Integration of securities offerings can be a tricky and often frustrating challenge. You may plan to conduct an offering one way, only to discover that you now have to comply with rules and restrictions that are different, or more severe than you were expecting. This is the situation for companies transitioning from a Regulation Crowdfunding (Reg CF) offering to a Regulation A (Reg A) offering, as the SEC applies the requirements of Rule 152 during its review of Reg A offering statements.
At its core, integration in securities law means this: if one offering of securities is being used to promote or support another offering, the SEC may treat them as the same offering. That can have serious consequences. CrowdCheck previously published a summary about how integration can impact online offerings here, https://crowdcheck.com/wp-content/uploads/2024/03/Concurrent-online-offerings-1.pdf. It is easy to see that the analysis can be messy when applied to real-world facts and circumstances. That’s why the SEC adopted Rule 152 to provide a clearer framework and safe harbors that help ensure different offerings won’t be integrated.
When Integration Becomes a Problem
Under Rule 152, a Reg A offering is deemed to begin when a company either publicly files its Form 1-A offering statement or starts testing the waters for its planned Reg A raise. If either of these activities happens while a Reg CF offering is still open, Rule 152 may require the two offerings to be treated as one.
That means the company would be limited to raising a combined total of $5 million between the Reg CF and Reg A offerings. Exceeding that amount could expose the company to SEC enforcement or a right of rescission by investors that would act as a put hanging over the company until the statute of limitation has expired. Either of those can easily derail a fundraising plan and limit future fundraising opportunities.
Avoiding Integration
Any company issuing securities should also consult with their advisers on how their specific situation could trigger integration issues and how to avoid it. Fortunately, there are options to navigate this challenge:
- First-time Reg A issuers:
Companies that haven’t conducted a Reg A offering before are able to make a confidential submission to the SEC while their Reg CF offering is still ongoing. This allows the SEC review process to begin early, while delaying the public filing until after the Reg CF offering closes. By following the confidential submission timing rules, the company would fall outside of when a “offer” is defined to occur under Rule 152. - Companies with prior Reg A offerings:
Rule 152 requires these companies to demonstrate a clean break between the close of the Reg CF offering and the start of the Reg A process. This can be done through a safe harbor if the Form 1-A is filed 30 days or more after the Reg CF offering terminates. The circumstances of the offerings may allow for a shorter period by following the general principles of integration, but this will be a facts and circumstances determination for that company.
It’s Complicated—But Manageable
If this all sounds complicated, that’s because it is. The intersection of Reg CF, Reg A, and Rule 152 involves technical nuances that can have real financial consequences. But with careful planning, and the right guidance, you can stay compliant, protect your investors, and move confidently from one offering to the next.