In a letter to SEC Chair Mary Jo White, consumer groups and former SEC Commissioner Steven M.H. Wallman urged the Commission to re-propose the regulation implementing the JOBS Act provision eliminating the ban on general solicitation so that the recommendations of the SEC Investor Advisory Committee can be incorporated into the final regulation. The groups believe that the re-proposal of a rule that includes the IAC recommendations for appropriate investor protections and that complies with the Commission’s guidelines for economic analysis is the best way to assure that any final rule adopted in this area can be speedily adopted, is legally defensible and enjoys the broad support of the issuer and investor communities. In addition to former Commissioner Wallman, the letter was signed by Barbara Roper, Director of Investor Protection at the Consumer Federation of America.
Title II of the JOBS Act allows private issuers to market their securities through general solicitations and advertising under exemptions to the registration requirements of the Securities Act. The JOBS Act required the SEC to revise its rules to remove the prohibition against general solicitations and advertising in these exemptions within 90 days of its enactment. The deadline for the SEC to revise Rules 506 and 144A was July 4, 2012. The SEC proposed regulations on August 29, 2012, but has not yet adopted the regulations.
The consumer groups and former Commissioner Wallman believe that the Investor Advisory Committee has issued reasonable proposals that will enhance investor confidence in this market without unduly impeding legitimate offerings. Moreover, given the volume of comment the Commission has already received on these issues, the consumer groups and Commissioner Wallman believe that the SEC staff should be able to quickly craft a rule proposal that can move very expeditiously, possibly with the minimum comment period, through the notice and comment process to final adoption.
The letter notes that the recommendations of the IAC include provisions designed to ensure that the Commission receives the information necessary to provide effective oversight of the Rule 506 offering market, that these private offerings are sold only to those who are appropriately qualified to make such investments, that any performance claims made in such offerings are based on reliable standards, and that bad actors will not be allowed to participate in such offerings.
Specifically, the IAC recommendations would require all issuers intending to rely on the new JOBS Act general solicitation exemption to file with the Commission either a new Form GS or a revised version of Form D. They would also require that all solicitation material prepared or disseminated by or on behalf of the issuer that is being disseminated to the public through a general solicitation or advertising campaign in reliance on the new exemption be furnished to the Commission.
The IAC also recommends the adoption of a safe harbor providing clear and enforceable standards for verification, as opposed to reasonable belief, of accredited investor status, including standards to promote reliance on reliable third parties, such as broker-dealers, banks, and licensed accountants.