Sunday, November 25, 2012

ABA Federal Securities Committee Supports SEC Proposals Implementing JOBS Act Ending of General Solicitation Ban

The Federal Securities Regulation Committee of the American Bar Association strongly support the SEC’s view that the reasonable steps to verify an investor’s accredited investor status should be an objective determination, based on the particular facts and circumstances of each transaction. In a letter to the SEC, the Committee said that the Commission appropriately notes in the proposing Release that a number of factors should be considered when determining the reasonableness of the steps taken to verify that a purchaser is an accredited investor. The Release identifies certain of these factors, such as the nature of the purchaser, the category of accredited investor the purchaser claims to be, the amount and type of information that the issuer has about the purchaser, and the nature of the offering. By acknowledging that the verification process for each offering and each particular investor may differ from the process applicable to other offerings or other investors, the Commission appropriately creates flexibility while discharging its statutory mandate.

In the view of the bar group, a prescriptive standard may not only be unduly burdensome but may also be inappropriate to the circumstances. The Committee believe that the approach taken by the Commission will help assure that the verification process reflects the facts and circumstances of the particular issuer, the particular investment, and the particular offering, which will encourage compliance and aid the enforceability of the rule. The group commended the Commission for taking this flexible approach, and also appreciate the guidance in this regard set forth in the Release. The Committee recommended that the Commission consolidate this guidance in the adopting release. Similarly, the Committee encouraged the Division of Corporation Finance to continue its practice of publishing useful, pragmatic guidance under the JOBS Act, in this case Title II and the Commission’s implementing rules and interpretations thereunder  

The Committee also supports the SEC’s determination not to provide a non-exclusive list of the specified methods for satisfying the verification requirement. As the Commission correctly notes, said the group, a non-exclusive list of specified verification methods could be viewed by market participants as the required verification methods, thus undermining the flexibility the Commission views as appropriate in connection with the verification process.