52. What types of coordinated registration are available under state laws?
There are two primary options for registration by coordination that ease the process of complying with state securities requirements.
• Coordinated Review-Equity – This type of review is designed for use during an IPO that is seeking registration (not seeking a statutory or rule-based exemption from registration). It is generally not allowed for limited registrations under Regulation A. Under this program, the issuer files to register its securities in Pennsylvania. Pennsylvania Securities Commission (PSC) acts as an administrator and collects the required disclosure documents. The PSC will also choose another state that requires a merits review and solicit this state to review the offering. The issuer may then register this disclosure and merit review in any other state in which it seeks to sell securities. One state takes the lead on all disclosure concerns, while another assumes responsibility for any merit issues.
⁃ Note: This process is advantageous, as it allows the issuer to only deal with two states in the disclosure and review process. The alternative is to undergo disclosure and review requirements in every state of issuance.
⁃ Example: ABC Corp is undertaking an IPO. As part of the IPO process, ABC will be forced to register its securities in each state in which it is directly offering securities for sale. ABC seeks to undertake the coordinated review-equity process to circumvent the need to comply with the disclosure and review requirements of every state.
• Coordinated Review-Small Company Offering Registration – Most states permit the use of CR-SCOR for offerings under Rule 504 or Reg A, Tier 1. Under this program, registration only requires a simplified disclosure form. The issuer would be able to submit this form in lieu of going through the standard state disclosure or merit review requirements. Also, the SCOR system separates the US into five filing regions. Rather than filing a SCOR disclosure in each state where securities will be sold, the issuer can file in a region to cover all the states in that region.
⁃ Note: The issuer would have to file a disclosure in each region in which an issuance state is located.
⁃ Example: ABC Corp is undertaking a small offering issuance. It is seeking an exemption from federal registration under Rule 504. ABC will primarily offer securities for sale in Delaware, District of Columbia, Maryland, New Jersey, Pennsylvania, Virginia and West Virginia. All of these states are part of the Mid-Atlantic SCOR regions. As such, ABC may file the SCOR disclosure documents with each state rather than going through the state-mandated disclosure and review processes.
• Discussion: How do you feel about the coordinated-review programs available for IPOs and small offerings? What do you think is the state purpose behind allowing for these exemptions? Do you think these systems are effective in accomplishing those objectives? Why or why not?
• Practice Question: ABC Corp is considering issuing securities pursuant to rule 504. It needs to raise approximately $1 million in funds to grow operations. ABC is concerned with having to comply with state disclosure and review requirements? What options may be available for ABC? Please describe any procedures necessary in this process.