Must Not Be Offered to US Investors! Here’s why ASX companies raising capital have to exclude the Yanks!

In the case of just about all prospectuses issued by ASX companies, you see language of varying kinds effectively saying the offer for shares Must Not Be Offered to US Investors! At Stocks Down Under we aim to write first and foremost about market quirks impacting the majority of our readers and quirks that are just interesting but not likely to effect most of our readers. But given many investors see this so often, we thought we should write about it.

What are the Best ASX Stocks to invest in right now?

Check our buy/sell tips

Why ASX Shares Must Not Be Offered to US Investors

Basically because American securities law purports to regulate the entire world and considers it to apply to all offerings of securities unless Americans are excluded. Now, America is not in a league of its own in saying “if you offer securities to our residents, our laws apply.” The difference is how aggressively that rule is enforced, how extraterritorial it is, and how painful the consequences are.

The US Securities Act says that any offer or sale of securities to US investors must either be registered with the SEC or qualify for a very specific exemption. Registration is slow, extremely expensive, exposes the issuer to US-style litigation risk, and effectively subjects the company to ongoing US reporting obligations. For most ASX-listed companies, especially small and mid caps, that is completely disproportionate to the amount of capital they are raising.

So prospectuses include language like “not for distribution or release in the United States” or “not to US persons” to clearly rely on an exemption — typically Regulation S. Reg S allows securities to be offered offshore without SEC registration, but only if the issuer takes reasonable steps to prevent “directed selling efforts” into the US. The disclaimer is part of demonstrating those steps. Without it, a US regulator or plaintiff lawyer could argue the offer was effectively global, triggering US jurisdiction.

There’s also a liability asymmetry issue. The US has a much more aggressive securities litigation culture than Australia. Even if a company fully complies with Australian law, a disappointed US investor could try to sue under US anti-fraud rules, class action mechanisms, or discovery standards that are far more issuer-hostile than anything under the Corporations Act. From a board and insurer perspective, the cleanest risk management move is simply: don’t offer to US investors at all.

Another layer is ongoing compliance. If US investors participate in a capital raise in meaningful numbers, the company may later be deemed to have a reporting obligation in the US, or face pressure to reconcile accounts to US GAAP, comply with Sarbanes-Oxley controls, or answer SEC inquiries. Again, totally unrealistic for most ASX issuers whose business, shareholders, and regulators are overwhelmingly Australian.

It’s worth noting the irony in cases like URF or other offshore-asset vehicles: the assets might be in the US, but the securities are Australian securities. The US cares about who is being sold the investment, not where the property or business sits. So even a New York property fund can still need to exclude US investors if it doesn’t want SEC involvement.

Occasionally you’ll see an ASX prospectus that does allow US participation. When that happens, it’s almost always a very large issuer, raising a lot of money, with top-tier US counsel involved, and often already dual-listed or SEC-reporting. Everyone else writes the disclaimer because the downside of accidentally inviting US investors massively outweighs any upside.

Why is only America so strict

The US is different in three crucial ways.

First, US law attaches to the investor, not the issuer. If a US person buys, US law may apply even if the company is Australian, the exchange is Australian, the prospectus is Australian and the assets are offshore. That’s unusually expansive compared to most jurisdictions, which are more territorially grounded.

Second, private enforcement in the US is brutal. Even if the SEC never shows up, a plaintiff law firm can. Class actions, contingency fees, discovery obligations, and jury trials make US securities litigation uniquely dangerous. For a foreign issuer, one badly-worded paragraph can turn into years of litigation risk. Other countries simply don’t have that level of private enforcement firepower.

Third, the exemptions are narrow and procedural. Regulation S works, but only if you are scrupulous about excluding US persons and avoiding any appearance of US-directed selling. Hence the very loud disclaimers. If you mess it up, the penalties are existential, not symbolic.

Other countries absolutely could try to do this in the same way, but they mostly don’t. Their regulators lack either the political mandate, the enforcement machinery, or the litigation culture to make extraterritorial regulation stick. The US has all three, plus the gravitational pull of being the world’s reserve currency and deepest capital market.

Hang on, why then can there be American companies on the ASX?

There’s a secret sauce: it is called CDIs. And a CDI is not legally a US security being newly offered in the US, it is a beneficial interest in a share held by a depositary (typically a nominee).

From a US law perspective, trading CDIs on the ASX is secondary market trading of an existing security, not a fresh issuance or offer by the US company into Australia or back into the US. That distinction matters enormously under the US Securities Act.

Because no new US shares are being issued and no capital is being raised from the ASX market, the transaction generally falls outside the SEC’s registration regime. The US issuer isn’t “offering” securities; it’s allowing a depositary to mirror an existing share register for trading convenience. US law still applies to the company, of course, but it already applies anyway because the company is US-domiciled and SEC-reporting.

In other words, CDIs don’t make US law go away — they sidestep the problem that triggers it in the first place.

This is also why you almost never see a US company doing a primary capital raise on the ASX via CDIs unless it is already fully SEC-registered and prepared to run a dual-compliant prospectus. Secondary trading is easy; primary issuance is hard.

There’s another subtle but important point: the ASX disclosure regime is largely accommodated through home-exchange equivalence. The ASX allows certain foreign exempt listings where compliance with US continuous disclosure rules is treated as substantially equivalent to ASX Listing Rule obligations. Again, this works only for large, well-lawyered issuers.

Conclusion