oversight

Securities Regulation: Factors That May Affect Trends in Regulation A Offerings

Published by the Government Accountability Office on 2012-07-03.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Committees




July 2012
             SECURITIES
             REGULATION
             Factors That May
             Affect Trends in
             Regulation A Offerings




GAO-12-839
                                               July 2012

                                               SECURITIES REGULATION
                                               Factors That May Affect Trends in Regulation A
                                               Offerings
Highlights of GAO-12-839, a report to
congressional committees




Why GAO Did This Study                         What GAO Found
Businesses seeking to use public               The number of Regulation A offerings filed and qualified (that is, cleared) by the
offerings of securities to raise capital       Securities and Exchange Commission (SEC) has declined significantly after
must comply with federal and state             peaking in fiscal years 1997 and 1998, respectively. In particular, offerings filed
securities laws. Businesses must               since 1997 decreased from 116 in 1997 to 19 in 2011. Similarly, the number of
register offerings with SEC unless they        qualified offerings dropped from 57 in 1998 to 1 in 2011. Securities attorneys
qualify for an exemption. Regulation A         GAO interviewed suggested that the decrease in filings after 1997 could be
exempts a securities offering that does        attributed to a number of factors, including the increased attractiveness of
not exceed $5 million from SEC                 Regulation D. The National Securities Markets Improvement Act of 1996
registration if certain requirements are
                                               preempted state registration requirements for other categories of securities
met. However, businesses still must
                                               including certain Regulation D offerings, which are also exempt from SEC
file an offering statement that includes
an offering circular and financial
                                               registration. In contrast, Regulation A offerings are generally subject to state
statements with SEC, and SEC staff             securities laws and must go through a federal filing and review process. In
review filings for consistency with            recent years, businesses have used Regulation D and registered public offerings
applicable rules and accounting                to a greater extent than Regulation A.
standards. In addition, Regulation A           States’ methods for registering and reviewing securities vary. One method used
does not exempt offerings from states’         by states is “registration by qualification,” which is similar to registering securities
registration requirements, which are           with SEC, as issuers are required to submit certain documents to the responsible
also intended to protect investors.
                                               state securities agency for review and approval. All states conduct disclosure
Concerned about the decline in the
                                               reviews of the Regulation A offerings, meaning that they ensure that all material
number of public offerings, the JOBS
Act requires SEC to amend Regulation           information is disclosed in the offering. According to the North American
A (or to adopt a new regulation) to            Securities Administrators Association (NASAA) officials, most states additionally
raise the threshold for use of that            conduct a merit review—an analysis of the fairness of the offering to investors—
registration exemption from $5 million         although some states use stricter standards in their merit reviews than others.
to $50 million, and requires GAO to            NASAA officials have encouraged states to take steps to streamline their
study the impact of state securities           requirements and make them more uniform, including adopting a standard form
laws on Regulation A offerings. This           for registering securities. NASAA plans to work with states to determine what
report examines (1) trends in                  changes in their registration methods will be needed in light of the Jumpstart Our
Regulation A filings, (2) how states           Business Startups Act (JOBS Act).
register Regulation A filings, and, (3)
factors affecting the number of                Multiple factors appear to have influenced the use of Regulation A and views
Regulation A filings and how the               vary on whether raising the offering threshold will increase its use. The factors
number of filings may change in the            included the type of investors businesses sought to attract, the process of filing
future. GAO analyzed SEC data                  the offering with SEC, state securities laws, and the cost-effectiveness of
related to financial regulatory filings,       Regulation A relative to other SEC exemptions. For example, identifying and
reviewed published research, and               addressing individual state’s securities registration requirements can be both
interviewed academics, SEC staff,              costly and time-consuming for small businesses, according to research, an
state securities regulators, and small         organization that advocates for small businesses, and securities attorneys that
businesses. SEC and NASAA provided             GAO interviewed. Additionally, another SEC exemption is viewed by securities
technical comments on a draft copy of          attorneys that GAO met with as more cost-effective for small businesses. For
this report, which GAO incorporated as         example, through certain Regulation D filings small businesses can raise equity
appropriate. In its letter, NASAA              capital without registering securities in individual states, as long as other
concurred with our finding that multiple       requirements are met. State securities administrators, a small business
factors have influenced the use of             advocate, and securities attorneys with whom GAO met had mixed views on
Regulation A.                                  whether the higher maximum offering amount ($50 million) under the JOBS Act
                                               would lead to increased use of Regulation A. For example, some thought that
 View GAO-12-839. For more information,
 contact A. Nicole Clowers at (202) 512-8678   the higher threshold could encourage greater use of Regulation A, while others
 or clowersa@gao.gov                           told us that many of the factors that have deterred its use in the past likely will
                                               continue to make other options more attractive.
                                                                                          United States Government Accountability Office
Contents


Letter                                                                                     1
              Background                                                                   4
              Regulation A Use Has Decreased Since 1997                                    8
              States’ Methods of Registering Regulation A Securities Offerings
                Vary                                                                     13
              Multiple Factors May Have Affected Use of Regulation A and Views
                on Future Use Are Mixed                                                  15
              Agency Comments                                                            21

Appendix I    Comments from the North American Securities Administrators
              Association                                                                23



Appendix II   GAO Contact and Staff Acknowledgments                                      25



Table
              Table 1: Number of Qualified Regulation A Offerings and
                       Regulation D and Registered Public Offerings Filed for
                       under $5 Million, Fiscal Years 2008 through 2011                  11


Figure
              Figure 1: Number of Regulation A Offerings Filed and Qualified,
                       Fiscal Years 1992 through 2011                                      9




              Page i                                         GAO-12-839 Securities Regulation
Abbreviations

Corporation Finance                 SEC Division of Corporation Finance
FINRA                               Financial Industry Regulatory Authority
JOBS Act                            Jumpstart Our Business Startups Act
NASAA                               North American Securities Administrators
                                    Association
SEC                                 Securities and Exchange Commission
Securities Act                      Securities Act of 1933




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Page ii                                                  GAO-12-839 Securities Regulation
United States Government Accountability Office
Washington, DC 20548




                                   July 3, 2012

                                   The Honorable Tim Johnson
                                   Chairman
                                   The Honorable Richard C. Shelby
                                   Ranking Member
                                   Committee on Banking, Housing, and Urban Affairs
                                   United States Senate

                                   The Honorable Spencer T. Bachus
                                   Chairman
                                   The Honorable Barney Frank
                                   Ranking Member
                                   Committee on Financial Services
                                   House of Representatives

                                   Small businesses rely on capital to start and expand their businesses.
                                   Some small businesses often satisfy capital needs by asking friends and
                                   family members, or by seeking bank loans. Small businesses that exceed
                                   these resources, or have additional capital needs, may seek to sell
                                   shares of ownership or securities convertible into shares of ownership, in
                                   the business to raise needed cash to be used in operations. One of the
                                   major sources of equity capital is the public offering of securities.

                                   The Securities Act of 1933 (Securities Act) requires companies that are
                                   publicly offering securities for investment to register the offering of the
                                   securities with the Securities and Exchange Commission (SEC) and
                                   provide investors with all material information necessary to make an
                                   investment decision. 1 The Securities Act contains some exemptions from
                                   registration and authorizes SEC to provide by rule for additional
                                   exemptions. In particular, SEC Regulation A exempts from registration
                                   securities offerings if the total offering price does not exceed $5 million
                                   and if certain other requirements are met. 2 SEC has stated that
                                   Regulation A is an effective tool for developing companies that may not
                                   be able to raise sufficient funds to justify the significant costs of



                                   1
                                    15 U.S.C. §§ 77a et seq.
                                   2
                                    17 C.F.R. §§ 230.251 through 230.263.




                                   Page 1                                          GAO-12-839 Securities Regulation
registration. 3 Although Regulation A offerings are not subject to the SEC
review process for registered offerings, these offerings must go through a
federal filing and review process.

In addition, Regulation A offerings are generally subject to registration
requirements under state securities laws, known as blue sky laws. 4
Unless federal law specifically preempts a securities offering from state
regulation, issuers must meet the specific regulatory requirements for
each state in which they want to make an offering.

In an effort to increase small business public offerings, the Jumpstart Our
Business Startups Act (JOBS Act) requires SEC to amend Regulation A
(or to adopt a new regulation) to raise the ceiling for use of that
registration exemption from $5 million to $50 million, among other things. 5
However, questions remain about whether state blue sky laws could
serve as an impediment to greater use of Regulation A. Section 402 of
the JOBS Act requires us to review the impact of state blue sky laws on
Regulation A offerings. This report examines (1) trends in Regulation A
filings, (2) how states register Regulation A filings, and (3) what factors
have affected the number of Regulation A filings and how the number of
filings may change in the future.

To examine trends in Regulation A filings, we analyzed SEC data for
trends on the number of filings and the number of filings SEC determined
to be qualified (i.e., cleared by SEC) from 1992 through 2011. We
compared the number of qualified Regulation A offerings to the number of
Regulation D filings (containing three additional Securities Act registration


3
 SEC Release No. 33-6924 (Mar. 11, 1992). 57 Fed. Reg. 9768, 9770 (Mar. 20, 1992).
4
 The origin of the term “blue sky laws” is subject to a number of different theories. The
most widely held theory attributes it to Justice McKenna’s description of a state securities
law in Hall v. Geiger-Jones Co., 242 U.S. 539, 550 (1917): “The name that is given to the
law indicates the evil at which it is aimed; that is . . . speculative schemes which have no
more basis than so many feet of blue sky . . .” However, a newspaper article written by the
author of the original Kansas law states that the term actually refers to a fraudulent
rainmaking scheme in which the investment promoter “promises rain but delivers blue
sky.” See Rick Fleming, “100 Years of Securities Law: Examining a Foundation Laid in the
Kansas Blue Sky,” 50, no. 3 Washburn Law Journal (Spring 2011).
5
 Pub. L. No. 112-106, § 401,126 Stat. 306, 323 (2012) amending section 3(b) of the
Securities Act, 15 U.S.C. § 77c(b). In addition, section 401 of the JOBS Act added a new
section 3(b)(5) to the Securities Act, 15 U.S.C. § 77c(b)(5), which requires SEC to
consider upward adjustments to the new $50 million ceiling every 2 years.




Page 2                                                    GAO-12-839 Securities Regulation
exemptions for certain securities offerings) and registered offerings of up
to $5 million from 2008 through 2011 to illustrate differences in
businesses’ use of other securities offering options. We assessed the
reliability of SEC’s data on Regulation A, Regulation D, and registered
offerings by interviewing agency officials and reviewing documentation
related to SEC’s Electronic Data Gathering, Analysis, and Retrieval
system. We determined the data reliable for our purposes. We also
reviewed SEC’s policies and procedures for qualifying small businesses’
filings for exemption through Regulation A.

To describe how states register Regulation A filings, we reviewed
published research and North American Securities Administrators
Association (NASAA) documentation of state registration methods. We
interviewed NASAA officials to discuss states’ registration methods and
Regulation A filings, and state securities administrators from seven states
to discuss their registration methods. We interviewed a non probability
sample of state administrators’ offices based on geographic diversity,
recent experience with Regulation A, and referrals from NASAA.
Specifically, we interviewed staff from the state securities administrators
of the following: Arkansas, Delaware, Florida, Ohio, Texas, Virginia, and
Washington. We also interviewed a non probability sample of three small
businesses from different industries that had issued Regulation A
offerings in multiple states from 2010 through May 2012 to provide a
diversity of perspectives.

To identify factors that may have affected the number of Regulation A
filings and how the number of filings may change in the future, we
reviewed published research and reports on blue sky laws, Regulation A
and Regulation D usage over time, and small businesses’ access to
equity capital. We also reviewed the JOBS Act, the Securities Exchange
Act of 1934, the Securities Act, and Regulations A and D. In addition, we
interviewed SEC officials and state securities administrators and
representatives from the states and small businesses mentioned above.
We also interviewed attorneys who have assisted small businesses with
obtaining Regulation A exemptions, academics, and organizations that
advocate on behalf of small businesses. We identified and judgmentally
selected these attorneys, academics, and organizations based on
referrals from the American Bar Association and NASAA, testimonies
before Congress, and evidence of having a view on blue sky laws. Based
on these interviews, we identified the most frequently identified factors
affecting the use of Regulation A.




Page 3                                          GAO-12-839 Securities Regulation
             We conducted this performance audit from April to July 2012 in
             accordance with generally accepted government auditing standards.
             These standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             Businesses can raise capital in the regulated securities markets through
Background   the public offering of securities, which is an offering of stock to the
             general public. For a small business, this could take the form of a
             registered public offering—an offering and sale of securities to the
             general public. Unless subject to a specific exemption, the Securities Act
             requires a business selling its securities to file a registration statement
             with SEC that includes a prospectus that discloses, among other things,
             the business’s operations, financial condition, security offering, risk
             factors, and management. Businesses that qualify as smaller reporting
             companies under SEC rules can file using disclosure requirements scaled
             for small businesses. 6 The Securities Act requires that information
             provided to investors in connection with the offer or sale of the business’s
             securities include material information necessary to make an investment
             decision.

             SEC’s Division of Corporation Finance (Corporation Finance) reviews
             registration statements for compliance with disclosure and accounting
             requirements. Corporation Finance does not evaluate the accuracy of
             disclosure, the merits of any transaction, or determine whether an
             investment is appropriate for any investor. According to SEC, this review
             process is not a guarantee that the disclosure is complete and accurate—
             responsibility for complete and accurate disclosure lies with the business
             and others involved in the preparation of a business’s filings. Through the
             course of its review, Corporation Finance may issue comments to a
             company to elicit compliance with applicable disclosure requirements. In
             response to those comments, a business may revise its financial
             statements or amend its disclosure to provide additional information.
             According to SEC, this comment process is designed to provide investors



             6
              A smaller reporting company is generally one whose outstanding publicly held stock was
             worth no more than $75 million at the end of the second quarter of its last fiscal year.




             Page 4                                                  GAO-12-839 Securities Regulation
                     with better disclosure necessary to make informed investment decisions,
                     thus enhancing investor protection, facilitating capital formation, and
                     enhancing the efficiency of the capital markets. When a business has
                     resolved all comments from Corporation Finance on a Securities Act
                     registration statement, the business may request that SEC declare the
                     registration statement effective so that it can proceed with the transaction.
                     A business cannot sell its securities until SEC declares the registration
                     statement effective.


SEC Forum on Small   The Small Business Investment Incentive Act of 1980 requires SEC to
Business Capital     conduct an annual forum on small business capital formation. 7 In 2011,
Formation            SEC held its 30th forum. According to the resulting report on the forum, a
                     major purpose of the forum is to provide a platform to highlight perceived
                     unnecessary impediments to small business capital formation and
                     address whether they can be eliminated or reduced. 8 Each forum seeks
                     to develop recommendations for government and private action to
                     improve the environment for small business capital formation, consistent
                     with other public policy goals, including investor protection. The report
                     made a number of recommendations, including a few related to
                     Regulation A, such as raising the ceiling to $50 million and preempting
                     Regulation A offerings from state blue sky law registration requirements.


Offerings under      Regulation A represents an exercise by SEC of its authority under section
Regulation A         3(b) of the Securities Act to exempt offerings of securities from
                     registration if it finds that registration “is not necessary in the public
                     interest and for the protection of investors by reason of the small amount
                     involved or the limited character of the public offering….” 9 SEC has
                     previously stated that the primary purpose in adopting Regulation A was
                     to provide a simple and relatively inexpensive procedure for small
                     business use in raising limited amounts of needed capital. 10 A business



                     7
                     Pub. L. No. 96-477, § 503, 94 Stat. 2275, 2292 (1980), 15 U.S.C. § 80c-1.
                     8
                      Securities and Exchange Commission, “2011 SEC Government-Business Forum on
                     Small Business Capital Formation: Final Report” (Washington, D.C.: March 2012).
                     9
                     15 U.S.C. § 77c(b).
                     10
                       GAO, Small Business: Efforts to Facilitate Equity Capital Formation, GAO/GGD-00-190
                     (Washington, D.C.: September 2000).




                     Page 5                                                 GAO-12-839 Securities Regulation
that relies on Regulation A must (1) file for SEC staff review an offering
statement that includes an offering circular and financial statements, and
(2) provide the offering circular to investors. The offering statement also
includes a notification and exhibits. The offering circular is expected to
include, among other things, information on the company; officers,
directors and key personnel; risk factors; use of proceeds; and plan for
distributing the securities.

SEC staff review the initial offering statement (for example, to determine if
it complies with disclosure requirements) and determines if the offering is
qualified (i.e., cleared by SEC). 11 We discuss the review process in more
detail later in this report. Like securities sold in registered offerings,
Regulation A securities can be offered publicly and are freely tradable in
the secondary market. In addition, Regulation A securities can be sold to
both accredited and nonaccredited investors. Accredited investors
include, among others, individuals whose net worth is more than $1
million (not including the value of their primary residence) or whose
individual income exceeds at least $200,000 for the most recent 2 years
and certain institutional investors, such as insurance companies, banks,
and corporations with assets exceeding $5 million. 12 Conversely,
nonaccredited investors include any investor that does not meet the
definition for an accredited investor.

Although Regulation A offerings are generally subject to state blue sky
laws, state exemptions for certain offerings might apply to a Regulation A
issuer. The Uniform Securities Acts of 1956 and 2002, which form the
basis for many blue sky laws, provide a series of exemptions from state-
level registration for certain types of securities or transactions. 13 For
example, one exemption applies to sales to institutional investors,
federally covered investment advisors, and other purchasers exempted
by a state rule. Furthermore, the JOBS Act preempts state registration
requirements for offerings under the new version of Regulation A if the



11
  According to SEC staff, Corporation Finance may review subsequent offering
statements by the same business.
12
 See 17 C.F.R. § 230.501(a).
13
  For the text of the 1956 Act with amendments through 1986, see
http://www.nasaa.org/wp-
content/uploads/2011/08/UniformSecuritesAct1956withcomments.pdf. For the 2002 Act,
with commentary, see http://www.law.upenn.edu/bll/archives/ulc/securities/2002final.pdf.




Page 6                                                   GAO-12-839 Securities Regulation
                  securities are sold on a national securities exchange or to “qualified
                  purchasers” as defined by SEC. 14


Offerings under   Regulation D is designed to (1) eliminate any unnecessary restrictions
Regulation D      that SEC rules place on small business issuers and (2) achieve uniformity
                  between state and federal exemptions to facilitate capital formation
                  consistent with protecting investors. 15 Regulation D contains three
                  separate but interrelated exemptive rules—Rules 504, 505, and 506—that
                  allow some businesses to offer and sell their securities without having to
                  register the securities with SEC. 16 As the following illustrates, the
                  exemptions differ in relation to the size of the offerings to which they
                  apply or the number and type of investors to which offerings may be
                  made.

                  •     Rule 504 has a maximum offering amount of $1 million in any 12-
                        month period and generally does not limit the number or type of
                        investors.

                  •     Rule 505 has a maximum offering amount of $5 million in any 12-
                        month period, and the sales are limited to 35 nonaccredited investors
                        and an unlimited number of accredited investors.

                  •     Rule 506 has no dollar limitation and offerings can be sold to up to 35
                        nonaccredited, sophisticated investors and an unlimited number of
                        accredited investors. 17




                  14
                     15 U.S.C. § 77r. According to SEC staff, Regulation A offerings currently are not
                  generally sold on national exchanges because current Regulation A may not be used by
                  companies with SEC reporting obligations and all companies whose securities are listed
                  on national exchanges have SEC reporting obligations. Moreover, the SEC has not yet
                  defined a qualified purchaser for the purpose of section 18 of the Securities Act. Therefore
                  it is unclear whether or to what extent these preemption provisions will remove new
                  Regulation A offerings from blue sky registration requirements.
                  15
                      GAO/GGD-00-190.
                  16
                      17 C.F.R. §§ 230.500-230.508.
                  17
                     A sophisticated investor is a purchaser that has enough knowledge and experience in
                  finance and business matters to evaluate the risks and merits of the prospective
                  investment or one that the issuer reasonably believes the purchaser comes within this
                  description. 17 C.F.R. § 230.506(b)(2)(ii).




                  Page 7                                                    GAO-12-839 Securities Regulation
                         While businesses do not have to register Regulation D offerings with
                         SEC, they must notify SEC of initial sales in the offering. SEC does not
                         comment on or approve these notifications. Businesses that make
                         offerings under Rules 504 or 505 must register them at the state level if
                         required in the state in which they are made, while offerings made under
                         Rule 506 are preempted from state registration by the National Securities
                         Markets Improvement Act of 1996. 18


Blue Sky Laws            In addition to federal securities laws, state securities laws are designed to
                         protect investors against fraudulent sales practices and activities. While
                         these laws can vary from state to state, they require securities issuers
                         (including businesses making small offerings) to register their offerings
                         with the state before the offerings can be sold in that state unless state
                         registration for the offering has been preempted by federal law or a state
                         registration exemption applies. According to state securities
                         administrators with whom we met, blue sky laws are beneficial because
                         they provide an additional layer of protection for potential investors.
                         Moreover, for states that have the statutory authority to assess the merit
                         of an offering, the state can assess the extent to which the offering is fair
                         to potential investors, and require the business to address the state’s
                         concerns before the offering is registered.



Regulation A Use Has
Decreased Since 1997

Trends in Regulation A   The number of Regulation A offerings filed and qualified has declined
Offerings                significantly after peaking in fiscal years 1997 and 1998 respectively (see
                         fig. 1). 19 The number of initial Regulation A offerings filed increased from
                         15 to 116 from 1992 through 1997. Similarly, the number of Regulation A
                         offerings qualified increased from 14 to 56 during this same time. These


                         18
                           Pub. L. No. 104-290, 110 Stat. 3416 (1996).
                         19
                           During the period we reviewed (fiscal years 1992-2011), businesses filed more initial
                         offering statements for review than were qualified. Small businesses can abandon or
                         withdraw filings before SEC completes the review process. Also, an offering could be
                         submitted to SEC for review in one fiscal year and cleared in a different fiscal year. We
                         discuss abandoned or withdrawn offering statements in greater detail later in this report.




                         Page 8                                                    GAO-12-839 Securities Regulation
                                         increases followed SEC’s adoption of rules that raised the ceiling for
                                         Regulation A offerings from $1.5 to $5 million as well as allowing
                                         Regulation A offerors to “test the waters” by soliciting investor interest in
                                         the security before incurring preparation costs for the offering statement.
                                         However, since 1997, the number of initial Regulation A offerings filed
                                         decreased significantly—from 116 in 1997 to 19 in 2011. The number of
                                         qualified offerings also dropped dramatically after 1998, decreasing from
                                         57 in 1998 to 1 in 2011. SEC has not evaluated the causes of changes in
                                         the use of Regulation A. Securities attorneys with whom we met stated
                                         that the decrease in filings after 1997 could be attributed to a number of
                                         different factors, including the increased attractiveness of Regulation D.
                                         The National Securities Markets Improvement Act of 1996 preempted
                                         state registration requirements for certain other categories of securities
                                         offerings (including Rule 506 of Regulation D)—potentially making these
                                         other options more attractive to businesses.

Figure 1: Number of Regulation A Offerings Filed and Qualified, Fiscal Years 1992 through 2011




                                         Note: Data on Regulation A offerings filed are based on initial offerings.


                                         Initial qualified Regulation A offerings have varied in size and purpose
                                         and represented a wide range of business lines. Specifically, from 2002
                                         through 2011, the maximum offering amounts for the 82 qualified
                                         Regulation A offerings ranged from $100,000 to $5 million. Over one-third



                                         Page 9                                                             GAO-12-839 Securities Regulation
of these offerings were for $5 million. According to SEC data, the
businesses intended to use the proceeds for purpose such as
capitalization, debt repayment, research and development, and marketing
and advertising. During this period, different types of businesses filed
offerings that qualified for exemption under Regulation A—for example, a
software database service company, industrial design company, senior
assisted living facility, and financial services company. These businesses
were either corporations or limited liability corporations that were located
throughout the United States. In addition, about 24 percent of the
qualified Regulation A offerings were associated with start-up businesses.

Businesses have used Regulation D exemptions and registered initial
public offerings to a greater extent than Regulation A in recent years. We
summarize the trends for these types of offerings and provide comparison
with Regulation A qualified filings in table 1.

•   Regulation D: According to SEC data, there were over 15,500 initial
    Regulation D filings for up to $5 million in fiscal years 2010 and 2011.
    In comparison, there were 8 qualified initial Regulation A offerings
    during this period. According to a recent report prepared for SEC, the
    median Regulation D offering was $1 million from January 2009
    through March 2011 and the overwhelming majority of Regulation D
    issuers have been issuing securities under Rule 506. 20

•   Registered Public Offerings: Businesses may decide to sell their
    securities through a registered public offering rather than seeking a
    Regulation A or another type of exemption—meaning that they must
    complete the registration process under the Securities Act. Data show
    that businesses more frequently opted to conduct a registered public
    offering than seek a Regulation A exemption. From fiscal years 2008
    through 2011, the number of initial registered public offerings ranged
    from 536 to 195 each year, while the number of qualified initial
    Regulation A offerings statements ranged from 1 to 8. SEC staff said




20
  Vlad Ivanov and Scott Bauguess, “Capital Raising in the U.S.: The Significance of
Unregistered Offerings Using the Regulation D Exemption,” report prepared for SEC
Division of Risk Strategy and Financial Innovation (Washington, D.C.: February 2012).
Rule 506 filings under Regulation D are preempted from state registration by the National
Securities Markets Improvement Act of 1996.




Page 10                                                  GAO-12-839 Securities Regulation
                                 that some businesses may switch to a registered public offering
                                 instead of completing the Regulation A filing process. 21

                           Table 1: Number of Qualified Regulation A Offerings and Regulation D and
                           Registered Public Offerings Filed for under $5 Million, Fiscal Years 2008 through
                           2011

                             Type of securities offering                           2008        2009         2010          2011
                            Regulation A                                               8           3             6            1
                            Regulation D                                            N/A          N/A        7,517        8,194
                            Registered Public Offerings                             536          246          195          312
                           Source: GAO analysis of SEC data.


                           Note: Regulation D data are not available for fiscal years 2008 and 2009. Regulation D data include
                           notices filed under Rules 504, 505, and 506 but does not include notices for pooled investment funds,
                           those claiming only a Section 4(5) exemption, and those reporting an indefinite offering amount. All
                           data represent initial offerings.




Regulation A Filing Is a   SEC’s process for reviewing filings for exemption through Regulation A
Multi-Step Process That    includes multiple steps. 22 First, Corporation Finance staff review the
Some Businesses Do Not     offering statement, which includes financial statements that have been
                           prepared according to generally accepted accounting principles. 23 More
Complete
                           specifically, staff review filings to determine whether disclosures appear
                           to be consistent with SEC rules and applicable accounting standards.
                           Staff can then comment on the offering statement. That is, they may note
                           deficiencies with the offering documents or ask for clarifications.
                           According to SEC staff, deficiencies could include inadequate disclosure
                           or incomplete financial statements. The goal of SEC staff is to provide
                           comments on Regulation A filings within 27 calendar days of the filing
                           date. Businesses are then given the opportunity to provide written
                           responses and, if appropriate, amend their filing based on SEC’s
                           comments. Depending on the nature of the issue, SEC’s concern, and the
                           response from the business, agency staff may issue additional comments
                           following their review of the response. This comment and response


                           21
                             According to SEC staff, businesses may stop the Regulation A filing process for a
                           variety of reasons.
                           22
                             The Financial Industry Regulatory Authority (FINRA) may review offerings that utilize a
                           broker-dealer in the placement of the securities. These offerings must be filed with FINRA
                           within one business day of filing with SEC.
                           23
                             If a business has audited financial statements they must be used.




                           Page 11                                                         GAO-12-839 Securities Regulation
process continues until all SEC comments are resolved, at which time
SEC qualifies the filing.

The time period for SEC to complete its review process can be lengthy
depending on the quality and completeness of the offering statement, the
extent of SEC’s comments on the offering statement, and the business’s
response. According to SEC data, from 2002 through 2011 it took an
average of 228 days for 82 offering statements to complete the review
process, starting from the date the Regulation A exemption was filed
through the date SEC qualified the filing. SEC staff told us that the length
of the review process depends largely on the quality of the filing initially
and how quickly and thoroughly the business responds to their
comments. Because of the amount of time it can take to complete SEC’s
review process, an issuer whom we interviewed said that they
concurrently filed their Regulation A offerings with SEC and the
appropriate state(s).

A business can opt not to continue seeking exemption through Regulation
A at any point during SEC’s review process. SEC may declare an offering
statement to be “abandoned” when the business fails to amend the
offering statement for a lengthy time period and fails to respond to an
abandonment notice. A filing may be “withdrawn” if the business informs
SEC that it no longer wants to proceed and requests the offering
statement be withdrawn and the SEC consents to the withdrawal. 24
Between 1992 and May 2012, 214 of the 1,006 Regulation A filings made
with SEC were abandoned or withdrawn. 25 As discussed earlier, SEC
staff stated that they have received anecdotal information that some
businesses abandon or withdraw from the Regulation A filing process to
raise capital through different means, such as the issuance of registered
public offering.




24
 The conditions governing the withdrawal or abandonment of filings are stated in
Regulation A. See 17 C.F.R. § 230.259.
25
 SEC does not track the reasons for which a business abandoned or withdrew from the
Regulation A filing process.




Page 12                                                 GAO-12-839 Securities Regulation
                       Although states employ a limited number of methods for registering
States’ Methods of     securities offerings, specific requirements and processes vary. States
Registering            generally use one of two methods for registering Regulation A
                       securities—registration by qualification or registration by coordination. 26
Regulation A
Securities Offerings   •    Registration by qualification is similar to a securities registration with
                            SEC under the Securities Act. Specifically, the issuer submits required
Vary                        documents to the state securities agency, and the offering is subject
                            to approval by that agency under the state’s standards.

                       •    Registration by coordination is available to issuers that have
                            registered their offerings with SEC. 27 Under this method, issuers file
                            copies of their SEC registration statement and any amendments with
                            the state agency for review. A registration by coordination usually
                            becomes effective at the state level at the time it becomes effective at
                            the federal level. Although the content of the filing and the procedure
                            by which it becomes effective is streamlined in this process, it is still
                            subject to state administrator review.

                       While all states conduct disclosure reviews of Regulation A securities
                       offerings, most states also conduct merit reviews. 28 Disclosure reviews
                       follow the federal approach, requiring only full disclosure of all material
                       information in offering statements. A merit review is an analysis of the
                       offering using substantive standards (for example, the disparity in the
                       price paid by promoters for their shares and the price paid by public
                       investors). If an offering is considered unfair in certain respects, a state
                       securities administrator will issue comments on the substance of the
                       offering, and, as in SEC’s review process, the business has an
                       opportunity to respond to the state’s comments. According to NASAA, if


                       26
                         The Uniform Securities Act of 1956 provides for registration by notification, qualification,
                       or coordination. Registration by “notification” is reserved for issuers with demonstrated
                       performance and financial stability. However, according to NASAA officials, this
                       registration method is generally no longer used.
                       27
                         Regulation A offerings are exempt from federal registration but go through a simplified
                       federal process. As a result, they generally are not eligible for registration by coordination.
                       Nevertheless, one state we interviewed said that it allowed registration by coordination
                       and NASAA officials also told us some states do permit Regulation A offerings to be
                       registered by coordination.
                       28
                         SEC and NASAA do not have up-to-date information on the number of merit review
                       states. However, NASAA officials and others with whom we spoke stated that most states
                       conduct merit reviews.




                       Page 13                                                     GAO-12-839 Securities Regulation
the business does not adequately address the state’s concerns, the state
securities administrator may refuse to declare the registration statement
effective in that state.

Merit reviews have varying degrees of stringency, with some states
applying stricter standards than others. For example, according to one of
the state securities administrators with whom we met, the state’s blue sky
laws require businesses that seek to offer securities to have a consistent
record of earnings for the preceding 3 fiscal years. Other states may not
have the same requirements for records of earnings. According to a state
securities administrator official from a merit state, that state may require
proceeds from investors to be placed in escrow until a certain level of
proceeds is reached. For example, where an offering provides that a
certain level of securities must be sold before proceeds are released to
an issuer, the state requires the issuer to place all proceeds from
investors in that state in an escrow account with a depository in that state
until the level is reached. The funds cannot be released without
authorization from the state agency. Although state registration processes
can improve investor confidence, they can be costly and time-consuming
for businesses seeking to raise capital according to issuers and securities
attorneys with whom we met.

Recognizing these potential costs, NASAA has developed and
encouraged states’ use of methods to make registration of securities,
including Regulation A offerings, more streamlined for multistate
offerings. For example, 44 states allow businesses to use a standard form
(called the SCOR form) to register their security offering. The SCOR form
was adopted by NASAA in 1996 and is designed to simplify and reduce
the costs to businesses of registering their securities. SCOR offers a
simplified question-and-answer registration format and becomes the main
disclosure document for securities offerings at the state level. Businesses
that are exempt from federal registration under Regulation A can use the
SCOR form in those states that accept it.

As another means of streamlining the state registration process, some
states participate in coordinated review programs—also known as
regional reviews. A regional review expedites multistate registration,
thereby potentially saving issuers time and money. Regional reviews are
available in the New England, Mid-Atlantic, Midwest, Southwestern,
Southeastern, and Western regions. Each state participating in the
program agrees to apply uniform standards regarding such matters as the
time frame for issuing comments and the type of comments to be issued



Page 14                                         GAO-12-839 Securities Regulation
                       in reviewing registration applications. According to NASAA, approximately
                       37 states participate in regional reviews.

                       The efficacy of the efforts to streamline the state registration process is
                       unknown. According to several of the state securities administrators
                       whom we interviewed, they have not participated in regional reviews or
                       used SCOR forms for Regulation A filings because there have been so
                       few Regulation A filings in their state. Similarly, a researcher and
                       securities attorneys with whom we met noted that some of these
                       methods, like SCOR, have not been widely used because of the low
                       number of Regulation A filings in recent years.

                       According to officials from NASAA, changes to the states’ registration
                       processes and requirements are likely needed to coincide with the new
                       exemption for larger offerings under the JOBS Act. NASAA staff stated
                       that they recognize that issuers may want to conduct nationwide offerings
                       under the larger federal exemption, which increases the need for uniform
                       state-level registration requirements for such larger offerings. In
                       particular, the increased ceiling amount could encourage smaller
                       community banks as well as those businesses that do not want to limit
                       themselves to accredited investors or investors in a single state to pursue
                       a Regulation A filing. Officials from organizations that work to develop
                       capital intensive businesses agreed that in order for small businesses to
                       use the Regulation A exemption, the process to register in multiple states
                       needed to be more streamlined and entail minimal cost and greater
                       efficiency. NASAA plans to work with the states to promote a more
                       uniform state-level registration process for larger offerings. In addition,
                       NASAA plans to coordinate with SEC on new disclosure forms for larger
                       offerings—with the goal of developing a disclosure form that can be used
                       at the federal and state level. According to NASAA officials, the time
                       frame for making these and other changes is unknown, as the states
                       must wait for SEC to issue certain rules under the JOBS Act.


                       According to the stakeholders with whom we met, multiple factors may
Multiple Factors May   have influenced small businesses’ decision to use Regulation A. These
Have Affected Use of   factors included the type of investors businesses sought to attract, the
                       process of filing the offering with SEC, state securities laws, and the cost-
Regulation A and       effectiveness of Regulation A relative to other SEC exemptions. Views
Views on Future Use    vary on whether use of Regulation A will increase, with some
                       stakeholders stating that interest will increase as a result of the $50
Are Mixed              million ceiling, and others stating that the requirement for issuers to



                       Page 15                                          GAO-12-839 Securities Regulation
                             register the securities at the state level will continue to deter small
                             businesses from using the exemption.


Factors That May Have        Multiple factors appear to have influenced whether small businesses used
Affected Regulation A Use    Regulation A to raise equity capital, according to recent issuers and other
                             stakeholders with whom we met. Regulation A has been attractive to
                             small businesses because, among other things, they can sell the
                             securities to nonaccredited investors. However, other factors, including
                             SEC’s process for qualifying Regulation A filings, the requirement for
                             Regulation A issuers to comply with blue sky laws, and the benefits
                             associated with Regulation D have played a role in limiting the use of
                             Regulation A to date.

Type of Investors Sought     Small businesses that wanted nonaccredited investors to purchase their
                             securities have opted to use Regulation A, according to recent issuers of
                             Regulation A securities as well as other stakeholders with whom we met.
                             One issuer stated that working with investors that supported its social
                             mission was important, and that these investors were not necessarily
                             accredited. Another issuer stated that the business wanted to sell its
                             securities to specific investors with whom it had existing relationships—
                             which also were not necessarily accredited. In both cases, the issuers
                             explained that had they used a different SEC exemption to raise capital,
                             such as Regulation D, they would not have been able to sell their
                             securities to their desired investors. 29 Representatives of one issuer also
                             noted that they wanted to offer their securities to the public, and
                             Regulation A enabled them to do so. This company offered its securities
                             on the internet. 30 Securities attorneys who have experience in assisting
                             small businesses raise equity capital similarly stated that Regulation A
                             has been attractive to businesses that desired to make their securities
                             available to members of the businesses’ local community.

SEC Process for Qualifying   The process of filing a Regulation A offering with SEC, and working with
Regulation A Offerings       SEC to qualify the filing, can be time-consuming and costly, according to



                             29
                               Rules 505 and 506 of Regulation D permit issuers to sell to only 35 non-accredited
                             investors.
                             30
                               Prior to the JOBS Act, general solicitation or advertising was not allowed for Regulation
                             D offerings. The JOBS Act allows the general solicitation and advertisement of a Rule
                             506 offering, as long as all purchasers are accredited investors.




                             Page 16                                                   GAO-12-839 Securities Regulation
                          several stakeholders with whom we met. For example, several
                          stakeholders, (including a recent Regulation A issuer, attorneys who
                          worked with recent issuers, and a small business advocate) described the
                          process as detailed and time consuming; two of these stakeholders
                          described the process as akin to filing a registered public offering. Other
                          stakeholders noted that the process of filing a Regulation A offering is
                          considered in the industry to be a “mini-registration.” Stakeholders also
                          noted that because the process of receiving and addressing comments
                          from SEC could entail multiple rounds that involved attorneys and
                          accountants, it could be costly to the small businesses involved. Two of
                          the Regulation A issuers with whom we met stated that SEC required
                          them to address comments related to their financial statements, and that
                          such comments required the issuers to work with their accountants to
                          clarify accounting-related information, which was costly. According to
                          SEC, its process of qualifying Regulation A offerings is designed to
                          protect investors. SEC staff stated that in some cases the businesses that
                          were seeking exemption through Regulation A did not fully address SEC’s
                          comments and requests for clarification, which resulted in additional
                          comment letters as well as informal communication.

Complying with State      Identifying and addressing the securities registration requirements of
Securities Registration   individual states is both costly and time-consuming for small businesses,
Requirements              according to research, an advocate for small businesses, and securities
                          attorneys with whom we met. For example, one academic who has
                          researched and written extensively about blue sky laws believes that they
                          impose significant costs on small businesses and impair capital
                          formation. 31 According to this researcher, the costs to issuers of
                          addressing blue sky laws have been a significant factor in the historic
                          underuse of Regulation A by small businesses. 32 An advocate for small
                          businesses as well as securities attorneys with whom we met agreed with
                          this assessment. An organization that advocates for small businesses
                          noted that small businesses have limited resources; thus, the legal
                          expenses associated with researching and complying with state securities
                          laws can be a significant burden. Securities attorneys who have
                          experience in assisting small businesses with obtaining the Regulation A



                          31
                           Rutheford B. Campbell, Jr., “Blue Sky Laws and the Recent Congressional Preemption
                          Failure,” 22 Journal of Corporation Law (Winter 1997).
                          32
                           Rutheford B. Campbell, Jr., “Regulation A: Small Businesses’ Search for ‘Moderate
                          Capital,’” 31, no. 1 Delaware Journal of Corporate Law (2006).




                          Page 17                                                GAO-12-839 Securities Regulation
                           exemption noted that their legal fees were relatively high due to the need
                           to research individual state’s blue sky laws. For example, one attorney
                           who works with start-up technology firms stated that his fees associated
                           with Regulation A were high because of the need to research state laws,
                           prepare offering documents for individual states, and address comments
                           both from SEC and some states.

                           Some states’ securities registration requirements deterred small
                           businesses from registering in those states. For example, a
                           representative of one of the Regulation A issuers with whom we met
                           stated that the issuer was deterred from registering in a specific state
                           because of the state’s requirement for issuers to have a consistent record
                           of earnings for the preceding three fiscal years. He stated that because
                           the business was relatively new and had not yet become profitable—
                           particularly during the recent financial crisis—it could not meet this
                           requirement. According to the securities administrator for this state, the
                           state’s securities laws are intended to help ensure fair, just, and equitable
                           offerings for investors, but other means exist to meet the state’s
                           requirements. As another example, one issuer opted to withdraw its
                           application from a state that provided extensive comments on the
                           business’s offering. According to an official from this state’s securities
                           administrator, small businesses withdraw from the process of registering
                           with the state, likely to avoid having to address the state’s comments.

                           Merit review states are viewed by some stakeholders as presenting
                           greater challenges for small businesses that want to register Regulation A
                           securities. As previously discussed, states assess the fairness of
                           offerings in merit reviews and require businesses to address their
                           comments before securities can be registered. For example, we met with
                           securities attorneys who had experience obtaining Regulation A
                           exemptions for small businesses. Some of the attorneys stated that they
                           advised their clients to avoid registering in merit states. The legal counsel
                           for one recent Regulation A issuer noted that after researching merit
                           review states and contacting the securities administrator for one of these
                           states, it became evident that the review processes in such states would
                           be time-consuming and burdensome to address. The counsel advised,
                           and the issuer agreed, to avoid attempting to register in any merit states.
                           As noted earlier, according to NASAA officials, most states perform merit
                           reviews. Issuers with whom we met stated that they registered in 3 to 11
                           states.

Advantages of Exemptions   Another SEC exemption—Rule 506 of Regulation D—historically has
under Regulation D         been preferable to Regulation A because of its time and cost benefits and


                           Page 18                                          GAO-12-839 Securities Regulation
lack of offering ceiling, according to an organization that advocates on
behalf of small businesses and securities attorneys with experience in
working with small businesses to raise equity capital. For example, one
small business advocate stated that a small business has little reason to
use Regulation A, particularly if it can use Rule 506 of Regulation D,
which preempts blue sky laws. That is, a business that uses Rule 506 of
Regulation D can raise equity capital without having to register the
security in individual states, saving the business both time and money.
Securities attorneys with whom we met agreed that Rule 506 of
Regulation D is a preferable method of raising capital for small
businesses because it is more cost-effective. As an example, one
attorney noted that technology firms have been more inclined to use Rule
506 of Regulation D over Regulation A because the legal costs were
lower, and such offerings could be made more quickly. For the technology
industry, there are risks associated with time; thus, these firms want to
obtain capital quickly. SEC staff stated that for Regulation D, businesses
are required to notify SEC of the offerings, and that SEC does not
generally provide comments on the notifications. 33 Securities attorneys,
staff from the offices of some state securities administrators, and other
stakeholders with whom we met noted that Regulation D in general is
preferable to Regulation A because the process of filing the required
information with SEC is quicker and less burdensome.

According to stakeholders whom we interviewed, Rule 506 of Regulation
D also has been viewed as preferable to Regulation A because it did not
have a maximum offer ceiling. Staff from some of the state securities
administrator’s offices with whom we met stated that use of Regulation
A’s had been low because the maximum offering amount was too small,
and Regulation A was not as cost-effective as other financing
mechanisms. Some securities attorneys with whom we met similarly
described the Regulation A ceiling as too low, and stated that Rule 506 of
Regulation D was very attractive in comparison. Securities attorneys also
noted that the legal costs associated with Regulation A offerings were
greater than those associated with Regulation D offerings. In addition, we
previously reported that one of the reasons given for the limited use of
Regulation A was that it was rare for an issuer to attract an underwriter for




33
  SEC requires companies to file a notice of an exempt offering with SEC within 15 days
after the first sale of securities in the offering.




Page 19                                                 GAO-12-839 Securities Regulation
                            an offering under $5 million. 34 An advocate for small businesses and
                            securities attorneys with whom we met agreed that offerings of $5 million
                            or less were viewed unfavorably by underwriters because they were too
                            small in size to be profitable.


Views on Future Growth of   The number of small business that seek exemption through Regulation A
Regulation A Filings Were   may increase as a result of the JOBS Act’s requirement for SEC to
Mixed                       increase the maximum offering amount to $50 million, according to staff
                            from some state securities administrators’ offices, a small business
                            advocate, and securities attorneys whom we interviewed. A small
                            business advocate with whom we met stated the higher ceiling increase
                            could attract those businesses for which the $5 million ceiling was too
                            low. Moreover, this advocate noted that some small businesses may want
                            to enter the securities market but are not yet prepared to register an
                            offering with SEC; thus, Regulation A would be a good way for them to
                            enter the market. The higher ceiling also could increase underwriters’
                            interest in Regulation A, according to some stakeholders we interviewed.
                            While investment banks are not interested in $5 million offerings, they are
                            more likely to be interested in offerings that are closer to $50 million,
                            according to some stakeholders.

                            Under the JOBS Act, future Regulation A offerings generally remain
                            subject to state blue sky laws, which may deter future use by small
                            businesses. As previously discussed, addressing and complying with
                            securities registration requirements of states can be costly and time-
                            consuming, according to several stakeholders with whom we met. Recent
                            Regulation A issuers, a small businesses advocate, and securities
                            attorneys we interviewed stated that researching individual state laws and
                            registering with multiple states significantly increased the legal and
                            accounting costs associated with Regulation A offerings. As a result, even
                            with the increased attractiveness of the $50 million ceiling, blue sky
                            requirements may still dampen small business’ interest in Regulation A.
                            However, some stakeholders also noted that with the increased ceiling, a
                            Regulation A offering’s transaction costs (attorney fees and accounting
                            costs) will represent a smaller proportion of the overall offering costs.



                            34
                              GAO/GGD-00-190. An underwriter is a brokerage firm, securities dealer, or investment
                            banking firm that sells company securities to investors, other brokerage firms, securities
                            dealers, and investment banking firms.




                            Page 20                                                   GAO-12-839 Securities Regulation
                  In addition, Rule 506 of Regulation D may continue to be preferable to
                  Regulation A, according to securities attorneys, staff from some of the
                  state securities administrator’s offices, and another stakeholder whom we
                  interviewed. Most notably, businesses that use Rule 506 of Regulation D
                  do not to have to have the offering qualified by SEC or register in
                  individual states, and can raise unlimited amounts of capital. Furthermore,
                  the JOBS Act contains provisions that will allow issuers to make general
                  solicitations and advertise offerings made under Rule 506 exclusively to
                  accredited investors, which may further add to the appeal of Regulation D
                  offerings. 35


                  We provided a draft of this report to SEC and NASAA for their review and
Agency Comments   comment. Both provided technical comments, which we incorporated as
                  appropriate. NASAA also provided written comments, which are reprinted
                  in appendix I. In its letter, NASAA concurred with our finding that multiple
                  factors have affected use of Regulation A, and suggested that the primary
                  reason for its limited use is the “mini-public offering” process that
                  businesses must complete. Stakeholders with whom we met did not
                  consistently cite any single factor as the primary reason for the limited
                  use of Regulation A. As noted in the report, NASAA stated that it will be
                  working to develop model state registration requirements for the larger
                  Regulation A offerings allowed under the JOBS Act, and NASAA
                  suggested that further changes to federal securities laws, particularly
                  Regulation A, should be withheld until states implement a new system to
                  address the JOBS Act's changes. In considering any changes, NASAA
                  stressed the importance of balancing the needs of investors with the
                  needs of businesses seeking to raise capital.


                  We are sending copies of this report to the Chairman of the Securities
                  and Exchange Commission, the appropriate congressional committees,
                  and other interested parties. In addition, the report will be available at no
                  charge on GAO’s website at http://www.gao.gov.




                  35
                    Pub. L. No. 112-106, § 201, 126 Stat. 313, 15 U.S.C. § 77d note. General solicitations
                  refer to any form of public solicitation or general advertising in connection with an offering.




                  Page 21                                                     GAO-12-839 Securities Regulation
If you or your staffs have any questions about this report, please contact
me at (202) 512-8678 or clowersa@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix II.




A. Nicole Clowers
Director, Financial Markets
   and Community Investment




Page 22                                         GAO-12-839 Securities Regulation
Appendix I: Comments from the North
             Appendix I: Comments from the North
             American Securities Administrators
             Association


American Securities Administrators
Association




             Page 23                               GAO-12-839 Securities Regulation
Appendix I: Comments from the North
American Securities Administrators
Association




Page 24                               GAO-12-839 Securities Regulation
Appendix II: GAO Contact and Staff
                  Appendix II: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  A. Nicole Clowers, (202) 512-8678 or clowersa@gao.gov
GAO Contact
                  In addition to the individual named above Andrew Pauline, Assistant
Staff             Director, Elizabeth Jimenez, Wati Kadzai, Marc Molino, Lisa Moore,
Acknowledgments   Barbara Roesmann, and Henry Wray made major contributions to this
                  report.




(250675)
                  Page 25                                     GAO-12-839 Securities Regulation
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