April 1, 2015, Author: Andrew Stephenson, Crowdcheck
One of the most useful provisions of the Regulation A+ Rules issued by the SEC on May 25 is new Rule 255, "Solicitations of interest and other communications." This provision allows companies to "test the waters" and determine if there is any interest in its investment offering before it has filed anything with the SEC, prepared any offering materials, hired counsel, engaged an accountant, or even formed the company that will offer securities. However, there is a catch. Once a company has relied on the testing the waters provision under Rule 255 without having filed anything with the SEC or state regulators, it may only rely on Tier 2 of the new Regulation A+ rules.
This odd situation was identified by Securities and Exchange Commission, Commissioner Daniel Gallagher at Vanderbilt Law School. The new rules only preempt state securities registration rules when "securities are offered or sold pursuant to a Tier 2 offering." Offers not made under Tier 2 must comply with all state law filing requirements. Rule 255, allowing for testing the waters communications, specifically identifies all testing the waters communications as offers of securities.