Canadian Lawyer

LEGAL REPORT/SECURITIES LAW CSA eyes exemptions allowing investors to buy securities without a prospectus Canadian Securities Administrators are examining two of the exemptions that facilitate this — the Accredited Investor (AI) and Minimum Amount exemptions — looking at whether to retain or adjust the thresholds that determine what makes a qualified investor, whether to use alternative qualification criteria, or even limit use of these exemptions by individuals. Some say a review of the exemptions did not come as a F surprise, as the CSA has proposed a new regulatory regime for certain securitized products. Concerns have also been raised by the Ontario Securities Commission in recent months about the sale of exempt securities to those who do not meet the AI definition. At the same time, the review has provoked a strong reac- BY HELEN BURNETT-NICHOLS or virtually any sector where startups or small businesses need to raise large amounts of money, exemptions that allow investors to buy securities without a prospectus are key to raising funds. But as a result of a review initiated last fall, the tion from stakeholders. The AI exemption in particular, say lawyers, is the primary exemption used to facilitate capital- raising efforts and any changes to tighten thresholds may limit the ability of small and medium-sized enterprises to raise money. Allowing smaller businesses to raise capital without the time and expense of preparing a prospectus, the exemption currently applies to certain individuals, such as those whose net income before taxes exceeded $200,000 in both of the last two years and those with net assets of at least $5 million, as well as financial institutions and pension funds, among others, says the OSC. It is assumed that these qualified persons do not require the protec- tion offered by a prospectus, because they can "handle the loss of their entire investment, if things go wrong. istrators and chairman and CEO of the Alberta Securities Commission, says that arising out of the financial crisis, there were some questions as to assumptions that had been used in regulation of the exempt market. These included whether it was fair to assume that people in the exempt market could look after themselves, should other protections be applied, Bill Rice, chairman of the Canadian Securities Admin- " or whether some of the exemptions should be re-addressed and evaluated. With the AI exemption specifically, the CSA acknowledges its use by issuers to raise capital. It also notes that some of the issues relating to the exemption include whether current thresholds for individuals to qualify, adopted in the early 2000s, are too low or should be indexed to inflation and whether income and asset thresholds are adequate proxies for sophistication. www.CANADIAN Lawyermag.com JUNE 2012 43 Joel Kimmel

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