Will Congress and the President Reform Reg A and Reg D in 2012?


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Legislative updates with a focus on Reg A.
-HR. 1070 and S. 1544
-HR. 2167 and S.1824
-HR. 2930

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Will Congress and the President Reform Reg A and Reg D in 2012?

  1. 1. "Will Congress and the President Reform Reg A and Reg D in 2012?"
  2. 2. Important Information <ul><li>This webinar presentation is being hosted by the Real Estate Investment Securities Association (REISA) for the benefit of current members of REISA or participants who have an authorized unique password and ID only. </li></ul><ul><li>Unauthorized participation, viewing, or reproduction of content (live or recorded) is strictly prohibited. </li></ul><ul><li>The following program is for educational and informational purposes only and no material presented here may be considered or construed as legal or tax advice.     </li></ul><ul><li>No clients or investors of any broker-dealer, registered representative, investment advisor or sponsor/issuer may participate, join or receive information regarding today’s webinar.  </li></ul><ul><li>Persons not pre-registered with REISA (and not in receipt of a unique access code) to participate in today’s webinar are not authorized to participate, view or listen to this presentation or its content. </li></ul><ul><li>  </li></ul>
  3. 3. Welcome Greg Mausz, Chief Operating Officer – Investaire LLC and Chair of REISA Education Subcommittee greg@investaire.com 847-805-6235 (847) 805-6235
  4. 4. Today’s Presenters <ul><li>Moderator </li></ul><ul><li>Deborah Froling, Partner – Arent Fox LLP </li></ul><ul><li>Panelists </li></ul><ul><li>Rob Kaplan, Managing Partner – Kaplan Voekler Cunningham & Frank PLC </li></ul><ul><li>Jessica Jeffries, Director of Risk Management – FactRight, LLC </li></ul><ul><li>Wayne Souza, General Counsel & Executive Vice President, Law – Walton International </li></ul>
  5. 5. Regulation A <ul><li>• Under Section 3(b) of the Act </li></ul><ul><li>• Exempts the security itself – not transactional! </li></ul><ul><li>• No Accredited Investors </li></ul><ul><li>• Public solicitation </li></ul><ul><li>• Legally transferable </li></ul><ul><li>• 12-month cap of $5MM per issuer </li></ul><ul><li>• Subject to state securities laws (“Blue Sky”) </li></ul>
  6. 6. Regulation A Reform <ul><li>H.R. 1070 & S. 1544 </li></ul><ul><li>Increases 12-month cap to $50MM </li></ul><ul><li>Endorses public solicitation, free tradeability, solicitation of interest (“test the waters”) </li></ul><ul><li>Section 12(a)(2) liability (not Section 11) </li></ul><ul><li>Annual audited financial statements </li></ul><ul><li>Covered securities – if sold to “qualified purchasers” or listed on national exchange </li></ul><ul><li>Bi-annual review of thresholds </li></ul><ul><li>Comptroller General – conduct study on impact of “Blue Sky” laws </li></ul>
  7. 7. Where have we been? <ul><li>HR 1070 (Small Company Capital Formation Act : </li></ul><ul><li>Sponsored by Schweickert (R, AZ), introduced on 3/14/11 </li></ul><ul><li>Passed by House of Representatives on 11/2/11, by vote of 421 to 1 </li></ul><ul><li>Major point of debate was “covered securities” status under NSMIA </li></ul><ul><li>S 1544: </li></ul><ul><li>Sponsored by Tester (D, MT) and Toomey (R, PA), 9/12/11 </li></ul><ul><li>Referred to Banking, Housing and Urban Affairs, hearings held 12/1/2011 </li></ul><ul><li>Currently seeking unanimous written consent </li></ul><ul><li>“ Start Up America Legislative Agenda ” </li></ul><ul><li>Submitted by the White House to Congress 1/31/12 – specifically identifies Small Company Capital Formation Act for quick passage </li></ul>
  8. 8. Where are we going? <ul><li>SEC Implementation : </li></ul><ul><li>Office of Small Business Policy – indicating it is recommending revision of current Reg A as opposed to new companion regulation. </li></ul><ul><li>Currently, estimated at a minimum of six months to amend Reg A </li></ul><ul><li>Working with SEC to make this a rule-making priority. </li></ul><ul><ul><li>Emphasizing the importance of liquidity in the marketplace </li></ul></ul><ul><ul><li>Educating SEC as to the relative regulatory burdens of registration and qualification </li></ul></ul>
  9. 9. What about Blue Sky? <ul><li>Currently, Reg A not a “covered security” under NSMIA. </li></ul><ul><li>Must register in those states where intend to offer for sale – exempt in CO and LA </li></ul><ul><li>Comptroller General study? </li></ul><ul><li>SEC imposed coordination an option </li></ul>
  10. 10. Private Company Flexibility and Growth Act <ul><li>Current Regulation </li></ul><ul><li>Current Regime Issues </li></ul><ul><li>Proposed Changes </li></ul><ul><li>Timeline </li></ul>
  11. 11. Current Regulation <ul><li>Exchange Act Section 12(g) – Companies with $10 million in assets and 500 shareholders of record required to register with the SEC </li></ul><ul><li>Subject to SEC’s periodic reporting requirements </li></ul><ul><ul><li>File annual and quarterly reports with the SEC </li></ul></ul><ul><ul><li>Audited financials </li></ul></ul><ul><ul><li>Proxy disclosure rules </li></ul></ul><ul><ul><li>Reporting to shareholders for “material” events </li></ul></ul><ul><ul><li>Directors and officers face restrictions on selling shares </li></ul></ul><ul><ul><li>Additional Dodd-Frank and Sarbanes-Oxley requirements </li></ul></ul><ul><li>Additional requirements for registered companies </li></ul><ul><ul><li>Lawyers and accountants to put together documents necessary to “register” with the SEC </li></ul></ul><ul><ul><li>If shares are traded on exchange, companies must hire a syndicate of investment bankers to help sell the shares and prepare listing applications for the shares </li></ul></ul><ul><ul><li>Companies may need to clean up corporate structure and ready themselves for public and regulator scrutiny </li></ul></ul>
  12. 12. Current Regime Issues <ul><li>$10 million threshold incrementally increased since 1964 from $1 million, but 500 shareholder requirement has not </li></ul><ul><li>500 shareholders of record is the wrong measure for determining if a company is “public” </li></ul><ul><ul><li>Intended to help regulate “over the counter” market </li></ul></ul><ul><ul><li>Aimed at actively traded issues </li></ul></ul><ul><ul><li>Possible for company with fewer than 500 shareholders to be relatively more “public” </li></ul></ul><ul><li>The current rule limits companies’ flexibility as they grow </li></ul><ul><li>The rule limits the growth of alternative markets for investments in emerging companies . </li></ul>
  13. 13. Proposed Changes Private Company Growth and Flexibility Act <ul><li>H.R. 2167, mirroring bill S. 1824 </li></ul><ul><li>Amends 1934 Act to increase shareholders of record from 500 to 1,000 persons. </li></ul><ul><li>Originally provided that ‘Accredited Investors’ would not count toward the 1,000 </li></ul><ul><ul><li>Provision removed during committee </li></ul></ul><ul><li>Excludes persons who receive shares pursuant to employee compensation plan </li></ul><ul><li>Directs SEC to adopt ‘safe harbor’ provisions to determine if shareholders have received shares pursuant to employee compensation plan </li></ul>
  14. 14. To gain access to the full presentation with audio, join REISA. <ul><li>Attend REISA events to gain more insight and alternative investment education. </li></ul><ul><li>www.reisaconference.org </li></ul>