DiversyFund REIT, Issued Under Reg A+, Hit by SEC Administrative Action: Commissioner Uyeda Says No Expansion of Rule Requirements

DF Growth REIT II, LLC, managed by DiversyFund, has been hit with a Securities and Exchange Commission (SEC) administrative action.

According to the SEC, DF Growth REIT II failed to adhere to certain requirements for securities issued under Reg A+, a JOBS Act exemption that enables issuers to raise up to $75 million from both accredited and non-accredited investors.

The SEC’s Order claims that the REIT failed to adhere to two aspects of Reg A+.

First, DF Growth REIT II was required to commence its qualified continuous offering within two days after its January 29, 2021, qualification. It did not, planning to commence the sale later in the year.

Second, DF Growth REIT II raised the maximum offering amount to $75 million from $50 million.  The SEC states that DF Growth REIT II needed to either file a new offering statement or a post-qualification amendment.  Apparently, DF Growth REIT II failed to do so – until the Division of Corporate Finance notified the firm, which then filed an offering circular supplement.

Notably, during 2021, the SEC updated Reg A+, increasing the funding cap from its previous cap of $50 million to $75 million, thus allowing issuers to raise more capital.

As the SEC has determined that DF Growth REIT II fell short of requirements, and with the consent of the REIT, DF Growth REIT II’s exemption from registration under Reg A has been permanently suspended.

Following the Order, SEC Commissioner Mark Uyeda issued a separate statement expressing his opinion that action should not be viewed as an expansion of Reg A+ rule requirements. Uyeda added that there were sufficient facts supported the violation of the rule.

The Reg A+ exemption has emerged as a popular path for real estate firms to raise capital, and issue securities to the public. The exemption is sometimes described as a mini-IPO as an offering circular must be filed with the SEC and “qualified.” At the same times, securities issued may immediately trade on a marketplace or exchange, if the company decides to allow it.

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