Proposed Rule Flouts Congressional Intent by Preempting State Authority
WASHINGTON (March 25, 2014) – The North American Securities Administrators Association (NASAA) has called upon the Securities and Exchange Commission (SEC) to make substantial revisions to its Regulation A proposed rule to remove potential harms to issuers and investors, especially those of modest means.
In a comment letter filed with the SEC, NASAA urged the agency to withdraw the preemptive provisions from the Regulation A proposal and work with state securities regulators to pursue follow-up rulemakings that will promote the use of Regulation A as intended by Congress.
Title IV of the Jumpstart Our Business Startups (JOBS) Act of 2012 raised to $50 million the amount of money that can be raised through these offerings. The law expressly upheld the authority of states to review these offerings before they are sold to the public. In its proposed rule implementing Title IV, however, the SEC attempts to circumvent Congressional intent by preempting state authority in this area.
“State securities regulators believe the SEC’s proposed Regulation A rulemaking must be revised substantially to, among other things, craft rules for the implementation of Title IV of the JOBS Act that will promote responsible capital formation, protect investors, and preserve the authority of the states to review and register these offerings. It is our strong belief that the Commission’s attempt to preempt state review in the Proposal exceeds the Commission’s statutory authority and fails to adequately consider all relevant costs and the potential harm to both issuers and investors,” said Andrea Seidt, NASAA President and Ohio Securities Commissioner.
“By adopting a rule compliant with the plain meaning and intent of the statute, while working closely with state securities regulators, the Commission will promote increased use of Regulation A for capital formation and preserve significant investor protections,” Seidt wrote in NASAA’s letter.
Of greatest concern to NASAA is the Commission’s attempt to circumvent a Congressional directive to maintain state registration for offerings that are sold to unsophisticated investors and those with modest means. Specifically, NASAA opposes the Commission’s approach to define “qualified purchaser” for purposes of securities issued under Regulation A. The practical effect of the agency’s proposed definition on most Regulation A offerings would be exemption from state regulatory review, “a direct contravention of Congress’s intent when it passed the JOBS Act,” Seidt wrote.
Seidt cautioned the agency that unless its proposal is changed, “there is a significant likelihood that issuers and their counsel, concerned about the legality of the Commission’s actions, would be reluctant to engage in Regulation A offerings. NASAA is concerned that the Commission would consider an approach inconsistent with Congressional intent and prior agency interpretations that is ultimately harmful to both issuers and investors. ”
The full text of NASAA’s comment letter is available here.
For more perspective and information about Regulation A, visit NASAA’s Regulation A Resource Center.
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Bob Webster | Director of Communications