On October 16, 2018 the Securities and Exchange Commission announced that it is implementing temporary rules for issuers who are making offerings pursuant to Regulation Crowdfunding and Regulation A in order to assist issuers who were directly or indirectly impacted by Hurricane Michael. These temporary rules will postpone the filing deadlines for certain reports and forms which must be filed under Regulation Crowdfunding and Regulation A to a later date, provided that Hurricane Michael affected the issuer filing the reports and forms. The rules are set to be effective through November 23, 2018.
Regulation Crowdfunding and Regulation A allow issuers to offer and sell securities that have not been registered under the Securities Act, provided that the issuers follow specified conditions. One of those conditions is that the issuer in question must comply with continual reporting requirements. According to the SEC, the reporting requirements improve investor protection and reduce the likelihood that there will be information disparities between issuers and investors. Ongoing reporting also requires issuers to update their information, which allows investors to base their investment decisions on the most current information available.
When Hurricane Michael made landfall, numerous businesses in the area, including those of issuers making offerings pursuant to Regulation Crowdfunding or Regulation A, experienced disruptions. The SEC expects that the shortage in communications, electricity, facilities, and professional advisors in areas affected by Hurricane Michael could delay companies’ ability to meet their reporting requirements. However, the SEC also acknowledges that those who invest in securities offered pursuant to Regulation Crowdfunding and Regulation A would like for information about the companies that offer those securities to be readily available. In particular, investors will likely have an interest in knowing of any material adverse effects that Hurricane Michael had on the issuer or its business. The SEC found that the most appropriate solution to this dilemma would be to issue temporary relief pursuant to Section 28 of the Securities Act, which permits the SEC to, by rule or regulation, to make exemptions for any person, security, or transaction, provided that the exemption in question is in the public interest and is in harmony with the protection of investors.
As a result, the Commission has decided to adopt temporary rules stating that an issuer who must file certain reports pursuant to Regulation Crowdfunding or Regulation A is exempt from the reporting requirements provided that the issuer meets specified conditions. The reports in question include, for issuers filing under Regulation Crowdfunding, annual reports on Form C-AR, progress updates on Form C-U, and termination of reporting on Form C-TR. For issuers filing under Regulation A, the reports in question are post-qualification amendments which must be filed at least every twelve months after the qualification date to feature current financial statements, annual reports on Form 1-K, semi-annual reports on Form 1-SA, special financial reports on Forms 1-K or Form 1-SA, current reports on Form 1-U, and exit reports on Form 1-Z.
The conditions are: (i) that the issuer is unable to satisfy a filing deadline because of Hurricane Michael or its aftermath, (ii) the issuer was required to file one or more of the specified reports listed above during the period from October 10, 2018 through November 21, 2018 and was not able to meet its filing deadline because of Hurricane Michael or its aftermath, and (iii) the issuer states in the report or reports that it is relying on the temporary rules, as well as the reasons why, in good faith, the issuer was unable to file the report on a timely basis. The required reports must be filed no later than November 23, 2018.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information. Parker MacIntyre was not impacted by Hurricane Michael or its aftermath.