The Securities and Exchange Commission has announced that it will be meeting on October 26, 2016 to consider and adopt amendments to Rule 147, the safe harbor for the issuance of securities pursuant to the so called intrastate exemption. Rule 147 has been problematic for issuers in the past, as it restricts offers and sales of securities solely to residents within a state’s borders.
SEC informal written Staff interpretations issued in 2014 took the position that open internet solicitation by an issuer would preclude the use of this exemption for local businesses, even if sales were limited to residents of that business’s state. Many, including myself, have criticized this Staff position, simply because it was at odds with many prior, longstanding SEC rulings allowing general solicitation via radio and newspaper ads which crossed state borders.
In October 2015 the Commission issued a new proposed rule, Rule 147A, which would have broadened this exemption to allow internet solicitations, but at the same time limited the aggregate amount that could be sold in an offering to $5 million. The Commission also proposed to eliminate the existing Rule 147 in its entirety, something which many commentators pointed out would effectively nullify the majority of the existing state crowdfunding exemptions, now available in approximately 35 states. Moreover, most securities practitioners agree that the statutory intrastate exemption, without a “safe harbor” rule, would render the exemption unusable, leaving issuers with a single option: relying on the new Rule 147A – with its $5 million cap.
Though most comments on the proposed rule welcomed the modernization of the intrastate exemption, most were opposed to limiting the offering amount and eliminating the existing Rule 147 safe harbor. It is therefore highly likely that the final rules will incorporate these comments and concerns.
Stay tuned for more developments on this upcoming Commission action at www.corporatesecuritieslawyerblog.com.