Anyone who knows me knows my link with the SEC’s Regulation S. While folks sometimes refer to it as an exemption from registration under the Securities Act, it’s not. Reg S provides that the registration provisions of the Securities Act simply do not apply to offers and sales made outside the United States, and then goes on to provide rules to determine whether an offer or sale is indeed outside the United States.
We often hear suggestions that a Reg S offering be added to an offering being made under one of the online offering exemptions (Reg A, Reg CF or Rule 506(c) under Reg D). This is very rarely a good idea. Reg S sits very uneasily with the online exemptions. Although the conditions under which such offerings can be made using general solicitation vary, each of them can use general solicitation. Reg S offerings cannot.
Reg S requires that offers and sales be made in an “offshore transaction”, which means no offer can be made to a person in the United States and that you have to know or reasonably believe that any buyer of securities is physically located outside the United States. Additionally, “directed selling efforts” in the United States are prohibited. Directed selling efforts are much broader than general solicitation, including any activities that “condition the market” and would include not just advertising, but also person-to-person sales communications.
The type of communications permitted under the online offering exemptions would generally blow both the offshore transaction requirement and the directed selling effort prohibition. As we all know, the term “offer” is interpreted very broadly in US securities law.
If you are making an offering under multiple “exemptions”, even if you don’t mention the Reg S offering, the SEC is likely to take the view that general solicitation activities will result in conditioning the market for the Reg S offering. The Staff has certainly asked issuers making offerings under several exemptions contemporaneously for an “integration” analysis – explaining why various communications should not be treated as resulting in the several offerings being treated as essentially one plan of financing. Efforts to argue to the Staff that one communication relates to one offering, and another communication relates to an offering under a different exemption have been met with a robust skepticism, and the Staff have often seemed to take the view that communications for multiple offerings cross-market each other. This would be even more the case if one of the offerings were being made under Reg S, where the “market conditioning” prohibition is baked into the rule.
Mentioning the Reg S offering in communications in the United States, would of course be a violation of the “no offers in the United States” requirement. But if you didn’t mention it, you would run the risk of omitting disclosure of a material fact.
So we do not recommend adding a Reg S element to any offering being made under an online offering exemption. That doesn’t mean it’s impossible, but if you did want to add Reg S, you would need a geofenced offering site accessible only to persons outside the United States. You need a separate set of offering docs (to comply with the other conditions of Reg S, which I haven’t even touched on here). And you would need to ensure that no-one who invested came to the offering because of all the communications you used in the other offerings – the LinkedIn ads, the TikTok videos, the Insta pics, the You Tube videos. And that’s a difficult task.
And bear in mind that even if you were to structure an offering to meet the requirements of Reg S, you would still need to consider compliance with the securities laws of the countries your investors are from, as you would with any of the other “exemptions”.
In most cases, from a practical point of view, you are better off relying on the usual online offering exemptions, even to accommodate non-US investors.