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NASAA and the SEC: Presenting a United Front to Protect Investors

Commissioner Luis A. Aguilar

North American Securities Administrators Association<br>Annual NASAA/SEC 19(d) Conference<br>Washington, D.C.

April 8, 2014

Good morning.  Thank you for that kind introduction.  I have been NASAA’s liaison since I was asked by NASAA to take on that role early in my tenure at the SEC, and it is truly a pleasure to continue our dialogue with my fifth appearance here at the 19(d) conference.  This conference, as required by Section 19(d) of the Securities Act, is held jointly by the North American Securities Administrators Association (“NASAA”) and the U.S. Securities and Exchange Commission (“SEC” or “Commission”).  Before I begin my remarks, however, let me issue the standard disclaimer that the views I express today are my own, and do not necessarily reflect the views of the SEC, my fellow Commissioners, or members of the staff.

The annual “19(d) conference” is a great opportunity for representatives of the Commission and NASAA to share ideas and best practices on how best to carry out our shared mission of protecting investors.  Cooperation between state and federal regulators is critical to investor protection and to maintaining the integrity of our financial markets, and that has never been more true than it is today. 

Let me start by acknowledging the NASAA members and their role on the “front lines” in the continuing fight against fraud.[1]  You are often the first to receive tips and complaints from harmed investors, and the first to identify fraudulent conduct occurring within your local jurisdictions.  Moreover, when resource constraints prevent the Commission from pursuing a potential violation, the states may often be the only avenue to ensure that those who break the law are held accountable.

I have taken a look at NASAA’s recent Enforcement Report and have to commend you on the many accomplishments that are highlighted in the Report.  For example, according to the Report:[2]

  • State securities regulators fielded more than 10,000 complaints from aggrieved investors and conducted 5,865 investigations;

  • States reported about 2,500 administrative, civil, and criminal enforcement actions involving over 3,300 respondents and defendants;

  • States reported criminal actions that resulted in 1,361 years of incarceration;

  • States imposed more than $694 million in investor restitution orders and levied fines or penalties and collected costs of $157 million; and

  • A total of more than 3,500 licenses of brokers and investment advisers were withdrawn due to state action, and 736 licenses were denied, revoked, suspended, or conditioned.

Clearly, these actions make our capital markets safer.

Beyond the focus on enforcement, I also want to acknowledge NASAA’s continued engagement in the SEC’s rulemaking process.  This input has been particularly valuable with respect to the recent initiatives mandated by the JOBS Act.[3]  NASAA and its members have been in the forefront of the comment process for each of the Commission’s proposals under the JOBS Act, including the amendments to Regulation D, the crowdfunding rules, and Regulation A-plus. 

Because of the extensive experience that state securities regulators have in working closely with issuers and investors, and their expertise in reviewing smaller offerings, NASAA members bring unique and important viewpoints and observations to the SEC’s rulemaking process.  I urge NASAA and its members to remain actively involved in that process and to continue providing helpful and insightful comments on our proposed rules.

There are several important topics I could discuss with you, like the many important Dodd-Frank Act rulemakings that remain to be completed.  However, today I will focus my remarks on the following areas:

  • The factors that should be considered in determining the States’ role in Regulation A-plus offerings;
  • The Commission’s outstanding proposal to improve Regulation D; and
  • The importance of proactive steps to combat the potential increase in fraud resulting from the rules mandated by the JOBS Act.

The Role of the States in Regulation A-plus

Let me start with the Commission’s proposed amendments to Regulation A.[4]  That proposal—commonly known as “Regulation A-plus”—would amend Regulation A to create two tiers of offerings:  Tier 1, for offerings of up to $5 million in a twelve-month period, and Tier 2, for offerings of up to $50 million in a twelve-month period.[5]  Both tiers would be subject to basic requirements for issuer eligibility, disclosure, SEC qualification, and other matters, including limitations on the types of securities that may be sold.

As proposed, Regulation A-plus would provide a measure of transparency and accountability that are not provided by the exemptions under Regulation D and Section 4(a)(2).  For example, the amended rules would require an offering statement containing narrative and financial disclosures about the issuer, including two years of financial statements and an MD&A.  The usefulness of the disclosure would be enhanced by the proposed electronic filing requirement, which will help inform the market and facilitate analysis of the offering.   In addition, Tier 2 provides for additional investor protections, including audited financial statements, ongoing reporting obligations, and a limit on the amount of securities that may be purchased by an investor, capped at 10% of the investor’s income or net worth (whichever is greater).

As proposed, Regulation A would also allow issuers more flexibility than other exemptions.  For example, Regulation A would permit general solicitation and advertising, provide broad flexibility to “test the waters” before filing, and would be available for sales to both accredited and non-accredited investors.  

The proposed rules also provide that a Regulation A offering statement may only be qualified by order of the Commission—thus ensuring that all Regulation A offerings go through a staff review.  The expansion of “bad actor” disqualification provisions—and the new eligibility requirements for issuers—add further investor protection.[6]

Obviously, Regulation A-plus remains a work in progress, and no one can say what the ultimate outcome will be.  The comment period closed March 24, 2014, and the staff is considering the information received.  I am hopeful that the exemption will only be improved in the deliberative process leading up to a vote to adopt the amendments.  As the Commission moves toward adopting Regulation A-plus, we should think critically about the Commission’s proposal and we should not hesitate to improve it.

My goal is to have a workable and effective process under Regulation A-plus.  In other words, I hope that this process will attract issuers that might otherwise choose more opaque exemptions for their capital-raising needs, and in turn, that this will provide investors with stronger protections.[7]

I know that NASAA shares that goal. I also know that NASAA has serious concerns about the provision of proposed Regulation A-plus that would effectively preempt state securities law registration and qualification requirements for all Tier 2 offerings.[8]  

In that regard, however, it is important to note that the Commission’s proposing release expressly solicited comment on whether we should take a different approach to preemption at the adopting stage—and if so, what that approach should require.[9]  In other words, this is an issue that has not yet been foreclosed.

As described in the release, one of the key considerations underlying the question of preemption is a concern about the cost—in both time and money—of having to file and qualify an offering separately under the state securities laws of each jurisdiction, and the impact that would have in discouraging market participants from using the new exemption.[10]  This concern reflected the views of many commenters, as well as observations made in a report to Congress by the U.S. Government Accountability Office (“GAO”).[11]

Based on the experience of issuers under Regulation A as currently in effect, this was not an unreasonable concern.  According to the GAO report, although states employ a limited number of methods for registering securities offerings, the specific requirements and processes vary.  Thus, an issuer seeking to offer Regulation A securities in multiple states would traditionally have needed to make multiple state filings.  To that end, the issuer’s counsel would have needed to research the filing requirements for each state in which the offering was conducted.  Each state in which the issuer chose to file would then provide its own comments, based on its own standard of review, and each state would have to separately declare the offering effective, before the offering could be conducted in that jurisdiction.[12]  As a result, complying with the registration provisions of multiple states was seen as expensive and time-consuming.

However, that may be changing.  Last month, NASAA’s membership approved a streamlined review protocol, known as the Coordinated Review Program, for multi-state offerings under Regulation A.[13]  At least 48 of the 53 U.S. jurisdictions represented by NASAA have already signed Memoranda of Understanding (MOUs) adopting this new protocol.  If fully implemented as proposed, this program could significantly reduce the time and cost of state registration, by cutting redundancy at three steps:

  • First, any issuer desiring coordinated review simply emails a single application to the program coordinator.[14]  Importantly, the ability to file by email means that this program is not dependent on any new technology or infrastructure, which might otherwise delay the program’s effectiveness.[15]
  • Second, the program coordinator selects a lead disclosure examiner and a lead merit examiner.[16]  Only the lead examiners interact with the issuer.  Any comments or concerns from other participating jurisdictions are passed through to the lead examiners.
  • Third, each participating jurisdiction agrees to clear the application upon clearance by the applicable lead examiner.[17]   

As described by NASAA, the protocol would have tight time limits.  The proposed timetable would allow the lead examiners either to clear the offering or to comment on any deficiencies in the application within 21 business days after filing.  The process for clearing comments would also be accelerated.  In addition, it is understood that participating merit-review states have agreed to modify or eliminate several of the policy statements that have in the past caused concerns for the types of start-up businesses likely to use Regulation A-plus.[18]

Accordingly, if implemented as proposed, the Coordinated Review Program could ameliorate many of the concerns raised by commenters regarding state blue sky review of Tier 2 offerings.  While some costs of state review will remain,[19] a viable Coordinated Review Program should certainly reduce issuer legal costs significantly, while also reducing delay and uncertainty.    

Accordingly, the availability of such a coordinated program should be a factor that the Commission seriously considers when determining the issue of state preemption at the adopting stage. 

Moreover, when thinking about the issue of state preemption, costs are not the only factor to consider.  It is also important for the Commission to take into consideration the benefits of the blue sky process to investors and other market participants.  Some commenters have suggested that blue sky review and qualification of “Tier 2” offerings may provide substantial benefits to both investor protection and capital formation.  For example:

  • In jurisdictions that provide for a form of “merit-based” review—about half of the U.S. jurisdictions represented by NASAA—state qualification provides a type of investor protection not provided by the Federal securities laws.  Merit requirements—such as limits on the total amount of selling expenses—or requiring independent directors if a company has a history of related-party transactions—can provide retail investors with the types of protections that angel investors, venture capitalists, and institutional investors customarily are able to negotiate for themselves.[20]
  • Under some circumstances, there may be a benefit in having a regulator with local knowledge, or with greater proximity to investors, evaluating the offering materials.  This may be even more important in the case of smaller companies, who may be more impacted by local economic conditions.
  • As state regulators point out, they are often in a better position to provide assistance to smaller companies seeking to raise capital from investors in their jurisdiction.[21]

However, let me acknowledge that other commenters have a different perspective.  A number of commenters argue that the burden of state blue sky review still outweighs the benefits to investors, notwithstanding the availability of a multistate coordinated review program.[22]  For example:

  • Some commenters argue that, even with a coordinated process, the need to complete both state and federal filing requirements, and to undergo both state and federal reviews, including in many cases both a merit review and a disclosure review, is “cumbersome,” creates “uncertainty,” and would impact “time to market.”[23]  Some also express concern about relying on a new and untested program.[24]

  • Moreover, some commenters say that, even under a coordinated review, lead state examiners will still be required to collect comments from other state examiners.  As a result, an issuer undergoing such review will need to be responsive to a variety of state comments, some of which may be duplicative of, or inconsistent with, comments from SEC staff review.[25]  Accordingly, such commenters doubt that the Coordinated Review Program announced by NASAA will do enough to streamline and clarify the state review process.  For some commenters, this concern is exacerbated by what they consider the potential for subjectivity in applying state merit review standards.[26]

Obviously, the question of preemption is a complicated and important issue.  Ultimately, all the factors—pro and con—should be taken into consideration to determine whether it is appropriate for state registration and qualification requirements to be preempted for all Tier 2 offerings.

In the end, both the SEC and our colleagues at NASAA have a common goal:  A form of Regulation A that is utilized more frequently than its predecessor because it provides an effective way for small companies to raise capital and because, importantly, it provides appropriate investor protection.  My mind remains open as to the best way to achieve this goal.

Before I move on, I do want to recognize that questions have been raised as to the Commission’s authority to, in effect, preempt state registration for all purchasers in Tier 2 offerings, and whether such preemption is consistent with Congress’s intent under the JOBS Act.[27]  I have requested advice on this issue from the SEC’s Office of General Counsel, and will expect a full analysis prior to the adoption of final rules.

Regulation D

In addition to Regulation A-plus, I would like to address another significant matter resulting from the JOBS Act.

Last year, by a vote of 4‑to‑1, the Commission adopted a JOBS Act-mandated rulemaking to allow general solicitation and advertising in securities offerings under Rule 506 of Regulation D.[28]  At the time, many expressed their concerns that mass marketing under Regulation D would make fraud easier by enabling fraudsters to cast a wider net.  In light of the well-known risks, many experienced observers, including NASAA and a number of its members, urged the Commission to include provisions in the rule to protect investors and to help securities regulators oversee the evolving market for offerings under Regulation D.[29]

As this group knows well, the majority of Commissioners at that time did not include any of the requested investor protections in the general solicitation rule adopted.[30]  In fact, the majority did not even allow a discussion of the suggested protections to be included in the proposing release.  For those reasons, I dissented at both the proposing and adopting stages.  However, at the time of the adoption, the Commission did approve, by a 3‑to‑2 vote, a proposal to amend Regulation D and related rules in a few very basic ways to mitigate some of the risks presented by general solicitation.[31]  Specifically, that proposal would amend Regulation D to improve the content and timeliness of the Form D notice filing and to require legends and other disclosures in written materials disseminated in offerings utilizing general solicitation.  The proposal would also amend Rule 156 to extend its antifraud guidance to the sales literature of private funds, and would add a new rule to require, on a temporary basis, the submission of written general solicitation materials to the Commission.

At the time, I raised serious questions about the wisdom of adopting Rule 506(c) to allow for general solicitation while only proposing needed changes to help ameliorate its risks.[32]  It is important that this proposal be adopted, and, importantly, that it be adopted in a form that will protect investors.  I know that many state securities regulators have submitted thoughtful comments in support of the proposal.[33]  I urge you to sustain your support and I urge you to continue to encourage the Commission to act in a meaningful and effective manner.

Working Proactively to Combat a Higher Risk of Fraud

One result of the JOBS Act is that, taken together, general solicitation, crowdfunding, Regulation A-plus, the so-called “IPO on-ramp,”[34] and increases in the number of record holders a company may have before it has to register under the Exchange Act[35]—have the effect of blurring the lines between public and private companies.  In effect, rather than a simple distinction between private placement and public offering, or between reporting company and non-reporting company—there are now different degrees of “publicness.”

This situation raises a number of concerns for the investing public:  First, there is the potential risk of a “race to the bottom,” in which companies are incentivized to seek out the regulatory approach that allows them to access the most investor funds with the least possible oversight.  Another risk is that, with a wide range of disclosure and governance regimes that may potentially be adopted, investors may be misled, or otherwise be unaware, of the rules applicable to a particular offering and the underlying security.

Moreover, the lack of transparency relating to these offerings may also lead to an increase in fraud or manipulation in the secondary market.  For example, while it is not yet known whether a reliable secondary market will develop for Regulation A-plus securities, any such market will almost certainly be less transparent than the market for listed securities—even with the proposed ongoing reporting obligations for Tier 2 offerings.[36]    

The Commission and our partners in NASAA must work proactively to get in front of these problems before investors are harmed.[37]  To that end, I was pleased to note that, shortly after enactment of the JOBS Act, NASAA formed a task force on Internet fraud investigations to monitor the development of online platforms pursuant to Section 201(c) of the JOBS Act,[38] as well as crowdfunding websites and other Internet offerings.[39]  I should also note that at the same time as Regulation D was amended to allow general solicitation, the Commission announced a work plan to study the use of the new rule, including looking for any increased incidence of fraud and coordinating with SEC examination staff and state regulators.[40]

I encourage the staff of the SEC and NASAA members to communicate with one another and work together to understand and address the developments in the markets impacted by the JOBS Act.  Working together makes us stronger and more effective.

It is imperative that a proactive approach be taken to monitoring these areas for potential problems.  As additional JOBS Act-mandated rules come into effect, cooperation and collaboration between the Commission and state regulators will become more important than ever, and strong swift actions must be taken to address any problems as soon as they are uncovered.

I am a strong supporter of capital formation.  I know what it can mean for our economy, our work force, and our country’s future.  Because of that, I firmly believe that it is important that the SEC and NASAA members work together to ensure the integrity and fairness of the capital formation process.  Our combined vigilance will enhance the benefits of the new rules, engender investor confidence in the process, and guard against investor harm.


Before I conclude, I want to highlight one additional recent development.  In my remarks last year, I expressed my disappointment that, nearly three years after Dodd-Frank became law, the Commission still had not created the Office of the Investor Advocate.  Today, I am pleased to report that the SEC has a brand new Investor Advocate.  In fact, one of NASAA’s very own was chosen as its first Director.[41]  I expect this new office to identify the priorities and concerns of investors and to bring this focus to the Commission’s rulemaking and other policy efforts.  NASAA has been a sustained ally of, and a strong advocate for, investors.  I fully expect that the new Investor Advocate will bring the same commitment to the SEC.

I will finish where I started, by highlighting the tremendous efforts of the staffs of the SEC and the NASAA securities regulators to protect investors.  I am humbled and proud to be part of your world.  I encourage you to keep fighting for investors, and I commend you for all of the work you do.  Investors need the SEC and NASAA to work together.

Thank you for having me, and I hope you have a great conference.


[1] NASAA’s U.S. jurisdictions include the 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.  NASAA’s membership also includes securities administrators in Canada and Mexico, bringing the total number of current members to 67.

[3] Jumpstart Our Business Startups Act (“JOBS Act”), Pub. L. No. 112-106, 126 Stat. 306 (Apr. 5, 2012).  It is worth noting that Title III of the JOBS Act expressly requires the SEC to consult with state securities regulators in establishing the regulatory framework for crowdfunding.  JOBS Act §302(c), 126 Stat. at 320.  See, Crowdfunding, SEC Release No. 33-9470 (Oct. 23, 2013), 78 Fed. Reg. 66427 (Nov. 5, 2013).

[4] Under the current provisions of Regulation A, which was adopted by the Commission under Section 3(b) of the Securities Act of 1933 (“Securities Act”) as in effect prior to the JOBS Act, companies can raise up to $5 million per year without registration, provided that they file an offering statement with the Commission and furnish an offering circular to purchasers, among other conditions.  Title IV of the JOBS Act added Section 3(b)(2) to the Securities Act, which directs the Commission to adopt rules exempting offerings of up to $50 million of securities annually from the registration requirements of the Securities Act.

[5] Proposed Rule Amendments for Small and Additional Issues Exemptions Under Section 3(b) of the Securities Act, SEC Release No. 33-9497 (Dec.18, 2013), 79 Fed. Reg. 3925 (Jan.23, 2014) (“Reg A+ Proposing Release”), available at  Comment letters are available at (File No. S7-11-13 ).  Pre-proposal comment letters on Title IV of the JOBs Act are available at

[6] As currently in effect, Regulation A is available only to companies organized in, and with their principal place of business inside, the United States or Canada.  In addition, the exemption is not available to companies with reporting obligations under the Exchange Act of 1934 (“Exchange Act”), investment companies, blank check companies, issuers disqualified under the “bad actor” provisions of Rule 262, and issuers of fractional undivided interests in oil, gas, or mineral rights.  The proposal maintains these eligibility standards (amending the bad actor rule to conform to the new bad actor provisions in Regulation D).  In addition, the proposal would make the exemption unavailable to issuers that violate their ongoing reporting duties under Regulation A-plus or that are or have been subject to a Commission order issued within the preceding five years denying, suspending, or revoking the registration of a class of securities pursuant to the Exchange Act.

[7] It is also my hope that issuers that have success with Regulation A-plus may migrate over time to full reporting status, as they begin to reap some of the potential benefits available to public companies, such as (i) a security that may be used by the issuer as an acquisition currency or for incentive compensation purposes, and (ii) a lower cost of capital, as outstanding securities tend to be purchased by those investors that value them the most.

[8] In general, federal preemption of state securities law is governed by Section 18 of the Securities Act, which provides, among other things, that no state law or regulation requiring the registration or qualification of securities or securities transactions shall apply to any security that is a “covered security.”  Section 401(b) of the JOBS Act amended Section 18(b)(4) of the Securities Act to add a new subsection (D) to the definition of a “covered security.”  As so amended, the term “covered security” includes any security issued in a transaction that is exempt from registration under the Securities Act pursuant to Regulation A-plus, if such security is (i) offered or sold on a national securities exchange, or (ii) offered or sold to a “qualified purchaser,” as defined by the Commission.  The Commission has authority under Section 18(b)(3) of the Securities Act to define the term ‘‘qualified purchaser’’ differently with respect to different categories of securities, consistent with the public interest and the protection of investors.  The Commission’s proposal would, in effect, apply the preemption of Section 18 to all Tier 2 offerings under Regulation A-plus, by defining “qualified purchaser” for this purpose as all offerees in a Tier 1 or Tier 2 offering, and all purchasers in a Tier 2 offering.  It needs to be noted, however, that notwithstanding such preemption, the states retain jurisdiction under state law to investigate and bring enforcement actions for fraud or deceit, or unlawful conduct by a broker or dealer, relating to securities.

[9] See, Reg A+ Proposing Release, 79 Fed. Reg., at 3970.  

[10] Id., at 3967-71.

[11] See, Factors That May Affect Trends in Regulation A Offerings, GAO-12-839 (July 2012), available at  The report, issued pursuant to Section 402 of the JOBS Act, indicated that various factors may have influenced the use of Regulation A, including the type of investors businesses seek to attract, the process of filing the offering statement with the Commission, state securities law compliance, and the cost-effectiveness of Regulation A relative to other exemptions.

[12] A few states provide a state law exemption for offerings exempt from Federal registration under Regulation A.

[13] NASAA has successfully implemented other coordinated programs, including existing programs for equity IPOs registered under Section 5 of the Securities Act, regional small company offerings issued under Rule 504 of Regulation D or current Regulation A (subject to a $1 million cap), and registered direct participation securities, such as non-traded REITs.  See, NASAA, Coordinated Review, available at, (last visited, Apr. 3, 2014).

[14] The Securities Division of the Washington State Department of Financial Institutions has agreed to serve as program coordinator.  No additional filing fee is planned for the coordinated review process, beyond the ordinary registration fees charged by each state in which an offering will be conducted. 

[15] Separately, NASAA has announced that it is developing an electronic filing depository or EFD.  Although electronic filing may enhance operation of the coordinated review process for Regulation A filings, the EFD is not a prerequisite for NASAA to implement the Coordinated Review Program as adopted.  See, Andrea Seidt, 2013 Presidential Address, NASAA 96th Annual Conference, Salt Lake City, Utah (Oct. 8, 2013), available at  

[16] This assumes that the issuer has applied to offer securities in both “merit review” and “disclosure only” states.  If an issuer has applied to only one type of jurisdiction, only one lead examiner would be appointed.

[17] In other words, merit-review states would agree to declare the offering effective when cleared by the lead merit examiner, and disclosure only states would agree to declare the offering effective when cleared by the lead disclosure examiner.

[18]In an effort to promote uniformity in the application of state securities laws, NASAA has published a number of Statements of Policy containing model merit review standards of general applicability (as well as statements relating to specific investments).  The review protocol applicable to NASAA’s Coordinated Review Program for Section 3(b) Offerings provides for the following exceptions to existing NASAA statements of policy:

  • The Statement of Policy Regarding Promoters’ Equity Investment shall not apply;
  • The Statement of Policy Regarding Promotional Shares shall apply except that one-half of any promotional shares required to be locked-in or escrowed shall be released on the first and second anniversary of the date of completion of the offering such that all shares shall have been released from lock-in or escrow by the second anniversary of the date of completion of the offering; and
  • The Statement of Policy Regarding Loans and Other Material Affiliated Transactions shall apply except that the disclosure document shall not be required to include representations by counsel to the issuer as contemplated in Section VII.C.3 of the policy.

See, NASAA, Statements of Policy, available at, (last visited, Apr. 3, 2014); NASAA Coordinated Review of Regulation A Offerings, Review Protocol (as adopted March 7, 2014).

[19] Even under the Coordinated Review Program, state blue sky review will add some costs to the Regulation A-plus offering process.  Legal fees would be incurred to prepare and file the application and clear comments with the lead examiners, although presumably such fees would be lower under a Coordinated Review Program than they would be if each state’s comments had to be cleared separately.  Coordinated review will not in itself reduce the state filing fees, which may exceed $35,000, depending on the number of states in which securities are offered and the amount of securities offered in each state.  See, Reg A+ Proposing Release, 79 Fed. Reg., at 3975, 3978.  See also, letter from Michael L. Zuppone, Paul Hastings LLP (Nov. 26, 2013) (“Paul Hastings I”) (estimating $50,000 to $70,000 in filing fees to clear an offering with the blue sky authorities in all 50 states).  However, even if state registration and qualification are effectively preempted for all Tier 2 purchasers under Regulation A-plus, Section 18 of the Securities Act would not prohibit the states from requiring notice filings, consent to service of process, and a fee, for securities sold or offered therein in a Tier 2 offering, provided that such securities are not (and upon completion of the transaction will not be) listed or authorized for listing on a national securities exchange, or a security of the same issuer that is equal or senior in seniority to a security so listed.  Accordingly, preemption may not result in much cost savings with respect to fees.

[20] See, NASAA, Statements of Policy, available at

[21] Telephone interview by Marc Leaf, Counsel to Commissioner Aguilar, with Joseph Brady, General Counsel, NASAA, and Faith Anderson, General Counsel, Division of Securities, Washington State Department of Financial Institutions (Apr. 1, 2014).

[22] See, e.g., letters from Catherine T. Dixon, Chair, Federal Regulation of Securities Committee, Business Law Section, American Bar Association (Apr. 3, 2014) (“ABA”); Tom Quaadman, Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce (Mar. 24, 2014) (“Chamber”); and Michael L. Zuppone, Paul Hastings LLP (Mar 24, 2014) (“Paul Hastings II”).

[23] Id.

[24] See, e.g., letters from Chamber and Paul Hastings II.  In addition, the letter from ABA states that unless offers are exempt from state registration requirements, issuers would not be able to reap the benefits of widely distributing solicitation materials prior to qualification to “test the waters,” as would be permitted by Regulation A-plus, as proposed.  Letter from ABA.

[25] See, e.g., letters from ABA and Paul Hastings II. 

[26] Id.  Although the protocols for NASAA’s coordinated review program would modify or eliminate certain existing statements of policy, ten policies of general applicability (including the statement of definitions) would continue to apply in whole or in part to reviews of Regulation A offerings under the coordinated program.  See note 18, supra.

[27] See, e.g., letters from Andrea Seidt, President, NASAA (Mar. 24, 2014); William M. Beatty, Securities Administrator, Washington Department of Financial Institutions (Mar. 24, 2014); and Barbara Roper, Director of Investor Protection, Consumer Federation of America (Mar. 24, 2014).

[28] Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, SEC Release No. 33-9415 (July 10, 2013), 78 Fed. Reg. 44771 (July 24, 2013).

[29] See, e.g., letters from NAASA (Oct. 3, 2012); Consumer Federation of America (“Consumer Federation”) (Oct. 3, 2012); Consumer Federation, Americans for Financial Reform, and AFL-CIO (Apr. 23, 2013); AARP (Oct. 5, 2012); Fund Democracy, Inc. (“Fund Democracy”) (Oct. 2, 2012); Massachusetts Securities Division (Sept. 20, 2012); Nevada Securities Division (Oct. 5, 2012); Ohio Division of Securities (Oct. 5, 2012); South Carolina Securities Commissioner (Oct. 5, 2012); Virginia Division of Securities (Oct. 4, 2012); Investment Company Institute (Oct. 5, 2012), BetterInvesting (Oct. 19, 2012); CFA Institute (Nov. 1, 2012); and Christopher Hunter, Ph.D., Prof. of Sociology, Grinnell College (Sept. 1, 2012) (each in Comments on Proposed Rule: Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (“File No. S7-07-12”), available at; and letter from Prof. Mercer Bullard, President and Founder, Fund Democracy, Prof. J. Robert Brown, Jr., Director, Corporate & Commercial Law Program, University of Denver Sturm College of Law, and Barbara Roper, Consumer Federation (Aug. 28, 2012) in Comments on SEC Regulatory Initiatives Under the JOBS Act: Title II — Access to Capital for Job Creators (the “Pre-Proposal File”), available at   

[30] The Commission did concurrently adopt rule amendments to implement Section 926 of the Dodd-Frank Act by disqualifying certain felons and “bad actors” from offerings under Rule 506.  Disqualification of Felons and Other “Bad Actors” from Rule 506 Offerings, SEC Release No. 33-9414 (July 10, 2013), 78 Fed. Reg. 44730 (July 24, 2013). 

[31] Amendments to Regulation D, Form D and Rule 156, SEC Release No. 33-9416 (July 10, 2013), 78 Fed. Reg. 44806 (Jul.24, 2013).

[32] See, Commissioner Aguilar, Facilitating General Solicitation at the Expense of Investors (July 10, 2013), available at

[33] See, e.g., letters from A. Heath Abshure, President, NASAA (Sep. 27, 2013), William M. Beatty, Securities Administrator, Washington Department of Financial Institutions (Nov. 6, 2013), and William Francis Galvin, Secretary of the Commonwealth, Commonwealth of Massachusetts (Nov. 7, 2013), available at

[34] See, JOBS Act §§101-108, 126 Stat. 306, 306-13.  Title I of the JOBS Act, among other things, exempts “emerging growth companies,” as defined in §101 of the Act, from certain disclosure and other obligations otherwise applicable under the Securities Act and the Exchange Act.  The definition of emerging growth company would include the majority of issuers for the first five years following their initial public offerings.

[35] See, JOBS Act §§303, 501-503, 601-602,  126 Stat. 306, 321, 325-27.    Several provisions of the JOBS Act amend Section 12(g) of the Exchange Act to increase the number of registered owners a company may have, before it is required to register as a reporting company under the Exchange Act.  As amended, the current registration threshold is 2000 record holders, of which fewer than 500 may be non-accredited investors.  Persons who receive securities pursuant to certain employee compensation plans, and holders of securities issued pursuant to the Commission’s final crowdfunding rules, are not counted towards the cap.  In the case of an issuer that is a bank or bank holding company, the registration threshold is 2000 persons, whether or not accredited.

[36] I am also concerned about the possibility of secondary trading in securities issued through crowdfunding, which would be freely transferable after a one-year holding period.  If the Commission adopts rules that it knows will have the effect of substantially increasing the number of unregistered securities in the hands of individual investors, it should be prepared to consider what actions may be necessary to improve, monitor, or police any secondary market for those securities.

[37] See, Commissioner Aguilar, Harnessing the Internet to Promote Access to Capital for Small Businesses, While Protecting the Interests of Investors (Oct. 23, 2013), available at

[38] Section 201(c) of the JOBS Act added new Section 4(b) to the Securities Act, which provides that, with respect to securities offered and sold in compliance with Rule 506 under Regulation D, operators of any “platform or mechanism” that facilitates transactions in such securities shall not be subject to registration as a broker-dealer for certain types of activities related to such a  platform, provided they do not hold customer funds or securities and do not receive transaction-related compensation.  Although under the statute, such platforms are not limited to Internet-based services, the “matchmaking” platforms authorized by Section 201(c) are sometimes described as crowdfunding sites for accredited investors.  JOBS Act §201(c), 126 Stat. at 314.

[39] NASAA Press release, NASAA Sees Sharp Spike in Crowdfunding Presence on the Internet (Dec. 5, 2012),  Under the Commission’s proposed crowdfunding rules, operators of crowdfunding platforms will have to be registered with the Commission, either as broker-dealers or as funding portals under the new rules.  As these rules have not been adopted and are not effective, most retail crowdfunding of securities is currently prohibited.  See, note 3, supra.  New Section 4(b) of the Securities Act, added by Section 201(c) of the JOBS Act, permits the operation of a platform or mechanism for the offer and sale of securities by issuers pursuant to general solicitation, subject to certain conditions.

[40] See, Amendments to Regulation D, Form D and Rule 156, 78 Fed. Reg. at 44809.

[41]  See, SEC Press Release No. 2014-27, SEC Names Rick Fleming as Investor Advocate (Feb. 12, 2014), available at

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