Release No. 33-6961

Release No. 34-31306

Release No. 39-2293

October 9, 1992

Removal of Rule 504a

AGENCY: Securities and Exchange Commission.

ACTION: Final Rules.

SUMMARY: The Securities and Exchange Commission (Commission) today repealed Rule 504a under the Securities Act of 1933 (Securities Act). This action eliminates the availability of Rule 504-type offerings for blank check companies.

EFFECTIVE DATE: November 16, 1992. No offers or sales should be made pursuant to the exemption provided by Rule 504a after [insert effective date].

FOR FURTHER INFORMATION CONTACT: Richard K. Wulff, (202) 272-2644, Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION:

As part of the Small Business Initiatives adopted earlier this year, ¹ the Commission expanded the exemption provided by Rule 504 ² under Regulation D. ³ The expanded exemption provided by revised Rule 504 was not made available to blank check companies--development stage companies with no specific business plan or purpose or a business plan to engage in mergers or acquisitions with unidentified companies, or other entities. At the same time, the Commission proposed the repeal of Rule 504a, ⁴ a redesignation of previously existing Rule 504 made available for offerings by blank check companies. ⁵ The Commission today repealed Rule 504a.

I. BACKGROUND

The SEC Small Business Initiatives, as initially proposed, included an expansion of the Rule 504 exemption from registration under the Securities Act of 1933 ⁶ which would have been available to all issuers. Based upon the Commissions experience, as well as concerns raised in the public comment process following the proposal of the Small Business Initiatives, revised Rule 504 was not made available to blank check companies. While the Rule as constituted prior to the revisions continued to be available to blank check companies--through the operation of redesignated Rule 504a--it was proposed that the availability of that exemption to blank check companies also be eliminated.

II. REPEAL OF RULE 504a

Blank check offerings have been found to be a common vehicle for fraud and manipulation. Focusing on demonstrated abuses in connection with blank check offerings, Congress, in the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, ⁷ found that such offerings cause harm to investors and directed the Commission to adopt rules governing registration statements filed in connection with blank check offerings. ⁸ The Commission responded with the adoption of a special regulatory scheme for registered blank check offerings. ⁹

The only commenter addressing the proposed repeal of Rule 504a supported the exclusion of blank check companies from Rule 504-type offerings. Based upon the factors discussed above and the lack of public comment in opposition to the proposal, the Commission today repealed Rule 504a. As a result of this action, as well as the provision in Rule 504 excluding development stage companies with no specific business plan or purpose or a business plan to engage in mergers or acquisitions with unidentified companies or other entities from the use of that exemption, blank check companies are now excluded from any Rule 504-type offerings.

III. AVAILABILITY OF THE FINAL REGULATORY FLEXIBILITY ANALYSIS

The Commission has prepared a Final Regulatory Flexibility Analysis, pursuant to the requirements of the Regulatory Flexibility Act, ¹⁰ regarding the rule repealed today. A copy of the Final Regulatory Flexibility Analysis may be obtained from Twanna M. Young, Office of Small Business Policy, Division of Corporation Finance, Securities and Exchange Commission, 450 Fifth Street, N. W., Stop 7-8, Washington, D.C. 20549, (202) 272-2644.

IV. COST-BENEFIT ANALYSIS

No specific empirical data was submitted in response to the Commissions invitation to provide information on the costs and benefits of the proposed revisions.

V. EFFECTIVE DATE

The repeal of Rule 504a is effective [insert date 30 days after publication in the Federal Register]. As such, no offers or sales should be made in reliance upon the exemption provided by Rule 504a after [insert date 30 days after publication in the Federal Register].

VI. STATUTORY BASIS, TEXT OF PROPOSALS AND AUTHORITY

The amendments to the Commissions rules and forms are being adopted pursuant to sections 3(b), 6, 7, 8, 10, and 19(a) of the Securities Act.

List of Subjects

17 CFR Parts 210, 229, 230, 240 and 249

Reporting and recordkeeping requirements, Securities.

17 CFR Parts 260

Trusts and trustees.

For the reasons set out in the preamble, title 17, chapter II of the Code of Federal Regulations is amended as follows:

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

1. The authority citation for part 230 continues to read as follows:

Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 7sss, 78c, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, and 80a-37, unless otherwise noted.

2. In §230.502 by amending paragraph (b)(1) by removing the words §230.504a and adding §230.504 and in the note to paragraph (b) by removing the final sentence and in paragraph (c) by removing the words §230.504a(b)(1) and adding the words §230.504(b)(1) and in paragraph (d) by removing the words 504a(b)(1) and adding the words 230.504(b)(1) and in the flush text of paragraph (d) by removing the words §§230.502(b)(2)(vii) and 230.504a(b)(2)(ii) and adding the words §230.502(b)(2)(vii) requires.

3. By removing §230.504a.

PART 210--FORM AND CONTENT OF AND REQUIREMENTS FOR FINANCIAL STATEMENTS, SECURITIES ACT OF 1933, SECURITIES EXCHANGE OF 1934, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, INVESTMENT COMPANY ACT OF 1940, AND ENERGY POLICY ACT OF 1975

4. The authority citation for part 210 continues to read as follows:

Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77aaa(25), 77aaa(26), 78l, 78m, 78n, 78o, 78w(a), 79e(a) (b), 79n, 79t, 80a-8, 80a-20, 80a-29, 80a-30, 80a-37, unless otherwise noted.

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND CONSERVATION ACT OF 1975--REGULATION S-K

5. The authority citation for part 229 continues to read as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77aa[25], 77aa[26], 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss, 78l, 78m, 78n, 78o, 78w, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise noted.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934

6. The authority citation for Part 240 continues to read as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p, 78s, 78w, 78x, 78ll(d), 79q, 79t, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, and 80b-11, unless otherwise noted.

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

7. The authority for Part 249 continues to read as follows:

Authority: 15 U.S.C. 78a, et seq., unless otherwise noted.

PART 260--GENERAL RULES AND REGULATIONS, TRUST INDENTURE ACT OF 1939

8. The authority citation for Part 260 continues to read as follows:

Authority: 15 U.S.C. 77eee, 77ggg, 77nnn, 77sss, 78ll(d), 80b-3, 80b-4, and 80b-11.

PARTS 210, 229, 230, 240, 249, AND 260--[AMENDED]

9. In addition to the amendments set forth above, in 17 CFR parts 210, 229, 230, 240, 249, and 260 all references to Rule 504 and 504a are revised to read Rule 504.

By the Commission.

¹ See Securities Act Release No. 6949 (July 30, 1992) [57 FR 36442].

² 17 CFR 230.504.

³ 17 CFR 230.501 et seq.

⁴ 17 CFR 230.504a.

⁵ See Securities Act Release No. 6950 (July 30, 1992) [57 FR 36502].

⁶ 15 U.S.C. §§77a et seq.

⁷ S.647, Pub. L. 101-429.

⁸ See H.R. Rep. No. 101-617; 101 Cong., 2d Sess. 10-11, 15 (1990).

⁹ See Securities Act Release No. 6932 (April 28, 1992).

¹⁰ 5 U.S.C. 604.