The U.S. Court of Appeals for the D.C. Circuit on Tuesday shot down attempts by Massachusetts and Montana securities regulators to nullify the Securities and Exchange Commission’s capital raising rule, Regulation A+.
The petitioners, William Galvin and Monica Lindeen, the chief securities regulators for Massachusetts and Montana, respectively, argued that because the SEC “declined to adopt a qualified-purchaser definition limited to investors with sufficient wealth, revenue or financial sophistication to protect their interests without state protection, Regulation A-Plus fails both parts of the United States Supreme Court’s statutory construction standards enunciated in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842–43 (1984).”
Galvin and Lindeen also argued that the rule “should be vacated as arbitrary and capricious because the SEC failed to explain adequately how it protects investors.”
Judge Karen L. Henderson rejected their argument, saying, “The petitioners’ common-use argument is straightforward: in their view, the dictionary definition of ‘qualified’ manifests that ‘qualified purchasers’ cannot mean ‘all’ Tier-2 purchasers. But when the ‘Congress explicitly authorize[s]’ an agency to ‘define [a] term,’ it ‘necessarily suggests that Congress did not intend the word to be applied in its plain meaning sense.”
She continued: “And when the Congress enacted the NSMIA [National Securities Markets Improvement Act] and the JOBS Act, it not only gave the Commission authority to determine which purchasers are qualified but it also permitted the Commission to define the term differently for different types of securities offerings.”
The SEC released Reg A+ under the Jumpstart Our Business Startups (JOBS) Act on March 25, 2015.
As Henderson’s ruling explains, after reviewing extensive public commentary on various qualified-purchaser definitions, the SEC defined the term as “any person to whom securities are offered or sold pursuant to a Tier[-]2 offering of this Regulation A.”