investor protections.
    An issuer that chooses to ``test-the-waters'' under the proposed
exemption would not be permitted to identify which specific exemption
from registration it may rely upon for a subsequent offer and sale of
the securities. We believe that if the issuer has determined the
exemption under which the offering will be conducted, the issuer must
comply with the specific terms of the exemption being relied upon. For
example, an issuer could conduct a generic solicitation of interest
under proposed Rule 241 and determine based on feedback from potential
investors that it wishes to proceed with an offering under Regulation
A. From that point in time, any testing-the-waters materials that the
issuer uses would be required to comply with Rule 255 of Regulation A.
    As proposed, Rule 241(b) would require the materials used under
this exemption to bear a legend or disclaimer notifying potential
investors that (1) the issuer is considering an offering of securities
exempt from registration under the Securities Act, but has not
determined a specific exemption from registration the issuer

intends to rely upon for the subsequent offer and sale of the
securities; (2) no money or other consideration is being solicited, and
if sent, will not be accepted; (3) no sales will be made or commitments
to purchase accepted until the issuer determines the exemption under
which the offering is intended to be conducted and, where the exemption
includes filing, disclosure, or qualification requirements, all such
requirements are met; and (4) a prospective purchaser's indication of
interest is non-binding. These solicitations would be deemed to be
offers of a security for sale for purposes of the antifraud provisions
of the federal securities laws.\141\
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    \141\ Proposed Rule 241(a).
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    Depending on the method of dissemination of the information, such
offers may be considered a general solicitation.\142\ If soliciting
generic indications of interest under the proposed rule is done in a
manner that would constitute general solicitation, and the issuer
ultimately decides to conduct an unregistered offering under an
exemption that does not permit general solicitation, the issuer would
need to analyze whether the generally solicited offer and the
subsequent private offering could be integrated, thereby making the
exemption that does not permit general solicitation unavailable. Such
an issuer, however, may be able to rely on the integration safe harbor
in proposed Rule 152(b)(1) to conduct an offering that does not permit
general solicitation if it waits 30 days following termination of the
generic solicitation of interest before commencing the private
offering. Note, however, that even if the 30-day safe harbor is
available, the issuer would not be able to follow a generic
solicitation of interest that used a general solicitation with an
offering pursuant to an exemption that does not permit general
solicitation, such as Rule 506(b), if the offerees contacted in
connection with the Rule 506(b) offering were solicited by means of the
general solicitation. Alternatively, an issuer that wanted to have the
option to conduct an offering that does not permit general solicitation
immediately following a generic solicitation of interest could ``test-
the-waters'' using the proposed legend without using general
solicitation, for example, by limiting its communications to potential
investors with whom the issuer has a pre-existing substantive
relationship or to direct contact by the issuer or its agents outside
of a public offering effort.
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    \142\ Such offers also may be considered ``directed selling
efforts'' as defined in Regulation S. Under the proposed amendment
to the definition of directed selling efforts in Rule 902 of
Regulation S, a generic solicitation that would be considered
general solicitation activity would not be considered ``directed
selling efforts'' in connection with an offering under Regulation S,
if the general solicitation activity is not undertaken for the
purpose of conditioning the market in the United States for any of
the securities being offered in reliance on Regulation S. Such an
issuer would be subject to the proposed Rule 906 restrictions on
resales. See supra Section II.A.2.
---------------------------------------------------------------------------

    We believe that the proposed exemption would be consistent with the
protection of investors. As with the existing testing-the-waters
provisions of Rule 163B and Regulation A, the anti-fraud provisions of
the federal securities laws would apply to these generic solicitations
of interest.\143\ In addition, proposed Rule 241 would provide an
exemption from registration only with respect to the generic
solicitation of interest, not for a subsequent offer or sale. Should
the issuer move forward with an exempt offering following the generic
solicitation of interest, the issuer must comply with the exemption
relied upon for the subsequent offering, and investors will have the
benefit of the investor protections encompassed in such exemption. For
example, if an issuer relies on proposed Rule 241 for a generic
solicitation of interest and then opts to rely on Regulation A for the
offering, the investors will receive the full disclosures required by
Regulation A prior to the time of sale.
---------------------------------------------------------------------------

    \143\ See, e.g., Section 17(a) of the Securities Act. See also
Solicitations of Interest Release; and 2015 Regulation A Release.
---------------------------------------------------------------------------

    In addition to the information currently required to be disclosed
under Regulation A and Regulation Crowdfunding, we are proposing to
also require that the generic solicitation materials be made publicly
available as an exhibit to the offering materials filed with the
Commission, if the Regulation A or Regulation Crowdfunding offering is
commenced within 30 days of the generic solicitation.\144\ We believe
that making the solicitation materials publicly available would help to
hold issuers accountable for the content of solicitation materials by
making them subject to scrutiny by the potential investors and the
public and, in the case of Regulation A, staff review and comment. It
also would help to ensure that the solicitation information is
consistent with the information contained in the Regulation A or
Regulation Crowdfunding offering materials.
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    \144\ See proposed Rule 201(z); and proposed paragraph 13 of
Form 1-A, Part III, Item 17. Currently, an issuer that solicits
indications of interest in reliance on Rule 255 of Regulation A is
required to submit or file solicitation materials to the Commission
as an exhibit when the offering statement is either submitted for
non-public review or filed (and update for substantive changes in
such material after the initial nonpublic submission or filing).
---------------------------------------------------------------------------

    We are also proposing an amendment to the information requirements
in Rule 502(b) so that if the issuer sells securities under Rule 506(b)
within 30 days of the generic solicitation of interest to any purchaser
that is not an accredited investor, the issuer would be required to
provide such purchaser with any written communication used under
proposed Rule 241. Although this information would not be made publicly
available, we believe that potential investors may benefit from the
ability to compare the solicitation materials with the information
being provided in the Rule 506(b) offering, which may help investors
hold issuers accountable for any inconsistencies in such materials. We
are not proposing that an issuer that subsequently opts to rely on any
other exemption, including Rule 506(c), Rule 504, Rule 147, or Rule
147A, for the offering be required to file or provide to investors any
materials used under proposed Rule 241, because such rules do not
require issuers to file with the Commission any disclosure provided to
investors or distinguish between accredited and non-accredited
investors for disclosure purposes.
    We are not proposing to limit the types of investors that may be
solicited under proposed Rule 241. While Securities Act Section 5(d)
and Rule 163B only permit the use of testing-the-waters communications
with QIBs and IAIs, Regulation A permits such communications with all
investor types. We believe that limiting the communications under the
proposed exemption to QIBs and IAIs would undermine the intent of the
exemption, which is to allow issuers to gauge market interest in a
potential exempt offering. Unlike registered offerings, there is likely
to be relatively limited institutional investor interest in many types
of exempt offerings, particularly those that rely on general
solicitation. In addition, small or emerging businesses are likely to
face challenges in attracting significant institutional investor
interest, either directly or through an underwriter or other
intermediary. Thus, limiting this accommodation to institutional
investors would significantly undermine its utility.
    We are also not proposing to provide for the preemption of state
securities law registration and qualification requirements for offers
made under proposed Rule 241. Section 18 of the Securities Act
generally provides for preemption of state law registration and
qualification requirements for ``covered

securities,'' \145\ and the Commission has previously used its
authority under the Securities Act to define such term. In connection
with the 2015 amendments to Regulation A, the Commission determined
that preemption of state securities law registration and qualification
requirements is appropriate for purchasers in Tier 2 offerings, and
defined ``qualified purchaser'' to include any person to whom
securities are offered or sold in a Tier 2 offering.\146\ However, in
light of concerns raised in connection with the Regulation A amendments
by state regulators about the testing-the-waters provisions applicable
to Regulation A, as well as what the Commission anticipated would be
the generally more local nature of Tier 1 offerings, the Commission did
not include offerees in Tier 1 offerings in the definition of
``qualified purchaser.'' \147\ We preliminarily believe that similar
concerns would exist with respect to the proposed generic solicitation
of interest exemption.
---------------------------------------------------------------------------

    \145\ See 15 U.S.C. 77r(c). Section 18(c) of the Securities Act
preserves general anti-fraud authority for state securities law
regulators.
    \146\ See 17 CFR 230.256; and 2015 Regulation A Release, at text
accompanying note 799.
    \147\ See 2015 Regulation A Release, at text accompanying note
798.
---------------------------------------------------------------------------

b. Regulation Crowdfunding
    An issuer currently may not make offers or sales under Regulation
Crowdfunding prior to filing a Form C with the Commission.\148\
Commenters on the Concept Release expressed support for permitting
testing-the-waters in advance of an offering under Regulation
Crowdfunding.\149\ These commenters indicated that prohibiting testing-
the-waters under Regulation Crowdfunding restricts issuers' ability to
adequately gauge interest in an offering, before incurring the expense
of preparing a Form C.\150\
---------------------------------------------------------------------------

    \148\ See Section 4A(b) of the Securities Act.
    \149\ See CrowdCheck Letter; CCA Letter; letter from Wefunder
dated September 13, 2019 (``Wefunder Letter''); letter from
MainVest, Inc. dated September 24, 2019 (``MainVest Letter'');
letter from Republic dated September 24, 2019 (``Republic Letter'');
letter from Jade Barker dated September 24, 2019; letter from
Association of Online Investment Platforms dated July 5, 2019
(``AOIP Letter''); letter from Indemnis et al. dated September 24,
2019 (``Indemnis et al. Letter''); letter from Andrew A. Schwartz
dated September 24, 2019 (``A. Schwartz Letter''); Letter from
Christian Bilger dated September 30, 2019 (``C. Bilger Letter'');
letter from Patrick McHenry, U.S. Representative, dated October 15,
2019 (``Rep. McHenry Letter''); and Silicon Prairie Letter.
    \150\ See, e.g., Wefunder Letter (describing the fact that
issuers are currently required to spend ``over $10,000'' to prepare
for a Regulation Crowdfunding offering, without clarity on the
investor interest in the offering); MainVest Letter (suggesting that
testing-the-waters would allow issuers to more accurately ``assess
the markets appetite and valuing of their business''); Republic
Letter (stating that, under the current rules, ``companies cannot
assess investor interest in their offering before having to commit
the time and expense necessary to conduct a Reg. CF offering'');
Indemnis et al. Letter (stating that the current rules prohibit
issuers from gaining ``any real insight into the likelihood of
success''); C. Bilger Letter (arguing that testing-the-waters would
allow issuers ``to assess the support and project feasibility before
[making a] costly Reg CF filing''); and AOIP Letter (suggesting that
permitting testing-the-waters would save issuers both time and
money).
---------------------------------------------------------------------------

    Some commenters supported permitting testing-the-waters under
Regulation Crowdfunding, subject to certain restrictions on the means
by which such communications were provided to investors, the content of
such communications, and the way in which such communications were
included in an issuer's public filings.\151\ Two of these commenters
supported allowing testing-the-waters if such communications were only
conducted through an intermediary's platform.\152\ Another commenter
suggested that testing-the-waters materials should be required to
direct investors to the funding portal (or broker-dealer) for more
information on the offering.\153\ In addition, several commenters
suggested that testing-the-waters materials should be filed with the
Commission on Form C.\154\
---------------------------------------------------------------------------

    \151\ See, e.g., CrowdCheck Letter; Wefunder Letter; Republic
Letter; and Silicon Prairie Letter.
    \152\ See Republic Letter; and Indemnis et al. Letter.
    \153\ See CCA Letter.
    \154\ See Wefunder Letter (suggesting that testing-the-waters
materials should be filed as a partially complete Form C);
CrowdCheck Letter (suggesting that testing-the-waters materials
should be included as part of Form C when the final Form C is
filed); and Silicon Prairie Letter (suggesting that tombstone
advertisements should be separately filed on EDGAR).
---------------------------------------------------------------------------

    We are proposing to permit Regulation Crowdfunding issuers to test-
the-waters orally or in writing prior to filing a Form C with the
Commission under proposed Rule 206, which is based on existing Rule 255
of Regulation A.\155\ Consistent with the views of commenters, we
believe that permitting such issuers to test-the-waters orally or in
writing prior to incurring the expense of filing a Form C with the
Commission may greatly facilitate the use of the exemption, as well as
limit the costs incurred by issuers. As noted above with respect to the
proposed generic testing-the-waters provision, we believe that the
flexibility afforded by the amendment would benefit investors, who
would potentially have input into the structuring of the offering and
be able to convey to the issuer the types of information about which
they are most interested, leading ultimately to a lower cost of capital
for the issuer.
---------------------------------------------------------------------------

    \155\ We are also proposing an amendment to Rule 204 to permit
issuers to engage in communications under proposed Rule 206.
---------------------------------------------------------------------------

    Under proposed Rule 206, issuers would be permitted to test-the-
waters with all potential investors. These testing-the-waters materials
would be considered offers that are subject to the antifraud provisions
of the federal securities laws. Like Rule 255, proposed Rule 206 would
require issuers to include certain legends in the testing-the-waters
materials. The legends would provide that: (1) No money or other
consideration is being solicited, and if sent, will not be accepted;
(2) no sales will be made or commitments to purchase accepted until the
Form C is filed with the Commission and only through an intermediary's
platform; and (3) a prospective purchaser's indication of interest is
non-binding.
    Under proposed Rule 201(z), issuers would be required to include
any Rule 206 solicitation materials as an exhibit to the Form C that is
filed with the Commission.\156\ As noted above, we believe that making
the solicitation materials publicly available would promote
accountability for the content of those materials and help to ensure
that they are consistent with the information contained in the
Regulation Crowdfunding offering materials. Unlike Rule 255 of
Regulation A, which permits issuers to use testing-the-waters materials
both before and after the filing of the offering statement with the
Commission, issuers under proposed Rule 206 could only use testing-the-
waters materials before the Form C is filed. Once the Form C is filed,
any offering communications would be required to comply with the terms
of Regulation Crowdfunding, including the Rule 204 advertising
restrictions. We believe this is appropriate because, while sales under
Regulation A may not occur until after the offering statement is
qualified, a Regulation Crowdfunding offering commences upon filing of
the Form C.
---------------------------------------------------------------------------

    \156\ See Proposed Rule 201(z).
---------------------------------------------------------------------------

    In addition, under the proposed rule, an issuer that makes use of
proposed Rule 241's generic testing-the-waters materials and then opts
to rely on Regulation Crowdfunding for an offering within 30 days of
the most recent generic testing-the-waters materials would be required
to file the generic solicitation materials as an exhibit to the Form C.
We are proposing to require filing of the materials only during the 30-
day time period because once 30 days elapses following a terminated or
completed generic solicitation, that offer would not be subject to
integration with any subsequent offer or sale in

accordance with the proposed safe harbor of Rule 152(b)(1).
c. Regulation A
    As discussed above, we are proposing to amend Form 1-A's exhibit
requirements to require an issuer that uses proposed Rule 241 to
conduct a generic solicitation of interest and then opts to rely on
Regulation A for its offering within 30 days of the most recent generic
solicitation communication to file the generic solicitation materials
as an exhibit to the Form 1-A.
d. Regulation D
    Similarly, we are proposing to amend Rule 502(b)(2)(viii) to
require an issuer that uses proposed Rule 241 to conduct a generic
solicitation of interest and then opts to rely on Rule 506(b) within 30
days of the most recent generic solicitation communication and sells
securities to any purchaser that is not an accredited investor, to
provide the generic solicitation materials to such purchaser a
reasonable time prior to sale. As discussed above, we believe potential
investors may benefit from the ability to compare the solicitation
materials with the information being provided in the Rule 506(b)
offering.
Request for Comment
    24. Should we, as proposed, permit generic solicitations of
interest in advance of an exempt offering of securities under any
exemption from registration? Are there any investor protection concerns
with doing so? Should we limit the ability to provide testing-the-
waters materials to IAIs and QIBs?
    25. Should we, as proposed, require filing of the generic
solicitation materials as an exhibit to the Form C in a subsequent
Regulation Crowdfunding offering, or with the Form 1-A in a subsequent
Regulation A offering? Should we instead require the generic
solicitation materials to be either filed with Form C or Form 1-A, or
filed separately on EDGAR? Should we, as proposed, limit the filing
requirement to offerings that commence within 30 days of the most
recent generic test-the-waters communication? Should we instead impose
the filing requirement irrespective of the timing of the subsequent
offering or for some alternative timeframe?
    26. Should we, as proposed, require an issuer to provide the
generic solicitation materials to non-accredited investors in a
subsequent Rule 506(b) exempt offering if such Rule 506(b) offering is
within 30 days of the generic solicitation? Should we require such
materials to be provided to the Commission? Should we require such
material to be provided to investors or the Commission even outside of
the 30-day period proposed?
    27. Should we require an issuer that uses generic solicitation
materials and subsequently relies on Rule 506(c), Rule 504, Rule 147,
Rule 147A, or an exemption other than Regulation A, Regulation
Crowdfunding, or Rule 506(b) within 30 days to provide the generic
solicitation materials to such investors? Should we require such
materials to be provided to the Commission? Should we require such
material to be provided to investors or the Commission even outside of
the 30-day period proposed?
    28. Should we, as proposed, amend Regulation Crowdfunding to permit
testing-the-waters for a Regulation Crowdfunding offering, similar to
the current testing-the-waters provision of Regulation A? Should we
impose additional restrictions on the manner or content of such
communications? For example, should we permit testing-the-waters in
Regulation Crowdfunding only if any such communications are only
conducted through an intermediary's platform, or only if the testing-
the-waters materials are required to direct investors to the funding
portal (or broker-dealer) for more information on the offering?
    29. As proposed, the rules would not preempt state securities law
registration and qualification requirements for offers made under the
proposed Rule 241 exemption. Should we adopt Rule 241 as proposed?
Would the lack of state preemption make it less likely that issuers
will use proposed Rule 241? If so, should we preempt state securities
law registration and qualification requirements for offers made under
the proposed Rule 241 exemption? If not, should we limit preemption to
materials provided to accredited investors or QIBs and IAIs?
    30. Should we permit testing-the-waters communications to continue
following the filing of the Form C with the Commission in a Regulation
Crowdfunding offering?
3. Other Regulation Crowdfunding Offering Communications
    Under Rule 204 of Regulation Crowdfunding, an issuer may not
advertise the terms of a Regulation Crowdfunding offering outside of
the intermediary's platform except in a notice that directs investors
to the intermediary's platform and includes no more than the following
information:
     A statement that the issuer is conducting an offering
pursuant to Section 4(a)(6) of the Securities Act, the name of the
intermediary through which the offering is being conducted, and a link
directing the potential investor to the intermediary's platform;
     The terms of the offering, which means the amount of
securities offered, the nature of the securities, the price of the
securities, and the closing date of the offering period; and
     Factual information about the legal identity and business
location of the issuer, limited to the name of the issuer of the
security, the address, phone number, and website of the issuer, the
email address of a representative of the issuer, and a brief
description of the business of the issuer.\157\
---------------------------------------------------------------------------

    \157\ See Rule 204.
---------------------------------------------------------------------------

    Although advertising the terms of the offering other than through
the intermediary's platform is limited to a brief notice, an issuer may
communicate with investors and potential investors about the terms of
the offering through communication channels provided on the
intermediary's platform. An issuer must identify itself as the issuer,
and persons acting on behalf of the issuer must identify their
affiliation with the issuer, in all communications on the
intermediary's platform.\158\
---------------------------------------------------------------------------

    \158\ See Rule 204(c).
---------------------------------------------------------------------------

    Commenters have expressed uncertainty as to whether they may orally
communicate with potential investors outside of the intermediary's
platform once the Form C is filed. According to these commenters, the
current requirements of Regulation Crowdfunding make it unclear if an
issuer can discuss an ongoing offering at start-up pitch events, in
person at the issuer's business, or in the issuer and investor
communities, and if so, to what extent.\159\
---------------------------------------------------------------------------

    \159\ See CrowdCheck Letter (suggesting that issuers should be
permitted to discuss directly with prospective investors at start-up
pitch events); MainVest Letter (suggesting that the current
framework prohibits issuers ``with brick and mortar locations'' from
discussing the offering with customers, and potential investors, who
come into the issuer's business with questions about the offering);
C. Bilger Letter (indicating that the current restrictions are
``unreasonable'' and ``unrealistic'' as ``[m]ost investment through
Reg CF offerings occurs between issuers and investors that have a
pre-existing relationship or are geographically proximate to one
another,'' and further suggesting that ``[i]nvestors should be
encouraged to pursue multiple channels of investment due diligence
(completely separate from a funding portal), including onsite
inspection of the issuer's business and personal interview of the
issuer's management''); and Wefunder Letter (``Due to legal
ambiguity, some lawyers recommend that issuers do not speak with
potential investors face-to face.'').
---------------------------------------------------------------------------

    We are proposing to amend Rule 204 to state that oral
communications with prospective investors are permitted once the Form C
is filed, so long as the

communications comply with the requirements of Rule 204.\160\ We
believe that this amendment to Rule 204 would be appropriate because it
would provide Regulation Crowdfunding issuers with certainty as to the
acceptable form and content of communications with potential investors,
which may make the exemption more attractive to issuers, while
providing potential investors with the protections afforded by Rule
204. These proposed changes would also align the Regulation
Crowdfunding communication rules more closely with Rule 255 of
Regulation A.
---------------------------------------------------------------------------

    \160\ For our proposals regarding communications prior to the
filing of a Form C, see supra Section II.B.2.
---------------------------------------------------------------------------

Request for Comment
    31. Should we allow for oral communications about the offering
outside of the funding portal's platform channels, as proposed? If so,
what would be the benefits of allowing more communications? Should we
impose any additional requirements to address investor protection
concerns?
    32. Should we expand the types of information considered to be the
terms of the offering for purposes of Rule 204? For example, should we
amend the definition of ``terms of the offering'' to include
information about the planned use of proceeds of the offering or about
the issuer's progress toward meeting its funding target? Should we
amend Rule 204 to allow for oral communications pertaining to any
disclosure required by Rule 201 that is included in the filed Form C?
Alternatively, should an issuer that uses advertising that includes the
terms of the offering be permitted to include additional information,
such as information about the planned use of proceeds of the offering
or the issuer's progress toward meeting its funding target, even if
such information is not included within the definition of the ``terms
of the offering''? Are there other steps we should take to clarify the
advertising restrictions in Rule 204?
    33. In light of proposed Rule 152(a)(2), which concerns the
integration of concurrent exempt offerings permitting general
solicitation, should we amend Rule 204 of Regulation Crowdfunding to
permit an issuer to disclose the material terms of a concurrent
offering made in reliance on Regulation Crowdfunding in a Regulation A
offering statement or a Securities Act registration statement filed
with the Commission? Are any revisions needed to Regulation A to permit
such disclosures?

C. Rule 506(c) Verification Requirements

    As discussed above, Rule 506(c) permits issuers to generally
solicit and advertise an offering, provided that:
     All purchasers in the offering are accredited investors,
     The issuer takes reasonable steps to verify that
purchasers are accredited investors, and
     Certain other conditions in Regulation D are
satisfied.\161\
---------------------------------------------------------------------------

    \161\ See Rule 501 (Definitions and terms used in Regulation D);
Rule 502(a) (Integration); and Rule 502(d) (Limitations on Resales).
---------------------------------------------------------------------------

    Rule 506(c) provides a principles-based method for verification of
accredited investor status as well as a non-exclusive list of
verification methods. The principles-based method of verification
requires an objective determination by the issuer (or those acting on
its behalf) as to whether the steps taken are ``reasonable'' in the
context of the particular facts and circumstances of each purchaser and
transaction.\162\ Rule 506(c) includes a non-exclusive list of
verification methods that issuers may use, but are not required to use,
when seeking to satisfy the verification requirement with respect to
natural person purchasers.\163\
---------------------------------------------------------------------------

    \162\ See Rule 506(c) Adopting Release, at Section II.B.1.
    \163\ The rule does not set forth a non-exclusive list of
methods for the verification of investors that are not natural
persons. In the adopting release, the Commission expressed the view
that the potential for uncertainty and the risk of participation by
non-accredited investors is highest in offerings involving natural
persons as investors. See Rule 506(c) Adopting Release, at Section
II.B.3.
---------------------------------------------------------------------------

    The Commission included the non-exclusive list of verification
methods for natural persons in Rule 506(c) in response to comments
requesting more certainty, but expressly stated that issuers are not
required to use any of the specified methods and may rely on the
principles-based approach to comply with the verification
requirement.\164\ However, the structure of Rule 506(c)'s verification
requirement, with its prominent description of several non-exclusive
verification methods, may be creating uncertainty for issuers and
inadvertently encouraging issuers (or those acting on their behalf) to
rely only on the non-exclusive list.
---------------------------------------------------------------------------

    \164\ See Rule 506(c) Adopting Release, at Section II.B.3.
---------------------------------------------------------------------------

    Commenters on the Concept Release expressed concerns regarding the
costs and burdens of the ``reasonable steps to verify'' requirement.
For example, one commenter stated that some issuers may be concerned
about the added cost of capital represented by the fees charged by
third party verification services.\165\ Some commenters also expressed
concern about the difficulty of determining the appropriate levels of
verification of the accredited investor status of purchasers and the
impact on investor privacy.\166\ Other commenters stated that issuers
may be focusing on compliance with the non-exclusive list of methods
and that may be driving away potential investors who are wary of
turning over financially sensitive information, such as tax returns or
brokerage statements, to the issuer for verification.\167\ Some
commenters further noted that some platforms and intermediaries
involved in the verification process do not use all of the methods of
verification included in the non-exclusive list of Rule 506(c), and, as
a result, some accredited investors have been excluded from
offerings.\168\
---------------------------------------------------------------------------

    \165\ See CrowdCheck Letter.
    \166\ See CCMC Letter; and letter from Jor Law dated July 10,
2019. See also 2020 Transcript of Small Business Advisory Committee,
at 173-174 (discussing verification methods and concerns surrounding
investor privacy).
    \167\ See IPA Letter; and letter from Wyrick Robbins Yates &
Ponton LLP dated September 17, 2019 (``Wyrick Robbins Letter'')
(``Our experience tells us that sophisticated funds and/or high net-
worth angel investors are very much reluctant to share sensitive
financial information, whether about themselves or their limited
partners. Issuers are often reluctant to ask for such information as
well, particularly where the net worth of the prospective investor
is not in material doubt.'').
    \168\ See CrowdCheck Letter (noting that ``not all platforms and
intermediaries are set up to accept all the forms of verification
included in the safe harbors for 506(c)''). See also AngelList
Letter (noting conflicting interpretations and uncertainty among
issuers' counsel regarding verification of smaller private funds
that meet the definition of ``accredited investor'' under Rule
501(a)(8) because each equity investor is accredited).
---------------------------------------------------------------------------

    Some commenters on the Concept Release suggested eliminating the
verification requirement altogether.\169\ One commenter suggested
eliminating the verification requirement for offerings that involve a
placement agent, investment adviser or other regulated institution to
act as a gatekeeper.\170\ Other commenters recommended self-
certification as a reasonable method to establish and verify accredited
investor status.\171\ Another commenter suggested adding a verification
method based on a high minimum investment amount to the non-exclusive
list of verification methods.\172\
---------------------------------------------------------------------------

    \169\ See SIFMA Letter.
    \170\ See NYSBA Letter.
    \171\ See IPA Letter. See also letter from Joseph L. Schocken
dated September 24, 2019 (``J. Schocken Letter'').
    \172\ See Wyrick Robbins Letter.
---------------------------------------------------------------------------

    We are proposing to add a new item to the non-exclusive list in
Rule 506(c) that would allow an issuer to establish that an investor
for which the issuer previously took reasonable steps to verify as an
accredited investor remains

an accredited investor as of the time of a subsequent sale if the
investor provides a written representation to that effect and the
issuer is not aware of information to the contrary. We believe that
this new method would reduce the cost and burden of verification for
issuers that may opt to engage in more than one Rule 506(c) offering
over time. Investors' privacy concerns may also be alleviated, because
they would not be asked to repeatedly provide financially sensitive
information to the issuer, while the risk of investor harm would be
mitigated by the pre-existing relationship between the issuer and such
investor.
    In addition, in light of the comments received, we believe it would
be helpful to reaffirm and update the Commission's prior guidance with
respect to the principles-based method for verification, and in
particular what may be considered ``reasonable steps'' to verify an
investor's accredited investor status. We believe that this additional
information may lessen concerns that an issuer's method of verification
may be second guessed by regulators or other market participants
without regard to the analysis performed by the issuer in making the
determination, and encourage more issuers to rely on additional
verification methods tailored to their specific facts and
circumstances. This in turn may help reduce the costs and privacy
concerns associated with the current non-exclusive list.
    The principles-based method was intended to provide issuers with
significant flexibility in deciding the steps needed to verify a
person's accredited investor status and to avoid requiring them to
follow uniform verification methods that may be ill-suited or
unnecessary to a particular offering or purchaser in light of the facts
and circumstances.\173\ The Commission has previously indicated, and we
continue to believe, that the following factors are among those an
issuer should consider when using this principles-based method of
verification:
---------------------------------------------------------------------------

    \173\ See Rule 506(c) Adopting Release, at Section II.B.1.
---------------------------------------------------------------------------

     The nature of the purchaser and the type of accredited
investor that the purchaser claims to be;
     The amount and type of information that the issuer has
about the purchaser; and
     The nature of the offering, such as the manner in which
the purchaser was solicited to participate in the offering, and the
terms of the offering, such as a minimum investment amount.\174\
---------------------------------------------------------------------------

    \174\ See id. at Section II.B.3.a. In that release, the
Commission stated that ``[a]fter consideration of the facts and
circumstances of the purchaser and of the transaction, the more
likely it appears that a purchaser qualifies as an accredited
investor, the fewer steps the issuer would have to take to verify
accredited investor status, and vice versa. For example, if the
terms of the offering require a high minimum investment amount and a
purchaser is able to meet those terms, then the likelihood of that
purchaser satisfying the definition of accredited investor may be
sufficiently high such that, absent any facts that indicate that the
purchaser is not an accredited investor, it may be reasonable for
the issuer to take fewer steps to verify or, in certain cases, no
additional steps to verify accredited investor status other than to
confirm that the purchaser's cash investment is not being financed
by a third party.'' Id. In addition, the Commission stated that the
means through which the issuer publicly solicits purchasers may be
relevant in determining the reasonableness of the steps taken to
verify accredited investor status. For example, ``[a]n issuer that
solicits new investors through a website accessible to the general
public, through a widely disseminated email or social media
solicitation, or through print media, such as a newspaper, will
likely be obligated to take greater measures to verify accredited
investor status than an issuer that solicits new investors from a
database of pre-screened accredited investors created and maintained
by a reasonably reliable third party.'' Id.
---------------------------------------------------------------------------

    We are not proposing to codify the list of factors that the
Commission has previously identified as being among those an issuer
should consider when using the principles-based method of verification.
While we believe that this list of factors remains appropriate, there
is no exclusive list of factors to be considered.
    We are of the view that, in some circumstances, the reasonable
steps determination may not be substantially different from an issuer's
development of a ``reasonable belief'' for Rule 506(b) purposes. For
example, an issuer's receipt of a representation from an investor as to
his or her accredited status could meet the ``reasonable steps''
requirement if the issuer reasonably takes into consideration a prior
substantive relationship with the investor or other facts that make
apparent the accredited status of the investor. That same
representation from an investor may not meet the ``reasonable steps''
requirement if the issuer has no other information available to it
about the investor or has information that does not support the view
that the investor was an accredited investor.\175\
---------------------------------------------------------------------------

    \175\ We caution issuers that we continue to believe that an
issuer will not be considered to have taken reasonable steps to
verify accredited investor status if it, or those acting on its
behalf, require only that a person check a box in a questionnaire or
sign a form, absent other information about the purchaser indicating
accredited investor status.
---------------------------------------------------------------------------

Request for Comment
    34. We note that the vast majority of Regulation D issuers continue
to raise capital through Rule 506(b) offerings. Are issuers hesitant to
rely on Rule 506(c) (as suggested by the data on amounts raised under
that exemption \176\) as compared to other exemptions? If so, why? Is
the requirement to take reasonable steps to verify accredited investor
status having an impact on the willingness of issuers to use Rule
506(c)?
---------------------------------------------------------------------------

    \176\ See supra Section I.B.1.
---------------------------------------------------------------------------

    35. Should we provide an additional method of verification, as
proposed, that would allow an issuer to establish that an investor that
the issuer has previously verified remains an accredited investor as of
the time of sale, so long as the investor provides a written
representation to that effect to the issuer and the issuer is not aware
of information to the contrary? If so, should we impose a time limit on
this method of verification, and if so, how long should that time limit
be?
    36. Is additional guidance for reasonable steps needed? Would
further guidance provide more clarity? Should we eliminate the
requirement to take reasonable steps to verify accredited investor
status in specified circumstances? If so, which circumstances? Should
the verification requirements be eliminated altogether, as suggested by
some commenters? Would legislative changes be necessary or helpful?
    37. Should we consider rescinding the non-exclusive list of
reasonable verification methods? Should we consider mandating the items
on the list as the exclusive methods for verification?
    38. Are there additional or alternative verification methods that
we should include in the non-exclusive list of reasonable verification
methods that would make issuers more willing to use Rule 506(c) or
would better address investor protection? For example, should we
provide a non-exclusive list of reasonable verification methods that
would apply to the verification of an entity's accredited investor
status? Should we add as a specific verification method for either
natural persons or entities with investments of a large minimum amount,
accompanied by written confirmation that investment is not financed by
a third party? If so, what minimum investment amount would be
appropriate for natural persons or for IAIs?
    39. The Commission has proposed to amend the definition of
accredited investor to include new categories of natural persons and
institutions.\177\ Are there additional verification methods

that we should include in the non-exclusive list of reasonable
verification methods in light of these proposed changes?
---------------------------------------------------------------------------

    \177\ See Amending the ``Accredited Investor'' Definition.
Release No. 33-10734 (Dec. 18, 2019) [85 FR 2574] (Jan. 15, 2020)
(``Accredited Investor Definition Proposing Release'').
---------------------------------------------------------------------------

D. Harmonization of Disclosure Requirements

    We are proposing amendments to the financial statement information
requirements in Regulation D to align them with the disclosure
requirements in Regulation A. Currently, when non-accredited investors
are participating in an offering under Rule 506(b), the issuer
conducting the offering must furnish specified financial statement
information, along with non-financial information, to non-accredited
investors a reasonable time prior to the sale of the securities and
must provide these investors with the opportunity to ask questions and
receive answers about the offering.\178\ Similarly, issuers conducting
offerings pursuant to Regulation A are required to provide certain
financial statement and non-financial information to investors. The
financial statement information requirements in Regulation D, however,
differ from those in Regulation A. This difference results in many
cases in an issuer being required to provide financial statements in a
Rule 506(b) offering that are more burdensome to prepare than the
financial statements that would be required in a Regulation A offering
of comparable size.
---------------------------------------------------------------------------

    \178\ See Rule 502(b)(2)(v).
---------------------------------------------------------------------------

    We are also proposing to simplify the requirements for Regulation A
and establish greater consistency between Regulation A and registered
offerings by permitting Regulation A issuers to: (a) File certain
redacted exhibits using the simplified process previously adopted for
registered offerings and Exchange Act filings; \179\ (b) make draft
offering statements and related correspondence available to the public
via EDGAR to comply with the requirements of Securities Act Rule
252(d), rather than requiring them to be filed as exhibits to qualified
offering statements; (c) incorporate financial statement information by
reference to other documents filed on EDGAR; and (d) to have post-
qualification amendments declared abandoned. In particular, the exhibit
requirements for registered and Regulation A offerings were previously
aligned, but have diverged due to subsequent rule changes, while the
expansion of the incorporation by reference provision in Form 1-A
allows for the further alignment of Form 1-A with the Form S-1
registration statement. Furthermore, in light of the Supreme Court
decision in Food Marketing Institute v. Argus Leader Media,\180\ we are
also proposing to revise the standard used throughout our rules that
allow redaction of information from certain exhibits, as adopted in the
FAST Act Modernization Release.
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    \179\ See FAST Act Modernization and Simplification of
Regulation S-K, Release No. 33-10618 (Mar. 20, 2019) [84 FR 12674]
(Apr. 2, 2019) (``FAST Act Modernization Release''), at Section
II.A.2.
    \180\ See 139 S.Ct. 2356 (2019).
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1. Rule 502(b) of Regulation D
    We are proposing to amend the financial information requirements in
Rule 502(b) for Regulation D offerings by non-reporting companies that
include non-accredited investors to align with the disclosure required
in offerings pursuant to Regulation A. Specifically, for Regulation D
offerings of up to $20 million in securities, issuers would no longer
be required to comply with the requirements of paragraph (c) of Part F/
S of Form 1-A and provide audited financial statements and would be
required to comply with the requirements of paragraph (b) of part F/S
of Form 1-A, which applies to Tier 1 Regulation A offerings. For
Regulation D offerings of greater than $20 million in securities,
issuers would be required to provide audited financial statements and
comply with the requirements of Regulation S-X similar to Tier 2
Regulation A offerings.\181\ Rule 506(b) limits the number of non-
accredited investors that may participate in a Regulation D offering to
35, and we estimate that in 2019 fewer than 5 percent of Rule 506(b)
offerings included non-accredited investors.\182\ We believe that by
aligning the disclosure requirements in Rule 502(b) with those in
Regulation A, additional issuers may be willing to include non-
accredited investors in their offerings pursuant to Rule 506(b), which
would expand investment opportunities for those investors.
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    \181\ For the sake of clarity, we are not proposing that issuers
must comply with the other ongoing non-financial statement
disclosure requirements in Tier 2 Regulation A offerings, and this
proposal is limited only to harmonization of the financial statement
disclosure requirements outlined in the offering circular itself.
    \182\ See supra note 94 (estimating that, in 2019, only 4.45
percent of Rule 506(b) offerings by issuers other than pooled
investment funds included non-accredited investors). Based on
available data, issuers reported non-accredited investors as
participating in only six percent of Rule 506(b) offerings in each
of 2015, 2016, 2017, and 2018. See Concept Release, at Section II.
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    Currently, when non-accredited investors are participating in an
offering pursuant to Rule 506(b), the issuer conducting the offering
must furnish to non-accredited investors the information required by
Rule 502(b) \183\ a reasonable time prior to the sale of securities and
provide those investors with the opportunity to ask questions and
receive answers about the offering.\184\ The information required to be
furnished to non-accredited investors is limited to information that is
material to an understanding of the issuer, its business, and the
securities being offered, and the examples of information that would
satisfy this requirement vary depending on the size of the offering and
the nature of the issuer.\185\
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    \183\ See Rule 502(b)(2)(i) through (vii).
    \184\ See Rule 502(b)(2)(v). If an issuer limits participation
in its Rule 506(b) offering to accredited investors, Rule 506(b)
does not require the issuer to provide substantive disclosure to
those accredited investors. However, if the issuer provides any
additional information to accredited investors, the issuer shall
furnish to any non-accredited purchaser a brief description in
writing of any material written information concerning the offering
that has been provided by the issuer to any accredited investor but
not previously delivered to such non-accredited purchaser. See 17
Rule 502(b)(2)(iv). Issuers and funds conducting private accredited
investor-only offerings pursuant to Rule 506(b) often provide all
purchasers, including accredited investors, with information about
the issuer in view of the antifraud provisions of the federal
securities laws. See Note to Rule 502(b).
    \185\ See Rule 502(b)(2)(i) through (vii).
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    If the issuer is not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the issuer must furnish the
non-financial statement information required by Part II of Form 1-
A\186\ (if the issuer is eligible to use Regulation A) \187\ or Part I
of a Securities Act registration statement on a form that the issuer
would be eligible to use.\188\
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    \186\ 17 CFR 239.90.
    \187\ See infra Section II.F for a discussion of the Regulation
A eligibility requirements.
    \188\ See Rule 502(b)(2)(i)(A).
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    Table 7 summarizes the current financial statement requirements of
Rule 502(b) for an issuer not subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act.\189\
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    \189\ See Rule 502(b)(2)(i)(B). A foreign private issuer, as
defined in 17 CFR 230.405 that is eligible to use Form 20-F [17 CFR
249.220f] must disclose the same kind of information required to be
included in an Exchange Act registration statement on a form that
the issuer would be eligible to use. The financial statements must
be audited only to the extent that such information would be
required to be audited under Rule 502(b) for issuers not subject to
the reporting requirements of Section 13 or 15(d) of the Exchange
Act. See Rule 502(b)(2)(i)(C).

                          Table 7--Current Rule 502(b) Financial Statement Requirements
                                             [Non-reporting issuer]
----------------------------------------------------------------------------------------------------------------
                                         Financial statement        Age of financial
            Offering size                information required          statements             Audit required
----------------------------------------------------------------------------------------------------------------
Up to $2 million.....................  Information required in  Balance sheet must be    Yes, but only the
                                        Article 8 of             dated within 120 days    issuer's balance sheet
                                        Regulation S-X.          of the start of the      must be audited.
                                                                 offering.
Up to $7.5 million...................  Audited financial        Balance sheet must be    Yes, but if an issuer,
                                        statement information    dated within 120 days    other than a limited
                                        required in Form S-1     of the start of the      partnership, cannot
                                        for smaller reporting    offering.                obtain audited
                                        companies.                                        financial statements
                                                                                without unreasonable
                                                                                effort or expense,
                                                                                then only the issuer's
                                                                                balance sheet must be
                                                                                audited.
Over $7.5 million....................  Audited financial        Balance sheet must be    Yes, but if an issuer
                                        statement information    dated within 120 days    other than a limited
                                        that would be required   of the start of the      partnership, cannot
                                        in a registration        offering.                obtain audited
                                        statement filed under                             financial statements
                                        the Securities Act on                             without unreasonable
                                        the form that the                                 effort or expense,
                                        issuer would be                                   then only the issuer's
                                        entitled to use.                                  balance sheet must be
                                                                                audited.
----------------------------------------------------------------------------------------------------------------

    If the issuer is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, the issuer must furnish to investors
either:
     Its annual report to shareholders for the most recent
fiscal year \190\ and the definitive proxy statement filed in
connection with that annual report; \191\ or
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    \190\ The annual report must meet the requirements of Rules 14a-
3 or 14c-3 under the Exchange Act (17 CFR 240.14a-3 or 17 CFR
240.14c-3).
    \191\ See Rule 502(b)(2)(ii)(A). If requested by the purchaser
in writing, the issuer must also provide a copy of the issuer's most
recent Form 10-K [17 CFR 249.310] under the Exchange Act.
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    [squ] The most recently filed annual report on Form 10-K \192\ or
registration statement.\193\
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    \192\ 17 CFR 249.310.
    \193\ The registration statement may be a registration statement
on Form S-1 [17 CFR 239.11], Form S-11 [17 CFR 239.18], or Form 10
[17 CFR 249.10], or for foreign private issuers, Form 20-F [17 CFR
249.220f.] or Form F-1 [17 CFR 239.31]. See Rule 502(b)(2)(ii)(B).
In addition, the issuer must provide any information required to be
filed by the issuer since the distribution or filing of the report
or registration statement and a brief description of the securities
being offered, the use of the proceeds from the offering, and any
material changes in the issuer's affairs that are not disclosed in
the documents furnished. See Rule 502(b)(2)(ii)(C).
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    The financial statement information that an issuer must provide to
non-accredited investors participating in an offering pursuant to Rule
506(b) is broadly similar to the disclosure required under Regulation
A.\194\ Table 8 summarizes the financial information issuers conducting
a Regulation A offering are required to provide under Part F/S of Form
1-A.
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    \194\ See Rule 251(a)(1).

                         Table 8--Current Regulation A Financial Statement Requirements
----------------------------------------------------------------------------------------------------------------
                                         Financial statement        Age of financial
            Offering size                information required          statements             Audit required
----------------------------------------------------------------------------------------------------------------
Up to $20 million (Tier 1)...........  Consolidated balance     Not more than nine       No, unless issuer has
                                        sheets of the issuer     months before the date   already obtained an
                                        for the two previous     of non-public            audit for another
                                        fiscal year ends (or     submission, filing or    purpose.
                                        for such shorter time    qualification, with
                                        that the issuer has      the most recent annual
                                        been in existence),      or interim balance
                                       Consolidated statements   sheet not older than
                                        of comprehensive         nine months.
                                        income, cash flows,
                                        and stockholders'
                                        equity of the issuer;
                                        and.
                                       Financial statements of
                                        guarantors and issuers
                                        of guaranteed
                                        securities, affiliates
                                        whose securities
                                        collateralize an
                                        issuance, significant
                                        acquired or to be
                                        acquired businesses
                                        and real estate
                                        operations, and pro
                                        forma information
                                        relating to
                                        significant business
                                        combinations..

Up to $50 million (Tier 2)...........  Audited financial        Not more than nine       Yes.
                                        statements in            months before the date
                                        compliance with          of non-public
                                        Article 8 of             submission, filing or
                                        Regulation S-X *.        qualification, with
                                                                 the most recent annual
                                                                 or interim balance
                                                                 sheet not older than
                                                                 nine months.
----------------------------------------------------------------------------------------------------------------
* Interim financial statements for a Tier 2 Regulation A offering need not be audited and may comply with the
  same timing and age requirements as those provided in connection with Tier 1 Regulation A offerings. See
  paragraph (c) in Part F/S of Form 1-A [17 CFR 239.90].

    In the Concept Release, the Commission requested comment on both
the current information requirements in Rule 506(b) and the financial
information requirements in Rule 502(b). Specifically, the Commission
asked if it should align the requirements in Rule 502(b) with those of
another type of exempt offering, or consider eliminating or scaling the
financial information requirements. In response, several commenters
stated that the financial statement requirements of Rule 502(b) are
generally overly burdensome to issuers and provided a range of
suggestions for revising the requirements. Specifically, one commenter
stated that the disclosure requirements ``result in zero non-Accredited
Investors being able to participate'' in private offerings and