With the comment period in full-swing on the SEC’s proposed rule expanding Reg A to allow companies to conduct “mini-IPOs” of up to $50 million without filing a traditional S-1 registration statement, supporters and critics of “Reg A+” are using the proposal as a vessel that is being filled with the hopes and fears of a generation of frustrated securities professionals and regulators. Small cap bankers and deal attorneys see the proposal as the first real opportunity to revive the moribund under-$100 million IPO market for the first time since the mid-1990s, when a series of mostly well-intended anti-fraud and securities trading reforms conspired to nearly eliminate small public offerings in the U.S. They have imbued the proposal with the potential to bring forth a cornucopia of mini-IPOs, mini-SPACs, and mini-REITs that will stimulate public investment in new companies at rates unseen in nearly two decades. State regulators, led by the North American Securities Administrators Association (NAASA), fear Reg A+ as proposed, with its blanket federal pre-emption of state securities laws, will blast a hole through the patchwork of state-level investor protection laws aimed at stanching penny stock fraud. They fear a return to the days when stock grifters moved about the country freely offering unregistered Reg D 504 shares in shell companies, and syndicated partnership stakes in mining claims and oil and gas leases, with no oversight and little truthful disclosure, let alone investment legitimacy. The 50 State Solution
With the comment period on Reg A+ at the halfway point to its March 24 close, the NAASA leadership, represented by Bill Galvin, Massachusetts’ Secretary of the Commonwealth, and Jack Herstein of the Nebraska Department of Banking and Finance, continue to argue for a multi-state “coordinated review system” to regulate and review Reg A offerings at the state level.
