Tuesday, August 14, 2012

Citing Legislative Intent, US Senators Urge SEC to Adopt Reasonable Rules Implementing JOBS Act Elimination of General Solicitation Ban under Regulation D

In a letter to the SEC, three US Senators urged the Commission to adopt reasonable regulations at the agency’s August 22 Open Meeting implementing the elimination of the general solicitation ban in Regulation D mandated by the Jumpstart Our Business Startups (JOBS) Act. Senators Pat Toomey (F-PA), John Thune (R-SD) and Kay Bailey Hutchinson (R-TX) said that the regulations should provide businesses with reasonable steps that they can take to verify that investors are accredited so that they can raise additional capital and grow their businesses. The Senators emphasized that a common sense approach to the regulations implanting these provisions of the JOBS Act will avoid inadvertently preventing businesses from making use of general solicitation as intended by Congress and will best achieve the purpose of the JOBS Act, which modifies the exemption provided under Regulation D to eliminate the ban on general solicitation so long as all purchasers of the securities are accredited investors.

The Senators said that the SEC is slated to hold an Open Meeting on August 22 to consider regulations eliminating the general solicitation prohibition under Regulation D and Rule 144A under the Securities Act as required by Section 201(a) of the JOBS Act. According to the Senators, the general solicitation prohibition currently prevents small businesses from attracting capital from accredited investors nationwide because it allows then to raise capital only from investors with whom they have a pre-existing relationship. According to the Senators, the legislative intent of Section 201(a) was to remove the general solicitation prohibition to allow businesses to attract capital from accredited investors nationwide. In fact, they noted that earlier this year the SEC’s Advisory Committee on Small and Emerging Companies came to a similar conclusion in recommending that the Commission take immediate action to relax or modify the restrictions on general solicitation and general advertising.