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Dodd-Frank

U.S. House of Representatives Acts to Create New Category of Exempt Transaction Under the Securities Act of 1933

by   |   November 10, 2017

On November 9, 2017, the U.S. House of Representatives passed the Micro Offering Safe Harbor Act.  The vote was largely along party lines, with Rep. Walter Jones from North Carolina’s third district casting the lone Republican dissenting vote.  The Act, as we previously reported here, resurrected a failed bill introduced by Rep. Tom Emmer (R-MN) in early 2016.

The Act seeks to create a new category of exempt transactions under Section 4(a) of the Securities Act of 1933 (the “’33 Act”).  New Section 4(a)(8) would create an issuer exemption for what the bill deems “micro offerings.”  Under the exemption, a “micro offering” would be limited to offerings where:

  1. all purchasers have a substantive pre-existing relationship with an officer, director or 10% or greater shareholder of the issuer;
  2. there are no more than, or the issuer reasonably believes there are no more than, 35 purchasers of the securities sold in reliance on the exemption during the 12-month period preceding the offering; and
  3. the aggregate amount of securities sold in reliance on the exemption during the 12-month period preceding the offering does not exceed $500,000.

Importantly, the Act would also exempt micro offerings from most forms of state regulation pursuant Section 18 of the ’33 Act. Commensurate with state regulation of exempt offerings pursuant to Regulation D, states would be able to require issuer to file notices and pay fees for micro offerings.  Likewise, state (and federal) anti-fraud regulation would still apply to micro offerings.

The exemption provided by the Act would also be subject to the “bad actor” disqualifications found in Rule 506(d) (17 C.F.R. 230.506).

The Act now faces an uphill battle in a closely divided U.S. Senate.

Read the full text of the bill here.

ABOUT STINSON LEONARD STREET

Stinson Leonard Street LLP provides sophisticated transactional and litigation legal services to clients ranging from individuals and privately held enterprises to national and international public companies. As one of the 100 largest firms in the U.S., Stinson Leonard Street has offices in 13 cities, including Minneapolis, Mankato and St. Cloud, MN; Kansas City, St. Louis and Jefferson City, MO; Phoenix, AZ.; Denver, CO; Washington, D.C.; Decatur, IL; Wichita, KS; Omaha, NE; and Bismarck, ND.

Drew Kuettel is a member of the firm’s corporate finance group.