SEC Commissioners Push for Improving the Small Offering Exemption Framework
Commentary by Steven Lofchie
At a meeting of the SEC's Small Business Capital Formation Advisory Committee, SEC Chair Paul Atkins and Commissioner Hester Peirce emphasized the need to lower costs and to reexamine the utility of Regulation A ("Conditional Small Issues Exemption") as a capital-raising tool.
Commissioner Peirce said that in the decision-making process, Regulation A is an option, but associated frictions—legal, procedural and cost-related—often deter its use. Ms. Peirce noted that from July 2023 through June 2024, only $1.5 billion was raised via Reg A, compared with $12 billion under Rule 506(c) ("Exemption for limited offers and sales without regard to dollar amount of offering"), and $170 billion under 506(b). She questioned whether state law preemption should extend to secondary sales under Tier 2 and whether Tier 1 and Tier 2 caps should be raised. She also invited input on whether Reg A could serve as a viable path for public crypto offerings and whether certain crypto assets should be treated as equity for Reg A purposes.
Chair Atkins observed that Reg A continues to lag in usage compared with other exemptions. While companies have raised three times more capital through Reg A than through Regulation Crowdfunding and Rule 504 ("Exemption for limited offerings and sales of securities not exceeding $10,000,000.combined"), the exemption still accounts for less than 1% of capital raised under Rules 506(b) and 506(c). He highlighted that despite the 2021 increase in the Reg A cap from $50 million to $75 million, uptake has been limited, and the number of Reg A offerings has declined over the past two years. Chair Atkins urged the Committee to revisit its prior recommendation for federal preemption of secondary sales under Tier 2 to improve liquidity. He also questioned whether eliminating the current prohibition on at-the-market offerings could make Reg A more useful for entrepreneurs. Additionally, he pointed to a geographic concentration of Reg A use primarily in six states (California, Florida, Nevada, New York, Texas and Washington) and asked whether broader regional participation might signal a healthier framework.
Both Ms. Peirce and Mr. Atkins encouraged the Committee to consider reforms to Regulation A that could reduce compliance costs and expand access, particularly for novel issuers such as crypto ventures.
Commentary
It would seem to be an SEC priority to provide both an easier means for small issuers to raise capital from the public and, separately, to facilitate the ability of issuers to raise money in private placements.