March 1, 2016
I am an attorney in private practice in Irvine, California. I am writing in my individual capacity and not on behalf of my law firm or any of my law firm's clients.
I previously served as California's Commissioner of Corporations and in that capacity administered and enforced California's securities laws. I have taught as an adjunct professor at the University of California, Irvine and Chapman School of Law. I have also served as Co-Chairman of the Corporations Committee of the Business Law Section of the California State Bar and Chairman of the Business and Corporate Law Section of the Orange County (California) Bar Association. As indicated above, this letter is written in my individual capacity and not on behalf of either of these groups.
Section 501 of the Jumpstart Our Business Startups (JOBS) Act amended Section 12(g)(1)(A) to read as follows:
(A) within 120 days after the last day of its first fiscal year ended on which the issuer has total assets exceeding $10,000,000 and a class of equity security (other than an exempted security) held of record by either—
(i) 2,000 persons, or
(ii) 500 persons who are not accredited investors (as such term is defined by the Commission), and
This amendment was effective upon enactment of the JOBS Act. The Commission asserts in the Proposing Release that it is "proposing to amend these rules to reflect the new thresholds set forth in the JOBS Act" without acknowledging that it is proposing to add "or more" after "2,00 persons" and "500 persons" in Section 12(g)(1)(A).
The Proposing Release does not discuss whether the Commission has the authority to expand the class of issuers subject to registration under Section 12(g). Agency "in excess of statutory jurisdiction, authority, or limitations" is unlawful and may be set aside. 5 U.S.C. Section 706(2)(C).