Does Regulation A+ Allow Testing the Waters?
Issuers utilizing Regulation A+ are permitted to “test the waters” with potential purchaser and use solicitation materials both before and after the offering statement is filed, subject to compliance with SEC rules on filing and disclaimers. Using Regulation A+, issuers can advertise the offering opportunity to solicit interests before spending hundreds of thousands of dollars on the actual filing itself, to see if there’s sufficient interest to spend the money to move forward with qualifying a Regulation A Offering.
Testing the waters materials used prior to the filing of the Form 1-A must be filed as an exhibit with the initial filing on Form 1-A. Although the SEC does not pre-review pre-filing advertising, issuer should exercise caution with what they say in offering materials. Solicitation materials are subject to the anti-fraud and other civil liability provisions of the federal securities laws and issuers can be sued for statements in the advertising materials, even if they don’t include the information in the 1-A Offering Circular itself.
Pre-filing solicitation materials must bear a legend or disclaimer indicating that: (1) no money or other consideration is being solicited, and if sent, will not be accepted; (2) no sales will be made or commitments to purchase accepted until the offering statement is qualified; and (3) a prospective purchaser’s indication of interest is non-binding.
Solicitation materials used after the filing of the offering statement must be accompanied by a current preliminary offering circular or contain a notice informing potential investors where and how the most current preliminary offering circular can be obtained. This requirement is satisfied by providing the URL where the preliminary offering circular or the offering statement may be obtained. If the company uses testing the waters materials after publicly filing the offering statement, it must update and redistribute such material in a substantially similar manner, as such materials were originally distributed to the extent that either the material itself or the preliminary offering circular attached thereafter becomes inadequate or inaccurate in any material respect.
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