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The Securities and Exchange Commission (SEC) announced before its open meeting on Wednesday that it is holding off on further action toward a rule on private-offering promotion under the JOBS Act until its Aug. 29 meeting.
SEC spokesman John Nester told AdvisorOne in an e-mail message that the commission “will consider whether to propose” the rule for comment at that time.
After repeated complaints, SEC Chairwoman Mary Schapiro (left) had decided to back away from issuing the rule on Wednesday and instead put the rule out for public comment. The agency was barraged with complaints from groups like the North American Securities Administrators Association (NASAA) and Americans for Financial Reform (AFR) for circumventing its traditional practice of putting rules out for comment before issuing them.
The rule in question would allow general solicitation and general advertising in securities offerings conducted under Rule 506 of Regulation D under the Securities Act and Rule 144A under the Securities Act, as mandated by the Jumpstart Our Business Startups (JOBS) Act, which was signed into law in April and is intended to ease capital raising for small businesses and startups.
Rule 506 allows certain private placements to be sold to investors without SEC registration. "By definition, these are limited investment offerings that are highly illiquid, generally lack transparency and have little regulatory oversight," NASAA President Jack Herstein wrote in a blog for AdvisorOne.
AFR, which includes former securities regulators, leading securities law experts, and advocates for investors, workers and older Americans, told Schapiro to “abandon this rushed approach” of issuing an interim rule before releasing it for comment.
“In the 1990s,” AFR said, “a previous experiment with lifting the general solicitation and advertising ban led to an immediate upsurge in fraud, causing the commission to reinstate the restriction. Since passage of the JOBS Act, advocates argue, both the magnitude of the risks and the complexities of the issues the commission must address in any rulemaking have only increased.”
Read SEC Backs Off Issuing Private Offering Rule on AdvisorOne.
Read NASAA President Jack Herstein's blog, SEC Private Placement Rule Threatens to Put Investors at Great Risk, on AdvisorOne.