After a full year’s delay, the Securities and Exchange Commission recently lifted a ban on general solicitations for certain private-securities offerings. Yet in doing so, the commission proposed a set of rules – effective in late September – that threaten to institutionalize the very ban that was supposed to be eliminated. And it reinforced an unfair regulatory bias against less-wealthy investors that has persisted for far too long.
In March 2012, Congress passed the Jumpstart Our Business Startups Act, or the JOBS Act. As originally intended, Title II of the law sought to widen the pool from which small businesses could privately raise capital by allowing them to publicly advertise their securities offerings. The logical assumption was that the greater the number of people who were aware of such an opportunity, the more accredited investors who were likely to be in that group.
What the law didn’t do was amend who was qualified to invest in these offerings. That’s a crucial point: No one who was disqualified from participating before the JOBS Act was now allowed to play. It took the SEC 15 months – 12 more than statutorily provided for – to simply allow more people to know that something exists.
And as it did so, it proposed a new set of compliance rules that are so onerous they effectively keep the advertising ban in place. The commission would first require enhanced due diligence on an investor’s accredited status. Second, it would require a filing 15 days in advance of using the exemption with a follow-up filing within 30 days of completion. Third, it would need additional disclosures that include expanded information on the issuer and the offered securities, the types of investors in the offering, the use of proceeds, the types of general solicitation employed, and the methods used to verify the accredited status of investors. Finally, issuers would be required to submit copies of all written general-solicitation material to the SEC.
I sincerely hope the SEC doesn’t make the burdens so restrictive that the unaccredited never have the chance to change their “status.” I also hope the SEC doesn’t starve companies of much-needed capital that they can’t access any other way.
We are a nation of risk-takers. No one has the right to take that from us. •