Tuesday, July 3, 2012

Tenacious D

The SEC has announced that it will hold an open meeting to consider rules to eliminate the prohibition on general solicitation in offerings made under Regulation D under the Securities Act of 1933. http://www.sec.gov/news/openmeetings/2012/ssamtg082212.htm

Since this is the first of the real deadlines under the JOBS Act – the SEC was required to “revise its rules” in this area within 90 days from April 5 -- some have asked whether the delay in taking action has negative implications for the timing of crowdfunding rules.  The answer is “not necessarily.”  Regulation D sits within a web of inter-related rules, and its provisions cannot be changed without affecting many of those other rules. 

For example, the SEC is also directed to permit general solicitation in Rule 144A offerings. Most Rule 144A offerings include a Regulation S component.  Regulation S prohibits “directed selling efforts.”  Directed selling efforts are very similar to but not exactly like general solicitation (and present their own policy issues).  If general solicitation is permitted but directed selling efforts are still prohibited, the resulting confusion could adversely affect international markets.  And there are similar issues with respect to a number of other rules.

Crowdfunding rules do not pose the same bundle of challenges that changes to long-established rules like Regulation D do.  Writing rules from scratch can sometimes be easier than revising rules that have been in place for decades.  So we would not necessarily read any significance into this delay.  Especially since Chairman Schapiro said in Congressional testimony last week that she didn’t anticipate failing to meet the crowdfunding rule deadline.

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