The SEC has proposed
regulations eliminating the prohibition on general solicitation in offerings
conducted under Rule 506 of Regulation D so long as all of the purchasers are
accredited investors. The proposal implements Section 201 of the Jumpstart Our
Business Startups (JOBS) Act, which removes the restriction on general
solicitation for private offerings in an effort to assist companies in
attracting investors and raising capital. The SEC proposes to require issuers
that use general solicitation to take reasonable steps to verify that all of
the purchasers are accredited investors.
While the JOBS Act required the SEC to implement Section 201 by July 4, 2012, noted Chairman
McHenry, the SEC did not propose the implementing regulations until August 29. The SEC’s decision to propose a rule
eliminating the Regulation D ban on general solicitation as directed by Section
201, rather than adopt an interim final rule, added extraordinary delay
to the effectuation of this critical reform, said Rep. McHenry, and was also
against the advice of career professional staff. Documents submitted to the
Committee revealed that as early as May of 2012 the professional underwriting
staff in the Corporation Finance Division, with the advice of the Office of
General Counsel, had concluded that an interim final rule was the most
practical, responsible, and legally appropriate means of implementing Section 201.
The SEC staff continued to refine the interim final rule
with plans to place the release for the interim final rule on the SEC’s open
meeting agenda for August 22, 2012. A sudden turnaround to proceed with proposed
regulations rather than an interim final rule was troubling to Chairman McHenry
in this context since it reflected a decision to override the long-held
conclusions of Corp Fin staff and the Office of General Counsel. The
possibility that Section 201 will not be implemented in 2012 compounds the
potential impropriety of this decision.
Documents also clarified that SEC Commissioners and SEC
staff believed that a proposed period for comment would be of limited
substantive value and that the decision to override the recommendations of the
staff disrupted the ability of the Commission to function collegially and
cooperatively. In Chairman McHenry’s view, the draft release being circulated
by SEC staff was informed, professional and meritorious and warranted the
immediate implementation of an interim final rule.
The comment period for the proposed regulations closed on
October 5, 2012, noted the House leader, and the SEC staff have had almost two
months to consider and respond to submitted comments. He emphasized that
further delay in implementing Section 201 is unacceptable.
In a letter of August 16, 2012 to Chairman Schapiro, Rep. McHenry noted that the SEC’s decision to
propose a rule eliminating the Regulation D ban on general solicitation as
directed by Section 201 of the JOBS Act, rather than adopt an interim final
rule, means that the Commission is unlikely to finalize the rule until next
year. By ``kicking the can down the road,’’ noted Chairman McHenry, the SEC is
abdicating its responsibility under the law and ignoring the will of Congress
and the President.
In that earlier letter, Chairman McHenry
requested the following information from the SEC by August 30: all documents
and communications between or among SEC Commissioners and staff referring or
relating to potential SEC action to implement Section 201 of the JOBS Act; all
communications between SEC Commissioners or staff and any outside party
referring or relating to potential SEC action to implement Section 201; all
documents, including legal memorandum, prepared by the SEC’s Office of the
General Counsel, referring or relating to potential SEC action to implement
Section 201.