The Securities Act of 1933 (1933 Act) requires that all securities offerings in the United States be registered with the U.S. Securities and Exchange Commission (SEC) unless an exemption is available. On June 18, 2019, the SEC issued a concept release (Release) to solicit feedback "on possible ways to simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections." The Release does not propose specific rule changes, rather is seeks feedback.

Current Exemption Framework

The exemptions from 1933 Act registration requirements are in Section 3 of the 1933 Act, which generally exempts certain classes of securities, and Section 4 of the 1933 Act, which exempts certain types of securities offerings. SEC rules provide safe-harbor standards for certain exemptions and understandings of the exemptions are informed by interpretations from the courts and the SEC. In addition, the scope of exempt offerings has evolved through legislative changes and SEC rulemaking and guidance. The Release solicits feedback primarily on 1933 Act exempt offerings.

The principal offering exemptions used by a real estate sponsor include:

  • Section 4(a)(2) exempts "transactions by an issuer not involving any public offering"
  • Regulation D exempts certain small offerings pursuant to Section 3(b) and provides a nonexclusive safe harbor under Section 4(a)(2) and an exemption that allows general solicitations if certain conditions are complied with
  • Regulation A, which permits offers and sales of up to $20 million (Regulation A Tier 1) or $50 million (Regulation A Tier 2) of securities over a 12-month period, provided that certain conditions, including filing requirements, are met:
  1. Rule 504 exempts offers and sales of up to $5 million of securities in a 12-month period.
  2. Rule 506(b) permits sales of securities to an unlimited number of accredited investors and up to 35 unaccredited investors who, alone or with a representative, meet certain knowledge and experience requirements, provided that certain conditions are met, such as no general solicitation or advertising is used to market the securities and the requirement to provide buyers specified disclosure if any unaccredited investors are included in the offering.
  3. Rule 506(c) permits sales of an unlimited amount of securities through general solicitation provided all purchasers are accredited investors, the issuer takes steps to verify the accredited investor status of the investor and certain other conditions are satisfied.

The conditions that offering exemptions follow are based on investor protection considerations, generally correlated with the sophistication of the potential investors. Conditions include limits on the size or amount of the offering, the manner in which the offering can be conducted, eligible investors (such as qualified institutional buyers and accredited investors), disclosure or filing requirements, resale restrictions and types of issuers.

Investors who want to resell securities acquired from an issuer in a registered offering or an exempt offering must either register the resale under the 1933Act or rely on an exemption. Resale exemptions are subject to conditions set out in 1933 Act, SEC rules, regulations and guidance and case law.