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Faith Anderson

Department of Financial Institutions
Securities Division
State of Washington
Dear Ms. Anderson:
Thank you for the opportunity to comment on the Proposed Rule-Making relating to
notice #ling requirements for o%erings made under Tier 2 of Regulation A, WAC 46018A-200 (the “Proposed Rules”).
While we understand that the State of Washington has a legitimate interest in
knowing what securities are being o%ered in the state, we are concerned that the
Proposed Rules (a) would have a negative impact on the ability of early-stage
companies to raise capital under Regulation A and (b) are not consistent with the
provisions of Section 18 of the Securities Act of 1933.
Negative Impact on Early-Stage Capital-Raising
At CrowdCheck, we work with a number of early-stage companies, some of them
complete startups. When the SEC adopted its recent changes to Regulation A, these
companies were very excited to have the ability to “test the waters” (“TTW”) to see
whether it would be worthwhile for them to make a Regulation A o%ering. Using free
or low-cost methods of communication, such as social media and communications
with their own customer lists, these companies would be able to determine whether
there would be any interest in their securities, what dollar amount of interest there
might be, the type of securities that might be most appropriate, and the terms of
those securities. Armed with this information, the companies could make an
informed decision as to whether it was worth employing professional assistance to
make the necessary regulatory #lings.
The Proposed Rules require a notice #ling “prior to the initial o%er in this state.” We
understand that the State of Washington interprets “o%er” consistently with the
federal securities laws, with the result that TTW activities are deemed to be o%ers.
Accordingly, the Proposed Rules would require a notice #ling in Washington, and
payment of the relevant fees, prior to any TTW activities in Washington, which
would include communications on social media and over the internet.
We understand that Washington’s approach with respect to fees can be :exible, and
that in the TTW period, when a company does not know the exact dollar amount to
be o%ered, it may be possible for a nominal fee of $100 or so to be paid, with the
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full amount of fees to be paid later, when the company has a better idea of the size
of the o%ering. Despite this :exibility, however, if other states were to follow
Washington’s lead (which we understand to be likely), the imposition of even a
nominal fee of $100 would mean that a startup company with limited resources,
relying on free and open communication tools to test the waters, would have to pay
total state fees in the amount of $5,000 in order to #nd out whether it was worth
paying state fees to make a Regulation A o%ering.
In addition to the out-of-pocket cost of notice #ling fees, companies seeking to
undertake TTW activities would #rst have to complete the O%ering Notice Filing
Form and a Consent to Service of Process. While these are relatively straightforward
forms for a legal professional, many companies undertaking TTW will not have
engaged legal assistance, and may encounter confusion, especially when faced with
questions about SEC #ling information when no SEC #ling has yet taken place.
Inconsistency with Section 18 of the Securities Act
In a rulemaking subject to the strict standards of the Administrative Procedures Act,
the SEC made an determination based on its authority under Section 18(b)(3) of the
Securities Act that "quali#ed purchaser" includes any person to whom securities are
o%ered or sold in an o%ering under Tier 2 of Regulation A. Tier 2 securities are thus
“covered securities” under Section 18.
Section 18(c)(2) sets limitations on the #lings that states may require with respect
to covered securities. Section 18(c)(2)(A)permits the states to require "the #ling of
any document #led with the [SEC]". The Section does not sanction the #ling of any
document or notice prior to the point at which any #ling is made with the SEC.
We understand that Section 18(c)(2)(B) provides that fees payable with respect to
notice #lings “shall be paid . . . on the same schedule as would have been
applicable had the issuer not relied on the exemption provided in subsection (a).”
While it might be argued that this would permit collection of fees as if an issuer
were making a non-preempted Regulation A o%ering, there is no such schedule that
would have applied for a Tier 2 o%ering. The language of Section 18(c)(2)(B) applies
awkwardly to this situation, premised as it is on fees being paid when “supporting
data on sales or o%ers for sales” could actually be determined – not the case when
all a company is doing is testing the waters. We believe that Section 18 should be
interpreted in its entirety, without interpreting particular subsections piecemeal,
and that Section 18’s clear intent is that notice #lings, together with the related
fees, be triggered by the SEC #ling.
We believe that the Proposed Rules undermine the intent of Congress in Section 401
of the JOBS Act of 2012, to the e%ect that “the issuer may solicit interest in the
o%ering prior to #ling any o%ering statement.”
Alternative Approaches
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While we believe that no #ling should be required, and no fee should be payable,
prior to SEC #ling, we appreciate the legitimate state interest that Washington has
in knowing what kinds of o%ering may be being made, and what statements may be
being made to potential investors in Washington. We therefore respectfully suggest
the following options (or combination of options):

Trigger notice and fee requirements under the Proposed Rules on SEC #ling
but provide for a simple “heads up” noti#cation that gives the issuer’s
intended name and the channels by which it will be communicating with
investors (e.g., platform on which listed, if any, use of social media,
advertising, emails, etc.).
Provide for a conditional and temporary exemption from notice #lings under
the Proposed Rules for issuers that give a simple “heads up” notice to
Washington State.
Work with NASAA to expand the “electronic #ling depositary” currently used
for notice #lings under Regulation D for use as a multistate noti#cation
platform for “heads up” notices.
Use the process developed for coordinating review of Tier 1 #lings across
multiple states as a basis for coordinating Tier 2 noti#cations by potential
issuers.

Thank you for the opportunity to express our views on this topic.
Yours truly,
/s/ Sara Hanks
Sara Hanks
CEO
CrowdCheck, Inc.

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