Dodd's Reform Bill Would Weaken Federal Preemption of Rule 506 of Reg. D

Senator Chris Dodd's Reform Bill in the Senate Banking Committee would weaken federal preemption of Rule 506 of Regulation D under Section 18(b)(4)(D) of the NSMIA Act of 1996 by:

* Requiring the SEC to designate that certain Rule 506 offerings not qualify as "covered securities" because of their size, the number of states that would contain them and the types of offerees that would receive them.

* Requiring the SEC to review Rule 506 offerings within 120 days, with an offering losing its covered security status if the SEC fails to do that review unless a state securities commissioner determines either that the issuer's made a good faith effort to comply with the offering's terms or that the terms not complied with are insignificant when compared to the entire offering.

* Permitting states to impose notice filing requirements "substantially similar to the filing requirements mandated by Section 4(4) rules or regulations in effect on September 1, 1996"; and

* Requiring the SEC to create procedures not later than 180 days after the Act is adopted, to promptly notify the States after consulting with them of the completion of the SEC's review of Rule 506 filings.

This Reg. D provision in Senator Dodd's bill will no doubt be hotly debated especially by the North American Securities Administrators Association and private industry.

.