March 23, 2014
Regulation A has been a failure as an offering exemption from the time it was first promulgated. The reason is simple: In addition to approval by the SEC, approval by each individual state where the company wants to sell its securities has been required. That has meant that extraordinarily few companies use the Reg. A exemption.
With the draft regulations, the SEC proposes to preempt state registration/qualification of Reg. A offerings, although approval by the SEC would continue to be required. States would, of course, still be able to pursue offenders themselves.
Given that Rule 506 offerings allow up to 35 non-accredited (but sophisticated) investors without review by any securities regulator, permitting Reg. A offerings without state approval but after review by the SEC makes imminent sense.
If the SEC will make final its Reg. A regulations that preempt state approval, Reg. A will finally have the opportunity to became the offering exemption it was intended to be from the start.