Nasdaq’s Regulation A Seasoning Requirement

Posted by Brenda Hamilton
Nasdaq’s Regulation A Proposal

Nasdaq's Regulation A Proposal

The Nasdaq Stock Market LLC (“Nasdaq”) proposed a rule that would impose listing requirements for Regulation A companies pursuant to pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 19b-4 thereunder, to adopt a new initial listing requirement for any company applying to list on Nasdaq in connection with an offering under Regulation A of the Securities Act of 1933 (“Securities Act”).

On June 28, 2019, the SEC approved a change to Nasdaq Listing Rule 5210 to impose listing requirements for companies conducting offerings under Regulation A of the Securities Act of 1933 (the “Securities Act”). The amendment will take effect on July 28, 2019.

Regulation A+ Tier 2 Reporting Obligations – Going Public Lawyer


Regulation A+ Ongoing Reporting

Regulation A, also known as Regulation A+, provides investors with more investment choices and issuers with more capital raising options during their going public transactions. The rules adopting Regulation A+ are mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act.

Regulation A+ expands existing Regulation A by dramatically opening new doors for capital raising for smaller companies.  Regulation A+ offerings can be used in combination with direct public offerings and initial public offerings as part of a Going Public Transaction.  The exemption simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority while allowing the issuer to raise initial capital. The exemption provides for two distinct offering exemptions.  Tier 1 provides an exemption from SEC registration for offerings of up to $20 million. Tier 2 exempts offerings up to $50 million.

One of the most notable differences between the two Regulation A+ tiers is that issuers that conduct a Tier 2 offering will become subject to ongoing SEC reporting obligations, though such obligations are significantly less burdensome than those that apply to SEC reporting issuers filing Form S-1 Registration Statements.

Presently, issuers that conduct Both Tier 1 & Tier 2 Regulation A offerings must file a Form 2-A with the SEC every six months to report sales in the offering, and submit a final Form 1-A to the SEC within 30 days after the offering is complete.  Regulation A+ eliminated Form 2-A and created Form 1-Z. Read More

Rule 506(b) Offerings

Rule 506(b)

Rule 506(b) Offerings – Regulation D Offerings

Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) exempts from SEC registration, transactions by an issuer not involving a public offering. Rule 506(b) of Regulation D of the Securities Act provides a “safe harbor” under Section 4(a)(2). Rule 506(b) sets forth standards that a company can use to meet the requirements of the Section 4(a)(2) exemption.

Under Rule 506(b), an issuer may raise an unlimited amount of money. Additionally, the issuer can sell securities to an unlimited number of accredited investors and up to 35 non-accredited investors if certain disclosures are provided.

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Regulation A+ 2019 Q&A – Securities Lawyer 101

Regulation A+ Attorneys and Offerings Q&A - The  Regulation A exemption  provides an  exemption from registration that can be used in combination with a Rule 506 private placement, a direct public offering and/or initial public offering. Since Regulation A was amended in 2015, it has gained notable market acceptance and has undergone a few changes. Regulation A has two offering tiers: Tier 1 and Tier 2.  Regulation A+ Tier 2 has become an established method of Going Public particularly on the OTC Markets. Regulation A simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.

Regulation A provides an  exemption from registration that can be used in combination with a Rule 506 private placement, a direct public offering and/or initial public offering by a private company or company seeking to go public. Since Regulation A was amended in 2015, it has gained notable market acceptance and has undergone a few changes. Regulation A has two offering tiers: Tier 1 and Tier 2. Tier 2 has evolved into a recognized method of Going Public particularly on the OTC Markets. Regulation A simplifies the process of obtaining the seed stockholders required by the Financial Industry Regulatory Authority (“FINRA”) while allowing the issuer to raise initial capital. This blog post addresses the most common questions we receive about Regulation A+.

How much can I raise with Regulation A+?

Tier 1  is available for offerings of securities of up to $20 million in a 12- month period, with no more than $6 million in offers by selling security holders that are affiliates of the issuer. Tier 2 is available for offerings of securities of up to $50 million in a 12-month period with no more than $15 million in offers by selling security holders that are affiliates of the issuer.

What securities can I  register on Form 1-A pursuant to Regulation A+?

Regulation A can be used to register shares, warrants, and convertible equity securities. Read More

The 3(a)(10) Exemption from SEC Registration

Registration Statements - Securities Lawyer 101

Securities Lawyer 101 Blog

Section 3(a)(10) of the Securities Act of 1933, as amended (the “Securities Act”) exempts the offer and sale of securities in certain exchange transactions from the registration statement requirements. In SEC Legal Bulletin 3A, the Securities and Exchange Commission (the “SEC”) provided guidance regarding the Section 3(a)(10) exemption and the resale status of securities issued pursuant to Section 3(a)(10). The Section 3(a)(10) exemption is Read More

Rule 506(c) Offerings: Everything You Need to Know

506(c) offering

Issuers can advertise their securities offerings under Rule 506(c) of Regulation D. Upon its implementation in 2013, Rule 506(c) removed the 80-year prohibition against the general solicitation and advertising of private placements. Since the rule change, issuers have been bombarded with investor relations providers offering to assist with may advertise their Rule 506(c) offerings using a variety of venues including the internet, television, seminars, email campaigns and hard mailers. Issuers should conduct thorough due diligence before hiring any third party that purports to provide services in connection with their Rule 506(c) offerings to avoid disqualification of the exemption.

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Regulation A Offerings – Blue Sky Requirements

Regulation A+ Attorneys and Offerings Q&A

Regulation A, also known as Regulation A +, provides an exemption from registration for sales of up to $50 million in a 12 month period. The exemption provided by Regulation A + offers numerous benefits to issuers seeking to go public or remain private. Regulation A+ provides issuers with two choices for their offerings. Tier 1 provides an exemption for an offering of up to $20 million in a 12-month period and  Tier 2 provides an exemption for an offering of up to $50 million in a 12-month period. One aspect of Regulation A that should be considered is the impact of state blue sky laws on the offering as well as resales.

Regulation Tier 1 v Tier 2 – Regulation A State Blue Sky Compliance Read More

Does Rule 6490 Impact Going Public Transactions?

FINRA Rule 6490 - Going Public - Securities Lawyer 101

FINRA Rule 6490, has evolved since it was enacted years ago. For some time, FINRA has required that issuers provide expansive disclosures and supporting documentation not only for the corporate change subject to the notice but for the company’s entire corporate history from inception.  This often creates a substantial obstacle for issuers involved in going public transactions.  

FINRA Rule 6490 procedures are required of both companies subject to SEC reporting requirements and  and non-reporting issuers if they undertake corporate actions. Compliance with Rule 6490’s requirements is a minor task for companies going public by filing a registration statement with the SEC. Read More

Regulation A Investor Bulletin Issued by SEC

Regulation A Offering Exemption
Regulation A Not Giving Warm Fuzzies to the SEC

In April of this year, NASDAQ submitted a proposal related to the Regulation A Offering Exemption which would require any Company listing on NASDAQ in connection with an offering under Tier 2 of Regulation A of the amended Securities Act of 1933, (the “Securities Act”), to have a minimum operating history of two years at the time of approval of its initial listing application.

The proposal came after the SEC expressed concerns about issuers with less developed business plans unlike other companies seeking to list on the NASDAQ. The SEC expressed concern that investors may be exposed to greater risks of fraud from companies using Regulation A. In response to these concerns, the NASDAQ proposed the seasoning requirement for Regulation A issuers. Read More

SEC Updates PAUSE List of Firms Using Inaccurate Information

sec pause list

The SEC has updated its PAUSE list (Public Alert: Unregistered Soliciting Entities), “adding 23 soliciting entities, two impersonators of genuine firms, and 12 bogus regulators.” This is a great resource for investors, as it will help you to protect yourself against possible scammers. This list can be viewed here. It includes hundreds of firms, both financial and law.

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Comment to the SEC Regarding Rule 211 (15c2-11) – Sponsoring Market Makers

SEC Comments 15c-211

Hamilton & Associates, a boutique securities law firm in Boca Raton, Florida, would like to take this opportunity to comment on the Commission’s proposed rule for the publication or submission of quotations without specified information.  We applaud the Commission’s decision to amend Rule 15c2-11, last modified in 1991, to accommodate changes in the over-the-counter market and in the way OTC securities are traded in the digital age.

The Internet, now available to nearly all investors, has created new ways of accessing and storing information, and the rise of the online brokerages has made trading securities easier and less expensive than it was three decades ago.  The result has been the entry of large numbers of new investors into the once-obscure OTC market.  Revisions to the rule are long overdue.

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SEC Proposes Rule 15c2-11 Changes – Form 211 Attorneys

sec 15c2-11 changes

On September 26, 2019, the Securities and Exchange Commission (the “SEC”) announced proposed amendments to its Rule 15c2-11 of the Securities Exchange Act of 1934 (the “Exchange act”.  The purpose of Rule 15c2-11  is to establish requirements that must be met by broker-dealers before they can publish quotations for securities in the over-the-counter (OTC) known as the OTC Markets.  Issuers that are not compliant with Rule 15c2-11 will be relegated to the Grey Market until compliance is regained.  OTC Markets companies wishing to achieve or regain compliance must do so by locating a broker-dealer willing to sponsor them.

The broker-dealer, using information supplied by the issuer, will file a Form 211 with the Financial Industry Regulatory Authority (FINRA).  FINRA will process the filing; it may request clarification or additional information until it’s satisfied.   Form 211 is commonly  used by smaller issuers after a Form S-1 registration statement has been filed with the SEC as part of a going public transaction.

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SEC Adopts New Rule to Modernize Regulation of Exchange-Traded Funds

new rule

In addition to their new rule allowing companies to “test the water“, the SEC has announced another new rule regarding Exchange-Traded Funds (ETFs). The SEC says they are modernizing the regulation of ETFs “by establishing a clear and consistent framework for the vast majority of ETFs operating today.”

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SEC: Facebook to Pay $100M for Misleading Investors

facebook 100m

After the election of 2016, a lot was made of “fake news” and Facebook’s role in spreading it. Part of this large controversy involved the consulting firm Cambridge Analytica, which was run by Steve Bannon. Cambridge Analytica used the data of 87 million in violation of Facebook’s policy, and used that data to its own ends.

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Cry Me A River – DTC Chills & Global Locks – Going Public Attorneys

DTC Chill Attorney

Securities Lawyer 101 Blog

The Depository Trust and Clearing Corporation (“DTCC”), through its subsidiaries, provides clearing, settlement and information services for securities.  DTCC’s subsidiary, the Depository Trust Company (“DTC”), was created to improve efficiencies and reduce risk in the clearance and settlement of securities transactions by allowing securities transactions to be conducted electronically.  Without DTC eligibility, it is almost impossible for a company to establish an active trading market for its shares.  To have DTC eligibility, a company must satisfy the criteria set by DTCC to be settled through DTC.  In addition, a company must satisfy the criteria established by DTC to remain DTC eligible.  If they fail to do so, DTC will limit its services and issue a DTC Chill or terminate its services and issue a global lock. Read More

Popular Messaging App Kik Shuts Down, Blames SEC

kik shuts down

The popular messaging app Kik raised over $100 million in 2017 in its Initial Coin Offering (ICO). Then, in June of 2019, the SEC sued them because they did not register the offering, as required by United States securities laws.

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South Florida Securities Lawyer Charged with Fraud

securities fraud

Jan Atlas, a 74-year old attorney based in Ft. Lauderdale was charged on September 17, 2019, with “one count of securities fraud, in violation of Title 15, United States Code, Sections 77q(a) and 77x, in Case No. 19CR60258.  The case is assigned to U.S. District Judge Beth F. Bloom in Fort Lauderdale.  If convicted, Atlas faces a maximum statutory sentence of up to five years in prison and a fine up to $10,000.”

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Investor Relations and Rule 506 (c) Offerings

Securities Lawyer 101 - Investor Relations Rule 506

Securities Lawyer 101 Blog

Rule 506(c) removes the 80-year prohibition against the general solicitation and advertising of private placements. Since the rule change, issuers have been bombarded with investor relations providers offering to assist with may advertise their Rule 506(c) offerings using a variety of venues including the internet, television, seminars, email campaigns and hard mailers. Issuers should conduct thorough due diligence before hiring any third party that purports to provide services in connection with their Rule 506(c) offerings to avoid disqualification of the exemption.

Proper due diligence can also help the issuer avoid other potential securities violations. Read More

Director Bill Hinman Expands on SEC’s Approach to Crypto

sec crypto info

According to Forbes, Bill Hinman partook in a fireside chat at Cardozo Law School this week, where he “covered a range of topics related to the regulation of digital securities.” Hinman told Cardozo that the SEC continues to examine their approach to digital securities, and how current securities law should apply to cryptocurrencies and blockchain.

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What is an Annual Report on Form 10-K? Securities Lawyer 101

Form 10-K Attorneys - Going Public Lawyers
Form 10-K attorneys generally draft the narrative portion of the annual report for publicly traded companies.  The Form 10-K report is the most comprehensive of the year.  This is because Form 10-K contains the issuer’s audited financial statements.  The annual report on Form 10-K details information about the issuer and its operations.  
The Form 10-K includes most of the information that would also be provided in a Form S-1 registration statement for a securities offering filed under the Securities Act of 1933, as amended (the “Securities Act”). Read More

Smaller Reporting Companies (SRCs) – Emerging Growth Companies

Complying with the Smaller Reporting Company Rules
The Securities and Exchange Commission (the “SEC”) adopted a system of disclosure rules for issuers who fall into the category of a smaller reporting company.   The “smaller reporting company” category includes generally, companies that enter the SEC reporting system with less than $75 million in common equity public float.  Companies that are unable to calculate their public float typically qualify if they have less than $50 million in annual revenues upon entering the system. Companies should determine eligibility for smaller reporting company status based on the last business day of their most recent second fiscal quarter.

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Will Going Public Help Me Raise Capital? Going Public Attorneys

Securities & Going Public Attorney-Raise Capital

Securities Lawyer 101 – Going Public Blog

Going public is frequently used as a stepping stone by companies seeking to raise capital. A private or public company can raise capital in a variety of ways. Traditional sources of capital for companies include loans from financial institutions such as a bank, or from friends and family as well as receivable financing. Companies raising capital in going public transactions often do so by selling their securities prior to filing an SEC registration statementGoing public is a milestone for any company and there are both advantages and disadvantages that attach to public company status. Many companies going public do so because they believe it will increase their chances of raising capital from investors. Unlike private companies, public companies can offer investors an exit strategy for their investment using their shares. Read More

What Is Required In a Form S-1 Registration Statement?

Form S-1 Registration Statement - Securities Lawyer 101

Securities Lawyer 101

Form S-1 registration statements are the most commonly used registration statement form.  It allows issuers to register various types of offerings and the form can be used by both public and private companies engaged in going public transactions.  A Form S-1 registration statement has two principal parts which require expansive SEC disclosures.  Part I of the Form S-1 registration statement is the prospectus which requires that the company provide certain disclosures about its business, financial condition, and management.

Part II of Form S-1 contains information that doesn’t have to be delivered to investors.  The disclosures required by a Form S-1 registration statement are set forth in Regulation S-K and include the following: Read More

SEC Adopts Rule 163B to Allow All Issuers to “Test-the-Waters”

new rule 163b

The SEC has just adopted Securities Act Rule 163B, which will allow all issuers to “gauge market interest in a possible initial public offering or other registered securities offering through discussions with certain institutional investors prior to, or following, the filing of a registration statement.” Previously, only emerging growth companies, or EGCs, were allowed this opportunity.

SEC Chairman Jay Clayton said “Investors and companies alike will benefit from test-the-waters communications, including increasing the likelihood of successful public securities offerings.” Read More

What is a Form 8-A Registration Statement? Securities Lawyer 101

Form 8-A is a shortened type of securities registration statement under the Securities Exchange Act of 1934, (the “Exchange Act”) that registers a class of an issuer’s securities. Form 8-A requires disclosure of general information about the issuer’s securities, including dividend rights, voting rights and any anti-takeover provisions in the issuer’s articles of incorporation and bylaws. Concurrently or subsequent to effectiveness of a registration statement under the Securities Act of 1933, as amended (the “Securities Act”) covering an initial public offering or direct public offering, issuers may file a registration statement covering a class of securities under the Exchange Act.
Securities Lawyer 101 Blog

Form 8-A is a shortened type of securities registration statement under the Securities Exchange Act of 1934, (the “Exchange Act”) that registers a class of an issuer’s securities.  A Form 8-A registration statement can be used by Issuers subject to SEC reporting requirements under Sections 13 or 15(d) of the Exchange Act. Section 13 of the Exchange Act requires every issuer of a security registered under Section 12(b) or 12(g) of the Exchange Act to file  periodic reports and other information with the SEC. Additionally,  Issuers who have filed  a registration statement under the Securities Act may use  use Form 8-A instead of Form 10 for Exchange Act registration simultaneously with effectiveness of the Securities Act registration statement. Read More

Ross Mandell Seeks More Info Through FOIA

Securities Fraud - Going Public Lawyers

Ross Mandell was the founder of Sky Capital Holdings, Ltd., a venture capital firm and brokerage. He is currently serving a 12 year sentence for defrauding investors of over $100 million from 2001 to 2006. His case was complicated because the vast majority of his dealings was with U.K. investors, and not U.S. investors, and the applicable law was not entirely clear over whether it was “extraterritorial”. George Conway, who is the husband of the famous Kellyanne, wrote an amicus brief with the Bar of the City of New York on behalf of Mandell’s case, writing that the law did not justify charging Mandell’s U.K. actions. The court disagreed however. You can read more about this here.

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Selling Stockholder Disclosures in Form S-1 Registration Statements

Form S-1 requires the registrant to provide specific selling stockholder disclosures.  These selling stockholder disclosure requirements in Form S-1 are set forth in Item 507 of Regulation S-K

The Evolving Regulatory Complexity Surrounding Marijuana, CBD, and Vaping

cbd regulation

According to Newsweek, the Trump administration is currently “preparing a complete ban on flavored e-cigarettes amid a rising number of vaping-related illnesses and deaths, but officials are leaving out a key part of the problem: marijuana products.” Whether Newsweek is right that marijuana products are a part of the problem or not, it is interesting to note how it is being left out. As they point out, “Marijuana is illegal under federal law, which makes it impossible for Congress or the FDA to pass any regulations around its use or sale, as they have with e-cigarettes and tobacco products. This means that there is no federal oversight when it comes to the manufacturing and sale of CBD and other cannabis derivatives. As a result, Trump administration’s ban is not expected to have a huge impact on the current marijuana industry, but it could push lawmakers to consider legalizing marijuana so as to ensure consumer safety.” Read More

The First SEC-Qualified Token Offering Raises $23M

sec-qualified token

Muneeb Ali, the founder of Blockstack PBC, released a blog post this week reporting that his company has raised $23 million in public token offerings. This is significant because Blockstack PBC was the first crypto company to gain SEC approval for a public token offering. They did this through a Regulation A+ offering, which you can read more about in our previous blog posts, which cover the topic extensively.

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SEC Questions Starbucks’ Accounting Policies

starbucks accounting

Starbucks’ stock fell today after news broke that the Securities and Exchange Commission sent a letter questioning the way that Starbucks recognizes its revenue. New accounting guidelines were implemented at the end of 2018 that is affecting many public companies. In Starbucks’ case, the SEC wanted clarification as to the reporting of a number of different deals that the company has made. One such deal was a nearly $7 billion agreement with Nestle that would allow them to sell Starbucks products in grocery stores. Another issue was with breakage, which is revenue that comes from unused gift cards or prepaid services.

When there are issues around revenue recognition, the SEC takes it very seriously because it’s an area that management can manipulate,” said Derryck Coleman, research manager at Audit Analytics. The Wall Street Journal also reported that as of the end of June, 50 other companies have also received letters from the SEC questioning their accounting methods. The SEC explained that companies need to be thorough enough in their reports to ensure that investors are aware of where revenues are coming from, and what the true financial state of the company looks like. Read More