WHY DID THE SEC AMEND REGULATION A

Regulation A was supposed to make raising money and going public easier. But in recent decades, Regulation A was a failure. Not only was it slow, it was difficult, with less than half of applications approved. From  2002 to 2011, Regulation A offerings took an average of 228 days to qualify; average time to qualify exceeded 300 days from 2012 to 2014. Interestingly, Regulation A offerings were predominantly used for IPOs by companies in the financial sector.

One of the main factors for the lack of success of old Regulation A is never mentioned by the SEC: the poor quality of reviewers. The SEC hires a large number of attorneys and accountants each year right out of school, and there is a lot of turnover as staff gain experience and leave for the private sector or other government jobs. Imagine you are a young, ambitious new hire at the SEC in the Division of Corporation Finance. You want to acquire good experience. You want to review the registration statements of Facebook, Amazon and Fortune 500 companies, not those of Regulation A issuers. The Regulation A department at the SEC became the final resting place of, frankly speaking, a lot of deadwood employees. Coupled with the fact that many of these offerings were not filed by experienced SEC attorneys, the failure was inevitable.

Regulation A+, however, seems to be getting a lot of institutional support at the SEC. The elimination of any blue sky (state securities) clearance requirements is the major factor making it successful.