STATE OF WASHINGTON

DEPARTMENT OF FINANCIAL INSTITUTIONS

SECURITIES DIVISION
P.O. Box 9033
Olympia, Washington 98507-9033
Telephone (360) 902-8760
TDD (360) 664-8126
FAX (360) 902-0524
Web Site: www.dfi.wa.gov/sd

MEMORANDUM
September 14, 2015
TO:

Scott Jarvis, Director

FROM:

Faith Anderson, Chief of Registration & Regulatory Affairs, Securities Division

CC:

Bill Beatty, Director of Securities

Joe Vincent, Director of Regulatory & Legal Affairs

RE:

Notice filings for Tier 2 offerings under Regulation A -- Hearing Summary

and Concise Explanatory Statement pursuant to RCW 34.05.325(4) & (6)

Hearing Summary pursuant to RCW 35.04.325(4)

Pursuant to RCW 34.05.325(4), the following is a summary of the contents of the presentations
made at the hearing held on September 9, 2015 to consider the adoption of a proposed rule to
require notice filings in connection with offerings under Tier 2 of federal Regulation A:
No members of the public appeared at the hearing.
No written testimony was presented.
Concise Explanatory Statement pursuant to RCW 34.05.325(6)(a)
Reasons for adopting rule(s). The reasons stated in the CR-102 filed in connection with this
rulemaking are hereby incorporated by reference.
Differences between text proposed in CR-102 and text as adopted, other than editing
changes, and the reasons for such changes: In response to comments received from four
different commenters, the text of the proposed rule was revised to move the deadline by
which the required notice filing must be submitted from a date prior to the initial offer in this
state to a date that is at least twenty-one calendar days prior to the initial sale in this state.
Summary of all comments received regarding the proposed rule, DFIs response thereto,
indicating how the rule reflects DFIs consideration of these comments, or why it fails to do

so. The Division received written comments from four commenters: Sara Hanks, CEO of
CrowdCheck; Kim Wales, CEO of Wales Capital and Executive Board Member of
CrowdFund Intermediary Regulatory Advocates; Ron Miller, CEO of StartEngine
Crowdfunding, Inc.; and Michael Sewell of Sewell Law. The comments are summarized
below, along with DFIs consideration and response to these comments.
The proposed rule would hinder capital formation by requiring a notice filing in order
to be able to test the waters. Three of the commenters indicated that requiring a notice
filing prior to the initial offer in this state would hinder the ability of businesses to test
the waters and any subsequent capital raising that would be facilitated by testing the
waters activities. These commenters indicated that it would be burdensome to file notices
and related fees in all 50 states should all states implement similar requirements that
would apply to testing the waters activities. Ms. Hanks acknowledged the legitimate
interest of the state in knowing about offerings being made to potential investors in
Washington and suggested instead requiring a notice filing at the time of SEC filing but
also providing for a simple heads up notification that gives the issuers intended
name and the channels by which it will be communicating with investors in connection
with testing the waters activities. Ms. Wales suggested that the proposed rule be revised
to not require fees until the SEC has qualified the offering but to allow for a trigger
notice at the time of SEC filing that provides the issuers intended business name and a
description by which general solicitation and advertising will be used. Mr. Miller
suggested as an alternative the adoption of a simple heads up notification upon filing
with the SEC[that] would just give the issuers name and the channels it uses to reach
investors.
In response to these and other comments, the final rule does not require a filing merely
for testing the waters activities in a Tier 2 offering under federal Regulation A and
instead requires a notice filing and submission of the requisite fee at least twenty-one
calendar days prior to the initial sale in this state. The requirement to make the notice
filing at least 21 calendar days prior to the initial sale in this state is consistent with the
requirement under federal Regulation A to file the Form 1-A and other materials
publicly on EDGAR at least 21 calendar days prior to qualification of the offering by the
Securities and Exchange Commission.
The proposed rule is inconsistent with preemption under Section 18 of the Securities
Act of 1933 insofar as it would require a notice filing with the state prior to the time at
which a filing is made with the Securities and Exchange Commission. All four
commenters asserted that the proposed rule is inconsistent with Section 18 of the
Securities Act of 1933 insofar as the proposed rule would require a notice filing with the
state at a time when the issuer has not made any federal filings, noting that issuers are
not required to make any filing with the SEC to test the waters under Tier 2 of
Regulation A.
While we do not necessarily agree with the analysis of Section 18 by commenters, as
discussed above the proposed rule was revised so that the final rule does not require a

notice filing at a time when a filing is not required by the Securities and Exchange
Commission.
The proposed rule is inconsistent with preemption under Section 18 of the Securities
Act of 1933 insofar as it would require a notice filing for securities listed on an
exchange. Mr. Sewell commented that insofar securities in a Tier 2 offering will be
listed on an exchange, states lack the authority to require a notice filing pursuant to
Section 18(c)(2)(D).
Neither the proposed rule nor the final rule address notice filing requirements for
offerings of exchange listed securities that qualify for preemption of both registration and
notice filing requirements under Section 18(b)(1) and 18(c)(2)(D). Neither is it our
intention to impose notice filing requirements on such securities. As such, we do not
believe it is necessary to revise the proposed rule in response to this comment. We do
plan, however, to clarify this issue in our notice to interested persons concerning the
adoption of the final rule.
The state should work with NASAA to permit heads up notice filings through the
Electronic Filing Depository (EFD) that currently permits notice filings in
connection with Rule 506 offerings under federal Regulation D. Three commenters
suggested that the EFD system developed by the North American Securities
Administrators Association, Inc. (NASAA) should be expanded to permit heads up
notice filings to be directed to the states through the EFD system.
As discussed above, we have revised the proposed rule such that the final rule does not
require a notice filing in connection with testing the waters activities in Tier 2 offerings
in Washington. Thus, no further revision of the proposed rule is necessary to address the
concerns expressed by these commenters. If and when the EFD system is able to
accommodate Tier 2 notice filings, however, we expect to participate.
The process for allowing coordinated review of Tier 1 offerings across multiple states
should be made available for coordinating notice filings for Tier 2 offerings in multiple
states. Ms. Hanks and Ms. Wales suggested that the coordinated review program that is
available for multi-state Regulation A offerings under Tier 1 should be used as a basis
for coordinating Tier 2 notifications by potential issuers.
As a coordinated notice filing process is not available for Tier 2 notice filings, no further
revision of the proposed rule is warranted to address the concerns of these commenters.
If such a process does develop, however, we would be interested in participating in such
a program.