Aug.SEC Approves Proposed Rules Mandated by the JOBS Act
AT TODAY’S OPEN MEETING, the Securities and Exchange Commission (SEC) approved proposed rules mandated by the Jumpstart Our Business Startups (JOBS) Act by a vote of 4-1. SEC Commissioner Luis Aguilar opposed the proposal after saying the rules do not address “the acknowledged increased vulnerability of investors,” and that the SEC did not consider any of the commenters’ proposals “that would have decreased investor vulnerability.”
FACT SHEET: Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings
Aguilar explained why he felt investors are more vulnerable and provided several ideas to reduce investor vulnerability. “Given the breadth of this exemption, it is hard to understand how the Commission’s proposal to allow general solicitation with private placements ignores the increased vulnerability of investors in its entirety,” he said.
The proposed rules would implement Section 201(a) of the JOBS Act by eliminating the current prohibition against general solicitation and general advertising in certain securities offerings under Rule 506 of Regulation D. The proposed rule also directs the SEC to lift a similar prohibition contained in Rule 144A under the Securities Act of 1933.
Under the proposal, issuers using general solicitation would be required to take “reasonable steps” to verify that all purchasers are accredited investors. Instead of establishing a prescriptive rule or specified verification method, the proposed rules offer a framework for issuers to use in determining which investors are accredited investors.
The SEC staff recommended proposed amendments to Rule 506 and Form D including:
- Eliminating the prohibition against general solicitation;
- Reasonable steps to verify accredited investor status;
- Reasonable belief that all purchasers are accredited investors; and
- Form D check box for Rule 506(c) offerings.
SEC Chairman Mary Schapiro said while she believes the SEC should take a “thorough look” at the private placement market in the future, “I think at this point it is appropriate that we undertake this more narrow mandate that Congress placed upon us through the JOBS Act.” Schapiro also noted that her view is “furthered by the significant change taking place in the private offering landscape as a result of legislative changes,” including changes to the accredited investor net worth test for Regulation D offerings under the Dodd-Frank Act, and that these changes “will be important for us to consider as we review Regulation D.”
Schapiro stated that Dodd-Frank provision prohibits the SEC from changing the net worth test before July 2014. She also noted that the Dodd-Frank Act directs the SEC to conduct a review of the definition of “accredited investor” within four years of the Act’s enactment, and requires the Government Accountability Office (GAO) to complete a study on the definition by next summer.
Commissioner Elisse Walter Statement
While supportive of the rule, Walter expressed her concern that such a “profound change” in the laws governing the offers and sales of securities will likely lead to unintended consequences and implored the Commission to take this into consideration.
Like Aguilar, Walter said she was disappointed that comments and suggestions received from the public to reduce vulnerability by “requiring certain disclosures or legends to accompany general solicitation, amending the definition of accredited investor, and including additional information on Form D,” were not incorporated into the proposal. “Even though the release does not address these issues, I would very much like to hear more from commenters about these important subjects,” she said.
Walter said she would have liked to incorporate a requirement for issuers to file Form D “as a condition to using the proposed exemption” to reduce fraud and to inform regulators about offerings that are occurring.
Commissioners Troy Paredes and Daniel Gallagher Statements
While Commissioners Troy Paredes and Daniel Gallagher were supportive of the proposed rules, they criticized the SEC rulemaking process. Given the amount of time and effort already spent on the rules, both commissioners said the SEC should be voting on an interim final rule at this point rather than a proposal.
“Given the context of this rulemaking, there is a sound and reasoned basis for proceeding with an interim final rule, just as the Commission was doing until the late switch to a proposal,” Paredes said.
“So let me be very clear. I am voting “yes” on the proposal, which is a matter of substance. But if I could, I would certainly vote “no” on the process that led up to this meeting, as well as the choice of proposal versus interim final rule,” Gallagher said.
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AT TODAY’S OPEN MEETING, the Securities and Exchange Commission (SEC) approved proposed rules mandated by the Jumpstart Our Business Startups (JOBS) Act by a vote of 4-1. SEC Commissioner Luis Aguilar opposed the proposal after saying the rules do not address “the acknowledged increased vulnerability of investors,” and that the SEC did not consider any of the commenters’ proposals “that would have decreased investor vulnerability.”
FACT SHEET: Eliminating the Prohibition on General Solicitation and General Advertising in Certain Offerings
Aguilar explained why he felt investors are more vulnerable and provided several ideas to reduce investor vulnerability. “Given the breadth of this exemption, it is hard to understand how the Commission’s proposal to allow general solicitation with private placements ignores the increased vulnerability of investors in its entirety,” he said.
The proposed rules would implement Section 201(a) of the JOBS Act by eliminating the current prohibition against general solicitation and general advertising in certain securities offerings under Rule 506 of Regulation D. The proposed rule also directs the SEC to lift a similar prohibition contained in Rule 144A under the Securities Act of 1933.
Under the proposal, issuers using general solicitation would be required to take “reasonable steps” to verify that all purchasers are accredited investors. Instead of establishing a prescriptive rule or specified verification method, the proposed rules offer a framework for issuers to use in determining which investors are accredited investors.
The SEC staff recommended proposed amendments to Rule 506 and Form D including:
- Eliminating the prohibition against general solicitation;
- Reasonable steps to verify accredited investor status;
- Reasonable belief that all purchasers are accredited investors; and
- Form D check box for Rule 506(c) offerings.
SEC Chairman Mary Schapiro said while she believes the SEC should take a “thorough look” at the private placement market in the future, “I think at this point it is appropriate that we undertake this more narrow mandate that Congress placed upon us through the JOBS Act.” Schapiro also noted that her view is “furthered by the significant change taking place in the private offering landscape as a result of legislative changes,” including changes to the accredited investor net worth test for Regulation D offerings under the Dodd-Frank Act, and that these changes “will be important for us to consider as we review Regulation D.”
Schapiro stated that Dodd-Frank provision prohibits the SEC from changing the net worth test before July 2014. She also noted that the Dodd-Frank Act directs the SEC to conduct a review of the definition of “accredited investor” within four years of the Act’s enactment, and requires the Government Accountability Office (GAO) to complete a study on the definition by next summer.
Commissioner Elisse Walter Statement
While supportive of the rule, Walter expressed her concern that such a “profound change” in the laws governing the offers and sales of securities will likely lead to unintended consequences and implored the Commission to take this into consideration.
Like Aguilar, Walter said she was disappointed that comments and suggestions received from the public to reduce vulnerability by “requiring certain disclosures or legends to accompany general solicitation, amending the definition of accredited investor, and including additional information on Form D,” were not incorporated into the proposal. “Even though the release does not address these issues, I would very much like to hear more from commenters about these important subjects,” she said.
Walter said she would have liked to incorporate a requirement for issuers to file Form D “as a condition to using the proposed exemption” to reduce fraud and to inform regulators about offerings that are occurring.
Commissioners Troy Paredes and Daniel Gallagher Statements
While Commissioners Troy Paredes and Daniel Gallagher were supportive of the proposed rules, they criticized the SEC rulemaking process. Given the amount of time and effort already spent on the rules, both commissioners said the SEC should be voting on an interim final rule at this point rather than a proposal.
“Given the context of this rulemaking, there is a sound and reasoned basis for proceeding with an interim final rule, just as the Commission was doing until the late switch to a proposal,” Paredes said.
“So let me be very clear. I am voting “yes” on the proposal, which is a matter of substance. But if I could, I would certainly vote “no” on the process that led up to this meeting, as well as the choice of proposal versus interim final rule,” Gallagher said.
For more information, please click here.