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Critics have long charged that the Securities Act of 1993 (Act) and the Securities and Exchange Commission (SEC), which administers the Act, are insensitive to the capital formation needs of small businesses. The Act's regulatory regime, it has been argued, is too rigid and expensive and discourages or precludes small businesses from selling securities. In 1992, in reaction to such criticism, the SEC proposed a variety of rule changes designed "to facilitate capital raising by small businesses and reduce the compliance burdens placed on these companies by the federal securities laws." Among these "small business initiatives," adopted in the summer of 1992, was a little-noticed, virtually undiscussed new rule-Rule 251(c)-protecting Regulation A offerings of securities from integration with other offerings. That expansive yet enigmatic integration safe harbor is the focus of this Article.
Unfortunately, the new Rule 251(c) integration safe harbor can be understood only in the context of the Securities Act's registration requirements and the statutory and regulatory exemptions from those requirements. I briefly discuss those registration requirements and exemptions, especially the Regulation A exemption, in Part I.A. In Part I.B, I introduce the integration doctrine and the problem it attempts to solve-how to identify discrete transactions for the purpose of applying transaction exemptions from the Act's registration requirements. The remainder of the Article is an in-depth analysis of the new Rule 251(c) integration safe harbor.