Statement at Open Meeting to Propose Rule Amendments Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings
Commissioner Troy A. Paredes
Aug. 29, 2012
Thank you, Chairman Schapiro.
When addressing a joint session of Congress last year, the President expressed his intent to “cut away the red tape that prevents too many rapidly growing startup companies from raising capital and going public.”1 On April 5 of this year, the President signed into law the Jumpstart Our Business Startups (JOBS) Act to do exactly that. The goal motivating the bipartisan legislation is to spur our economy and job creation by making it easier for companies to raise the capital they need to invest and hire. In this way, the JOBS Act promotes the SEC’s own mission, which includes facilitating capital formation. In promoting capital formation, the JOBS Act also stands to benefit investors by affording them a wider range of investment opportunities.
A key provision of the JOBS Act is Section 201(a). Section 201(a) directs the Commission, within 90 days after the legislation’s enactment, to amend Rule 506 of Regulation D to permit general solicitation and general advertising in securities offerings conducted under the rule so long as all of the purchasers are accredited investors. Section 201(a) goes on to provide that “[s]uch rules [of the Commission] shall require the issuer to take reasonable steps to verify that purchasers of the securities are accredited investors, using such methods as determined by the Commission.”2
Personally, I welcome Section 201(a) of the JOBS Act as important in helping businesses find capital. In fact, even before the JOBS Act was advanced, I had advocated that the Commission should exercise its authority to ease the restriction on general solicitation and general advertising. Because the Commission did not act on its own initiative to put forth a rulemaking to do so, Congress saw fit to direct the Commission to lift the ban.
So here we are today to consider a recommendation to propose rule amendments as directed by Section 201(a).
We have a rule proposal before us, the core substance of which €“ namely, its flexible approach to the statute’s “reasonable steps to verify” requirement under Rule 506 €“ seems reasonable. That said, a proposal such as this could have been made much earlier so that we would be in a position to adopt a final rule on a much more timely basis. It is regrettable that the Commission is only now considering a proposal well after the statute’s 90-day implementation deadline has passed.
This raises a problem that I have with how the process of this rulemaking has unfolded. For some time, the Commission was set to consider an interim final rule giving effect to Section 201(a)’s directive. But then, after the rulemaking already was far along, the Chairman abruptly decided to change the rulemaking’s course, turning what was an interim final rule into a proposal. To be clear, I had very much supported proceeding with the interim final rule. An interim final rule €“ which, because of its “interim” status, contemplates a future rulemaking €“ would have allowed us to satisfy the clear statutory directive of the JOBS Act while setting the stage for a later rulemaking that would account for the actual consequences that resulted once issuers were given flexibility to more readily reach investors when raising capital. Moreover, it should not be overlooked that the topic of general solicitation has been a subject of discussion for a long time, and that the substance of the rule provided for in the release has been informed by the comments the Commission has received to date that relate to Section 201(a) specifically.
All of which is to say that, given the context of this rulemaking, there is a sound and reasoned basis for proceeding with an interim final rule, just as the Commission was doing until the late switch to a proposal.
Particularly because we find ourselves notably beyond the 90-day implementation deadline, an interim final rule is the right approach. Unfortunately, it has been made clear that an interim final rule is not going to be recommended to the Commission. Thus, given the options, the question is how best to move the implementation of Section 201(a) forward. To ensure that the implementation of the JOBS Act is not further delayed or hindered, I have decided to support the proposal before us as the best outcome available at this time.
With the delay that this rulemaking has already suffered, I urge that the rulemaking process move expeditiously toward a final rule.
In conclusion, let me join my colleagues in thanking the staff - especially those from the Division of Corporation Finance - for your efforts. You have been very busy lately, and your professionalism and hard work are greatly appreciated.
1 See Address by the President to a Joint Session of Congress, available at http://www.whitehouse.gov/photos-and-video/video/2011/09/08/president-obama-presents-american-jobs-act-enhanced-version#transcript.
2 Section 201(a) also directs the Commission to amend Rule 144A to permit the offering of securities under the rule to other than qualified institutional buyers (QIBs), including through general solicitation or general advertising, provided that the seller and any person acting on the seller’s behalf reasonably believe that the purchasers are QIBs.