House oversight leaders said that the SEC must broadly preempt state law in order to carry out the intent of the JOBS Act in expanding Regulation A+ offerings. In a letter to SEC Chair Mary Jo White, House Oversight Subcommittee Chair Patrick McHenry (R-NC) said that the proposed rules implementing Title IV of the Act are on the right track in preempting state registration requirements for Tier II Regulation A+ offerings; but need to go further and preempt state merits review of all Regulation A+ offerings. While recognizing the well-intentioned efforts of state securities regulators to streamline state registration, he noted that the existence of state merit review of the offering unnecessarily adds material uncertainty that hinders the objective of the federal JOBS Act and may deter small enterprises from pursuing a Regulation A+ offering.
Subcommittee Chair Scott Garrett (R-NJ), House and Insurance Subcommittee Chair Randy Neugebauer (R-TX) and Rep. David Schweikert (R-AZ), the prime architect of Title IV, were also on the letter.
By preempting state registration review of Regulation A+ securities, emphasized Chairman McHenry, the SEC is upholding its mandate to serve the public interest of competitive and even-handed markets. He warned that a failure by the SEC to preempt state registration requirements would effectively eliminate Regulation A+ as an option for small business capital-raising and defeat Congressional intent. The bi-partisanship of the JOBS Act is founded on a universal ambition to unlock access to capital for small businesses, he posited.
The objective of Regulation A+ as envisioned by Congress is to equip small businesses with efficient means to raise capital through mini-registrations that are exempt from the full registration requirements of the Securities Act, explained the Oversight Chair, who added that the costs and severe delays of meeting state registration requirements, in addition to SEC review, have rendered the existing Regulation A ineffectual. The Chair believes that this situation has robbed millions of entrepreneurs and businesses of an exemption intended to serve as a competitive channel of capital.
That is why House leaders view it as imperative that preemption of state review provide for national consistency of Regulation A+ offerings. Preemption of state registration is both judicious and necessary for Regulation A+ to meaningfully modernize the capital markets and level the playing field for start-ups, they believe, and free them from complying with the rulers of multiple state regulators.