Reg A+ Issuers Get Slapped by SEC, Will Reg CF Issuers be Next?

Earlier this week, CI reported that ten companies that raised money under the Regulation A (Reg A+) securities exemption were the targets of enforcement actions by the Securities and Exchange Commission (SEC). All of these issuers settled with the Commission by paying a penalty ranging from $5000 to $90,000 – a relative slap on the wrist for the infractions.

The SEC said that the registration violations were fairly minor but did require the firms to notify the SEC of their actions. These infractions ranged from increasing or decreasing the share price or share count without providing notice. Failing to file annual financial statements. Or perhaps, pursuing “prohibited delayed offerings” or “at the market offerings.”

Under Reg A, an offering document must be qualified by the SEC, and any changes to the offering must include an update to these documents. Most of the above could have been achieved with a simple amendment.

This is the first time the SEC has pursued foot fault type errors for issuers using Reg A – perhaps because they tend to be smaller firms with limited resources. Every dollar counts, and attorneys are expensive. Yet this does not absolve an issuer from legal requirements, and the penalties probably ended up costing more than some legal advice.

This leads to the next question about firms raising capital under Reg CF – a smaller exemption but one that also entails certain ongoing compliance. For issuers that have a calendar year for financial statements, these were due to be filed with the SEC in the past weeks. So if you have raised money using Reg CF and not filed the required documents in a timely manner – you may want to do so, as the cost of ignoring the rules may be higher than ignoring them.

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