Monday, April 16, 2018

Commissioners dissent from colleagues on Reg A Tier 2 limitation amount

By Joanne Cursinella, J.D.

In an April 11 letter to Michael Crapo, chairman of the Senate Committee on Banking, Housing, and Urban Affairs, Commissioner Michael S. Piwowar and Commissioner Hester M. Peirce outlined their objection to their colleagues’ determination not to propose an increase, at this time, to the $50 million offering limit set for Tier 2 under Regulation A of the Securities Act. “Calibrating an appropriate Tier 2 limit is a matter for rigorous analysis via the standard notice and comment rulemaking process,” they said, and the time to begin study on this matter is now and “not when the kicked can comes to rest a couple of years down the road.”

Tier 2 limit. The commissioners point out that Section 401 of the Jumpstart Our Business Startups Act added Section 3(b)(5) to the Securities Act of 1933, which requires the Commission to review, biannually, the total offering amount limitation set forth under Regulation A (the “Tier 2” limit). That offering limit is now at $50 million, they added, and it has remained so since the Commission’s adoption of the relevant rules in 2015.

The statute’s default is that the Commission will raise the offering limit but directs the Commission, “if [it] determines not to increase the amount,” to inform the committees, the commissioners said, and their colleagues have apparently done just that.

Time for review? Piwowar and Peirce argue that sufficient time has passed to warrant a consideration of the reason for the lack of Tier 2 activity since the adoption of the relevant rules. They share the views of the Treasury Report’s recommendation that the Tier 2 offering limit be increased to $75 million and point out that this comports with the recently passed the “Regulation A+ Improvement Act of 2017” (H.R. 4263), which likewise called for an increase of the limit to $75 million.

The history of the disuse of Regulation A offers a potential warning about the disuse of Regulation A+ in that “an improperly crafted exemption is worth little to small businesses,” the commissioners warned. They added that “we should welcome the opportunity the statute affords us to take another look at Regulation A+ to ensure that it can become a valuable tool for American companies seeking to innovate and grow.”

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