Wednesday, March 06, 2013

Bi-Partisan House Legislation Would Impose Deadline on SEC to Adopt Regulations Implementing JOBS Act Regulation A Provisions

House legislation with strong bi-partisan support would impose a deadline on the SEC to adopt regulations effectuating the JOBS Act provisions raising the Regulation A exemptive threshold from $5 million to $50 million. The legislation, HR 701, was introduced by Rep. Patrick McHenry (R-NC), Chair of the Oversight Subcommittee of the House Financial Services Committee, and is co-sponsored by among others, Rep. Anna Eshoo (D-CA), Rep. David Scott (D-GA), and Rep. Scott Garrett (R-NJ), Chair of the Capital Markets Subcommittee. 

Regulation A offers small businesses an exemption from the registration requirements of the Securities Act. The JOBS Act requires the SEC to amend Regulation A by raising its threshold from $5 million to $50 million and adopt new regulations resolving issues that have made Regulation A unfeasible to date.

 Section 401 of the JOBS Act created a new subsection (2) to Section 3(b) of the Securities Act that requires the Commission to adopt an exemption allowing companies to issue up to $50 million in securities subject to certain conditions and requirements. The JOBS Act does not set out a specific timetable for Commission rulemaking action under Section 401. H.R. 701 would set a deadline of Oct. 31, 2013 by which the SEC must adopt regulations implementing Section 401.

Chairman McHenry said that the legislation codifies an intended deadline for Regulation A as part of the JOBS Act. The target date is reasonable, he noted, nearly 19 months after the JOBS Act was signed into law and 5 months before the official SEC review of the new Regulation A offering limitations would need to occur. Rep. Eshoo said that H.R. 701 puts the SEC on deadline to finalize new Regulation A rules so that startup businesses can have access to additional capital. When Congress raised the SEC Regulation A offering limit, she explained, it did so because it was essential in meeting the capital formation needs of startup businesses. Now, emphasized Rep. Eshoo, it’s the SEC’s turn to follow through.

In a letter to the SEC last September, the Federal Securities Regulation committee of the ABA urged the SEC to act promptly to propose and adopt implementing rules under Section 401. The ABA group believed that this can be achieved by the Commission importing into its rules under Section 3(b)(2) certain aspects of Regulation A while raising the dollar threshold applicable to the exemption and adding some investor protection enhancements. This will help to achieve the Congressional purpose of assisting smaller companies in raising the capital they need to spur growth and create jobs.