Emerging Markets Law

Congress Writes Letters to SEC

It must be a sign of the times that even Members of Congress feel so much frustration with the pace of the SEC's efforts to implement legislation that they are forced to write letters to the SEC.

On September 23rd, four Democratic Senators (including Senators Levin and Warren) penned this letter to SEC Chair Mary Jo White (September 23, 2014), reminding her that it has been a year since the SEC proposed rules to implement the general solicitation provisions applicable to Regulation D (Rule 506(c)) without making those proposed rules effective.

The SEC's proposed rules, issued in the Fall of 2013, would require private issuers relying on Regulation D to upload copies of their offering materials to the SEC under Rule 510T if the issuers intend to engage in a public solicitation for their private offering.

The Democratic Senators in their letter, claim that the SEC's delay in implementing the rules leave investors with no protection against issuers.  Practitioners in the space might instead argue that the delay in implementing regulations also leaves entrepreneurs and prospective issuers in the unenviable position of having no clear path to raising funds while also ensuring compliance.

Two days later, however, members of the House Republican caucus sent their own letter to the SEC (September 25, 2014) asking the SEC to extend the exemption from blue sky compliance made possible under the JOBS Act to all issuers under Regulation A.

The 2012 JOBS Act modified the provisions of the rarely-used Regulation A to make it easier for issuers to raised larger amounts in qualified offerings under Regulation A without complying with the costly and time-consuming requirements of state-level blue sky laws.  When the SEC implemented the JOBS Act, however, it permitted blue sky pre-emption for only a narrow class of Reg. A issuers.

The House Republicans argue that extending blue sky pre-emption to all Regulation A issuers would encourage capital formation by lowering the cost of utilizing Regulation A.

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