On Monday, the commonwealth of Massachusetts said it was joining the state of Montana in suing the Securities and Exchange Commission over a JOBS Act rule that bars them from regulating some small securities offerings.
The SEC rule, known as Regulation A+, mandated by Title IV of the Jumpstart Our Business Startups (JOBS) Act, creates two tiers of offerings subject to lighter regulation, disclosure and reporting requirements than larger securities sales.
Tier 1, for offerings of up to $20 million or less in a 12-month period, requires registration with the state and with the SEC. (Issuers can opt out of state registration in exchange for heavier disclosure requirements).
Tier 2, for offerings of up to $50 million in 12 months, requires only SEC registration and preempts any state law regulating offerings of this size, except for anti-fraud laws. Investors in Tier 2 offerings, though, are restricted to those who are either accredited or are subject to other limitations. For example, non-accredited investors can purchase in a Tier 2 offering of no more than 10% of the greater of the investor’s annual income or net worth.
Massachusetts’ chief securities regulator, William Galvin, is asking the Federal Court of Appeals for the District of Columbia to review the SEC regulation and find it “arbitrary, capricious, and otherwise not in accordance with the Administrative Procedure Act, the Securities Act of 1933, and other law,” according to a statement.
Both Massachusetts and Montana filed their appeals Friday.
Galvin adds that Congress, when drafting the JOBS Act legislation, considered but rejected pre-emption of state review of these offerings. The review petition asks the court to vacate the rule and permanently enjoin the SEC from implementing it.