Previously announced amendments to the Securities and Exchange Commission’s exempt offering rules went into effect on March 15, 2021. As per the SEC, the rule changes are intended to “harmonize, simplify, and improve the multilayer and overly complex exempt offering framework,” as well as “promote capital formation and expand investment opportunities while preserving or improving important investor protections.” The amendments include extensive changes to existing offering exemptions from the registration requirements of the Securities Act of 1933 (the “Securities Act”) that should make it easier for private companies to raise capital. In addition, rule changes also make a significant change overall to the private offering framework which will be helpful to these companies: overhauling the integration rules and safe harbors.
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Recently, there has been a lot of buzz involving so-called “Initial Coin Offerings” (ICOs), which are crowdfunded offerings powered by distributed ledger technology (a.k.a. “the blockchain”), which is also the technology behind cryptocurrencies, such as Bitcoin. Instead of selling equity, companies that use ICOs sell digital “tokens” to investors. These tokens entitle the holders to certain rights, such as the right to a portion of the future cashflow of the company or voting rights. Unlike a traditional legal contract, the rights of token holders are not enforced through courts but rather through software code (also called “smart contracts”). Although the ICO concept has gained traction very quickly and allowed various companies to raise over a billion dollars’ worth of digital currency directly from investors, many have suspected that ICOs, like their IPO counterparts, involve the issuance of securities; however, until recently, the Securities and Exchange Commission (SEC) had not yet weighed in.