Mass. Securities Chief Urges SEC to Establish Accredited Investor Methods under JOBS Act Reg. D Measure

In a letter to the SEC, the Massachusetts Securities Commissioner and Secretary of the Commonwealth William Galvin said that in the proposed regulations implementing the JOBS Act elimination on the ban on general solicitation under Regulation D the Commission has failed to meet its obligations under Section 201 of the JOBS Act to establish methods for issuers to use to verify that investors are accredited. In his view, this failure will put the interests of retail investors and savers at risk in unprecedented ways. This failure will also place unnecessary burdens on issuers, who could benefit from the Commission's guidance on this important obligation. Also, the SEC's failure to adopt meaningful requirements for the Rule 506( c) exemption will impede state and federal enforcement in virtually all cases involving unregistered offerings. There is also a serious risk that courts will draw the inference from the Commission's failure to issue meaningful rules that few or no standards are applicable to the Rule 506( c) exemption. This is likely to result in conflicting court decisions on issues relating to Title II, and to decisions that are contrary to the policies embodied in the Securities Acts. 

The requirement that investors must be accredited is the sole protective mechanism built into the new exemption under Rule 506. The exemption does not carry any mandatory disclosure requirements in sales to accredited investors, and such offerings are not subject to review at the state level. For these reasons, it is vitally important that the Commission's regulations protect investors even as the rules for the offer and sale of unregistered offerings are liberalized. The verification requirement was added to Title II specifically to protect unsophisticated and unqualified investors by means of methods to be specified by the Commission.