SEC Provides Relief for Regulation A and Regulation Crowdfunding Issuers Related to COVID-19

On March 26, 2020, the SEC adopted temporary amendments to the rules governing the filing of periodic and current reports under Regulation A (Rule 257) and Regulation Crowdfunding (Rule 202) to provide relief to issuers that are challenged in meeting their obligations to file those reports on a timely basis because of the outbreak of coronavirus disease 2019 (COVID-19).  If an issuer is not able to meet a filing deadline that falls during the period from and including March 26, 2020 to May 31, 2020 (the “Relief Period”), the issuer will have 45 days from the date that the report was due to file the report, subject to certain conditions (the “Extension Period”).

In the case of Regulation A issuers, the relief applies to annual or special financial reports on Form 1-K, semi-annual or special financial reports on Form 1-SA, current reports on Form 1-U, exit reports on Form 1-Z and annually-required post-qualification amendments on Form POS.  In the case of issuers that report under Regulation CF, it applies to annual reports on Form C-AR, progress reports on Form C-U and termination of reporting on Form C-TR.

The relief does not extend to Form 1-A offering statements that have not been qualified, nor to offerings being made under Regulation CF.  Issuers with otherwise valid and qualified Regulation A offerings may be able to continue to sell securities during the Extension Period with stale audited financials; however issuers, offering under Regulation CF  may not continue to sell their securities unless their Form C includes up-to-date financials.

An issuer who meets the following conditions would be considered to still be in compliance with Regulation A or Regulation Crowdfunding and would be considered current in its reporting obligations under those regulations:

  • The issuer is not able to meet the filing deadline due to circumstances related to COVID-19;
  • The issuer promptly discloses on its public website or, if it is a Regulation Crowdfunding issuer, through its intermediary’s platform, or provides direct notification to its investors, that it is relying on the temporary rules (that means making the disclosure before the original filing deadline);
  • The issuer files the report no later than 45 days after the date it was originally due; and
  • In the report the issuer discloses that it is relying on the temporary rule and states the reasons why, in good faith, it could not file the report on a timely basis.

The SEC noted that issuers should continue to evaluate their obligations to make materially accurate and complete disclosures in accordance with the anti-fraud provisions of the federal securities laws.  Specifically, the SEC reminds issuers conducting ongoing offerings pursuant to Regulation A who seek to rely on the relief that they are responsible for ensuring that their offering materials contain the material information required to be included in those materials.  If an issuer in an ongoing offering believes that its offering materials contain all required material information, the SEC states that the issuer should disclose to investors that it is relying on the relief.  Depending on the facts and circumstances, we believe that a Regulation A  issuer with an ongoing offering may be able to rely on the relief by providing an update to investors regarding its 2019 results in a supplement to its offering materials.

What does this mean for issuers?

If you are an issuer that has an annual report due during the Relief Period (including issuers with fiscal years ending December 31, 2019): 

  • Under Rule 257, an issuer with a fiscal year ending on December 31, 2019 who reports under Regulation A has until April 29, 2020 (120 days after the end of the issuer’s fiscal year) to file its annual report on Form 1-K.  However, if the issuer cannot meet that deadline because of delays in its accounting and/or auditing processes due to COVID-19, it would have until June 13, 2020 to file the report and must include the statements required under the temporary rule. Further, if that issuer has a current offering open under Regulation A, it may be able to continue to sell securities during the Extension Period.
  • This includes issuers with calendar year fiscal years whose first offering statements were  qualified during the month of January 2020.  Under Rule 257(b)(2)(ii), such issuers would have 120 days from qualification date to file a special financial report on Form 1-K, which would place their filing deadline during the Relief Period.
  • Issuers with calendar year fiscal years who report under Rule 202 of Regulation Crowdfunding have the same April 29, 2020  filing deadline and would therefore have similar relief until June 13, 2020 to file their annual report on Form C-AR.

If you are an issuer conducting a continuous offering under Regulation A and must file a post-qualification amendment during the Relief Period:  Under Rule 252(f)(2)(i) of Regulation A, issuers conducting continuous offerings must file a post-qualification amendment  (“PQA”) annually to include the financial statements that would be required by Form 1-A as of the anniversary of qualification.  The relief extends to  such PQAs if they are due during the Relief Period.  However, the relief does not apply to PQAs that must be filed under Rule 252(f)(2)(ii) to reflect facts or events that would constitute a fundamental change in information set forth in the offering statement.

If you are an issuer who has filed a Form 1-A that has not yet qualified and your fiscal year ended on December 31, 2019: There is no change to the current requirements. If the Form 1-A is not qualified before March 31, 2020, the issuer must include the audited financials for 2019 and 2018 in its offering statement before the SEC will qualify the offering statement.  The SEC has specifically stated in the release that an unqualified offering statement on Form 1-A does not qualify for the relief.

If you are an issuer that has filed a Form C that included financial statements for 2018 and your fiscal year ended on December 31, 2019. There is no change to the current requirements. In order to continue your offering, you will need to amend your Form C to include 2019 financials. The SEC specifically stated that  the relief does not apply to Form C or Form C/A if filed after March 31, 2020.

If you have questions about your particular circumstances and whether and how you can apply the relief, do not hesitate to contact us.

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