Good, but not surprising, news for issuers considering a Regulation A+ offering. Back in May 2015, Massachusetts and Montana sued the SEC in an attempt to invalidate the Regulation A+ rules.  Montana had attempted to obtain an injunction to prevent the Regulation A+ rules from going into effect last June, but was denied.  Now, the DC Circuit has officially rejected the lawsuit brought by the two states.

As we have discussed, Regulation A+ is a vast improvement over the previous version of Regulation A.  The biggest improvement, state pre-emption, was the most controversial (from the states’ perspectives).  Because Regulation A is already a more burdensome exemption than Regulation D (private offerings) due to the need for SEC review and qualification, pre-empting state securities laws for Tier II offerings was a welcome improvement.  The North American Securities Administrators Association (NASAA), which represents the state securities regulators, was strongly against pre-emption.  NASAA is largely seen as the force behind the lawsuits by Montana and Massachusetts.

I will boil down the details of the lawsuit into a sound bite. The states argued that the SEC acted beyond its authority in enacting rules that pre-empted state securities laws.  The court disagreed and said that Congress, in passing the JOBS Act, pre-empted the state laws.

Massachusetts and Montana could appeal, but I doubt that they will. The validity of the states’ argument was not well grounded because the JOBS Act clearly states that the new Regulation A+ exemption would be a “covered security” – which means state law is pre-empted by federal law.

In any event, the conclusion of the lawsuit provides additional clarity for Regulation A+ offerings. We expect that Regulation A+ will become more widely used as bankers and issuers become more comfortable with the exemption.