I recently submitted this comment letter to the Securities and Exchange Commission with respect to its proposal to modernize the exemption applicable to intrastate offerings. The SEC somewhat misleadingly describes its proposal as " "amendments to Rule 147 under the Securities Act of 1933". While that may technically be accurate, the SEC is actually jettisoning the safe harbor established under existing Rule 147 in favor of an entirely new exemption adopted pursuant to Section 28 of the Securities Act of 1933. Because compliance with proposed Rule 147 would not meet the parameters of Section 3(a)(11) of the Securities Act, Rule 147 would no longer be a safe harbor, but a stand-alone exemption.
Rule 147 is no Tangier 1684
I generally support the SEC's proposal. However, I am recommending that the SEC retain the current safe harbor rule under Section 3(a)(11). The SEC is not claiming that existing Rule 147 is inconsistent with Section 3(a)(11) nor does it cite any judicial authority to that effect. Although I doubt that the SEC's "amendment" of Rule 147 could be viewed as an elimination of the safe harbor, the SEC should not create ambiguities by effectively writing Rule 147 out of Section 3(a)(11). For more on the question of whether the SEC can actually eliminate a safe harbor, see Professor C. Steven Bradford's post: Rule 147: Can the SEC Ever Successfully Revoke a Safe Harbor?
Focusing on residency misses the point
The proposing release justifies the imposition of issuer "presence" requirements on the basis that "state authorities can effectively regulate an issuer’s activities and enforce states’ securities laws for the protection of resident investors". This confuses state authority to regulate an issuer's business activities with the jurisdictional reach of state blue sky laws. Under the California Corporate Securities Law of 1968, the critical question is whether an offer or sale of a security has been made "in this state", as defined in Corporations Code Section 25008. Whether an offer or sale has been made "in this state" does not necessarily depend on the residency of the issuer or the purchaser. Thus, an offer or sale of securities to a Florida resident by a Delaware corporation headquartered in Massachusetts with no business activity in California could be subject to the California Corporate Securities Law if, for example, the issuer directs an offer to the Florida resident while she is vacationing in California and the offer is received in California. The SEC also seems to have a cabined view of state interests. States are not simply interested in protecting resident investors, they are interested in all offers and sales of securities made within the state.
Brooklyn (the film) deep rocks Taylor v. Standard Gas & Electric Co.
Over the holiday weekend, I saw the film Brooklyn, which is the story of a young Irish woman experience in immigrating to the United States in the 1950s. This isn't a movie about the law or lawyers. I was therefore surprised with one scene featuring the famous case of Taylor v. Standard Gas & Electric Co., 306 U.S. 307 (1939) in which the United States Supreme Court established the "Deep Rock Doctrine" under the former Bankruptcy Act. I highly recommend the movie. If you see Brooklyn, watch out for the Deep Rock!