NASAA President | Ohio Securities Commissioner
NASAA Public Policy Conference
Washington, DC | April 8, 2014
Before I introduce our featured speaker, I would like to say a few words about my and NASAA’s top regulatory priority at the moment: the SEC’s Regulation A proposal and the states’ new multi-state coordinated review program for Regulation A offerings.
I apologize to those who already heard me speak about this issue this morning or heard me talk about it yesterday, the day before that, and yes, for a few others, even the day before that – my fellow Board Members really deserve a medal of honor at this point – but we have a different audience in the room this afternoon and it is important that this message reach all conference participants joining us today.
On December 18, 2013, the SEC released proposed rule amendments for small and additional issues exemptions under Section 3(b) of the Securities Act or, which I and others often refer to as the SEC’s Regulation A+ proposal. The proposal explores various options to implement Title IV of the JOBS Act to provide small businesses with greater access to our capital markets. An integral part of the proposed rule release is preemption of state blue sky laws for Regulation A offerings that adhere to various reporting and financial statement requirements.
Setting aside for the moment, reasons why the SEC or others might be interested in preempting state authority in the Regulation A context, state preemption is not, in NASAA’s view, an option that is even on the table for the SEC in light of the clear legislative history and Congressional will in passing the JOBS Act.
For that and other reasons, on February 19 and again on March 24, NASAA submitted comment letters to the Commission asking it to substantially revise its proposed Regulation A rulemaking to craft rules for the implementation of Title IV of the JOBS Act that will promote responsible capital formation and protect investors by preserving rather than preempting state authority to review and register these offerings.
In these two letters, NASAA explained that state securities regulators have two core missions: protecting investors and helping small businesses access the capital they need to start their companies and grow much-needed jobs for the economy. NASAA also updated the SEC with details regarding a new program that it had developed following a year-long assessment of state registration processes, precipitated in part by a 2012 report issued by the Government Accountability Office (GAO) regarding use of the Regulation A offering exemption.
With the new program, the state-level filing and review process is being completely overhauled and streamlined. NASAA has revised its statements of policy to accommodate the needs and special circumstances of small businesses, including start-ups. The end result is an issuer-friendly system and process that we believe will be quicker and less obtrusive than the alternative advanced in the SEC proposal.
The states voted overwhelmingly last month to approve the NASAA Coordinated Review Program for Regulation A Offerings. And, within three short weeks of approving the program, nearly all U.S. NASAA members have officially signed up to participate in the program by tendering their signed Memoranda of Understanding. It is clear that states are up to the task to modernizing and streamlining the state registration and review process for multi-state filers.
As I’ve said many times in writing NASAA letters and in person to Commission leadership and staff, there is no doubt in my mind that the Commission and the states, standing together, will be much more effective in protecting our citizens and making Regulation A successful for small business filers than we could ever hope to be standing apart.
I am pleased to say that our featured speaker, the Honorable Commissioner Kara M. Stein, recognizes the value that states bring to the table when it comes to small business offerings. In her December 18, 2014 remarks in the SEC’s Open Meeting releasing the Reg A proposal, Commissioner Stein stated: “The states are often uniquely well-suited to oversee these kinds of offerings, with strong motivations to both protect investors and support the success of their local businesses seeking to raise money.” She also encouraged NASAA and the states to continue our diligent work toward a coordinated review process.
While Commissioner Stein ultimately joined her fellow Commissioners in releasing the proposal with the preemption provisions included, she was careful to note her reservations about state preemption and whether the exemption, as proposed, would work for both issuers and investors.
To her credit, Commissioner Stein acknowledged twice in her Open Meeting remarks the incontrovertible fact glossed over by other Commissioners –Congress never intended for the SEC to preempt state review of these smaller offerings. Rather, as Commissioner Stein aptly noted, Congress “deliberately revised the bill to ensure that state securities laws were not explicitly preempted before the bill’s final passage.”
As NASAA noted in its comment letters, this particular snag has given reputable securities counsel serious concern regarding the legal sufficiency of the SEC proposal and may discourage practitioners from recommending the exemption to their small business clients, contrary again to both the spirit and letter of the JOBS Act.