On March 15, rules adopted by the SEC during the Trump administration became effective, loosening access to crowd-funding, expanding access to public offerings under less rigorous standards pursuant to SEC’s Regulation A, permitting companies to shift quickly from one financing to the next to accelerate receipt of investment funds, and permitting companies to hold pre-offering discussions with investors in order to “test the waters” for their financing plans.

Crowdfunding: Since 2012, small companies could offer shares to small investors, in small individual amounts, without registering with the SEC, if they did so utilizing an organized service platform that screened investors and required the generation of relatively modest disclosures to investors.  This March, the total possible to raise under this process increased approximately five-fold to $5M, and the amount that sophisticated (“accredited”) investors could provide individually was increased.

Regulation A: This process of obtaining SEC approval for the issuance of immediately tradeable shares, with fewer disclosure requirements and a faster process than filing a full registration with the SEC, started out covering only small offerings of $5M; in 2015 the cap was increased to $50M and in March to $75M.  Crowd-funding offerings also were included in liberalized rules permitting discussions with investors prior to actually filing papers with the SEC.

Testing the Waters: Companies choosing between whether to raise capital through Regulation A or through crowdfunding are now both permitted to speak with investors prior to starting an offering, including through use of social media.

Integration: Historically, the SEC has restricted companies from making in effect continuous offerings of securities under different exemptions from registration, in the belief that a company continuously using exemptions and collecting in the aggregate substantial sums was simply skirting the registration requirements for public offerings. This resulted in a series of difficult regulations not understood by most companies.  While companies even today are advised to consult with counsel in this area, as of March it became possible to effect different offerings with a separation of as few and 30 days.

These changes reflect a couple of realities: the high expense and delay of a full public registration creating practical problems for smaller enterprises; and, the continuing recognition that innovation is a driver of progress and employment.  These realities need to be parsed against the prevalence of fraud in securities offerings, which remains a huge problem (and which can be measured by following the SEC website which documents daily the numerous outrageous frauds being committed in the marketplace).