Thursday, February 13, 2014

Former NASAA President decries SEC preemption of state review

A Nebraska securities official who was the President of the NASAA during the time Congress considered and passed the JOBS Act, from 2011 to 2012, said he was stunned and dismayed that the SEC would propose preempting the authority of states to register and review Regulation A-Plus offerings as part of the rules proposed  to implement Title IV of the JOBS Act. In a letter to the SEC Jack Herstein, past NASAA chief and currently Assistant Director of the Department of Banking and Finance, averred that Congress plainly did not intend for states to be preempted from registering or reviewing Regulation A-Plus offerings when it enacted Title IV. To the contrary; Congress intended the SEC and the states to be partners in the effort.

Indeed, he continued, the Commission’s decision to propose preempting states under Title IV of the Act by deeming every investor and every offeree in Regulation A-Plus offerings as qualified purchasers is so far removed from both the intentions of Congress and the realities of this new marketplace that it is almost breathtaking.

Citing legislative history, he concluded that Congress carefully and extensively considered whether or not the new exemption established under Title IV of the JOBS Act should preempt state authority. After weighing the perceived merits of preempting state law and the risk to investors that could arise from such action, Congress affirmatively judged that states should not be preempted from review of offerings under the exemption, citing both the high-risk nature of these offerings and the essential function that state review plays in discouraging fraud.

The official added that the preemption of state authority is simply unnecessary. The states understand the need for a modern, efficient, coordinated review process that minimizes the regulatory burden to small business issuers. This is exactly they are engaged in the process of adopting such a new, innovative multi-state review protocol. He said it was disingenuous for the Commission to justify its decision to preempt the states based on criticisms of an “old” Regulation A review process, while barely acknowledging that those criticisms have been addressed by the new protocol.