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CrowdFund Intermediary Regulatory Advocates 1345 Avenue of the Americas New York, NY 10105 Telephone: (212) 370-1300

` Via Electronic Mail at faith.anderson@dfi.wa.gov September 8, 2015 Faith Anderson Department of Financial Institutions Securities Division State of Washington Re: Proposed Washington State Rules, Securities and Exchange Commission Regulation A, Tier 2 Offerings [WAC 460-18A-200] Dear Ms. Anderson: This letter is submitted on behalf of the Crowdfund Intermediary Regulatory Advocates (CFIRA) in response to the proposed notice filing requirements for Regulation A – Tier 2 offerings, WAC 460-18A-200 (the “Proposed Rules”). CFIRA commends Washington State on its willingness to progress moving the provisions of Jumpstart Our Business Startups Act of 2012 (JOBS Act) forward for Regulation A; however, in our view, the adjustments being proposed will hinder start-up and small companies from being able to participate. It is also our impression that the Proposed Rules are contrary to Section 18 of the Securities Act of 1933 (“’33 Act”). CFIRA believes that Regulation A offerings are an attractive financing alternative for growth companies, many of which require substantial amounts of capital.

CFIRA is a crowdfunding trade organization that lobbies and advocates for regulations that will support the crowdfunding industry in connection with Title II, Title III and Title IV of the JOBS Act. CFIRA’s role is to protect the interests of investors and issuers, and advance the common business interest of intermediaries and third party service providers in the securities industry. Our members comprise intermediaries (broker-dealers and funding portals), issuers, investors, and third party service providers who are engaged in or who intend to engage in business under Titles II, III and IV.

For companies seeking to raise up to $50 million in each 12-month period without incurring the cost associated with a traditional initial public offering and subsequent full reporting, Regulation A will allow these businesses to accelerate in ways that are necessary to foster long term growth. In order for Regulation A to promote capital formation for smaller companies, they will need reasonably low to no cost during the Test the Water (“TTW”) phase.

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Washington State has an opportunity to promote and foster growth for companies seeking to raise capital. CFIRA strongly believes that Regulation A – Tier 2 will be another important step towards helping growth companies acquire the capital needed to grow their businesses, while providing investors with adequate protections against fraud and malfeasance AND achieving the intended goals of Congress.

Proposed Rules’ Negative Impact on Early Stage Companies

The term “sale or “sell” or “offer to sell”, or “offer” as defined by the federal law, includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security for value. The final rules for Regulation A - Tier 2 provided the TTW provision that allows companies to advertise and solicit interest of an offer from prospective investors prior to any filing with the SEC. During this period, issuers are not able to “sell” the security.

With the advancement of technology, advertising and solicitation now includes the use of media such as the Internet, which expands the pool of potential investors for offerings under the JOBS Act, thus giving the entrepreneurs the greatest opportunity to finance their business. Washington State’s proposed rules, if adopted, will require a notice filing “prior to the initial offer in this state.” As set out in the proposed rules this “notice filing” would trigger payment of the relevant fees prior to any TTW activities, causing tremendous financial burden on the companies seeking to raise capital.

It is CFIRA’s understanding that Washington State’s approach with respect to fees can be lenient and that in the TTW period, when a company does not know the exact dollar amount to be offered, it may be possible for a notional fee of $100 be paid, with the intent of full amount of fees to be paid at the time of sale of the offering. However, despite this flexibility, if other states were to follow Washington’s lead (which we understand may set the precedent), it would be fair to assume that even nominal fee of $100 would mean that a company relying on free and open communication tools such as the Internet may be subject to pay fees across all 50 states and the aggregate amount could total a minimum of $5,000 in order prior to using the TTW provision to determine investor interest.

In addition to the out-of-pocket cost of notice filing fees, companies seeking to undertake TTW activities would have to complete the Offering Notice Filing Form and Consent to Service of Process. While these are relatively straightforward forms for a legal professional, many companies undertaking TTW will not have hired legal teams to assist with completing such documents. This in turn, may increase confusion when faced with questions about SEC filing information when no SEC filing has yet taken place.

Section 18 of the Securities Act

It is our impression that the Proposed Rules are inconsistent with Section 18 of the 33 Act, which restricts the filings that may be required by states regarding covered securities.

The SEC has determined that purchasers of securities sold or offered under Regulation A Tier 2 are “qualified purchasers” under Section 18(b)(3) of the 33 Act. Therefore, securities offered under Regulation A Tier 2 are “covered securities” as defined under Section 18.

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As “covered securities” Section 18(c)(2) limits the filings that states may require with respect to “covered securities.” Under Section 18(c)(2)(a) states are permitted to require the filing of any document filed with the SEC. However, the Proposed Rules would require a non-SEC filing prior to even soliciting in Washington. Therefore, the notice filing requirement may not be permissible under Section 18(c)(2)(a).

Nor do we think Section 18(c)(2)(B) provides adequate justification for the Proposed Rules. That section states that fees shall be paid . . . on the same schedule as would have been applicable had the issuer not relied on the exemption provided in subsection (a).” Section 18(c)(2)(B) is premised on fees being paid when supporting data on sales or offers is available. Neither of these pieces of information are available during the TTW period. Interpreting Section 18(c)(2)(B) in its entirety shows that the intent of the section is that notice filings and their associated fees were meant to be triggered upon filing with the SEC.

Recommendations

CFIRA respectfully suggest the following options (or combination of options) for adoption during the TTW phase of Regulation A+ Tier 2:

1. Do not require state filing fees prior to TTW and not until the SEC qualifies the offering but allow for a “trigger notice” at the time of SEC filing that provides the issuer’s intended business name and a description by which general solicitation and advertising will be used (e.g., platform on which listed, if any, use of social media, advertising, emails, etc.).

2. Provide for a conditional and temporary exemption from notice filings for issuers that give a simple “heads up” notice to Washington State.

3. Work with NASAA to expand the “electronic filing depositary” currently used for notice filings under Regulation D for use as a multistate notification platform for simple “heads up” notices.

4. Use the process developed for coordinating review of Tier 1 filings across multiple states as a basis for coordinating notifications by potential issuers.!

Conclusion One of CFIRA’s goals for the industry to ensure that the marketplace can mature in a healthy manner with the right balance of investor protections while fostering innovation, spurring capital formation and increasing job creation. The members of CFIRA remain available for further discussions relating to Regulation A offerings. We look forward to making investing a success for both investors and entrepreneurs. Respectfully Submitted,

Kim Wales CEO, Wales Capital Executive Board Member, CFIRA