When the JOBS Act was enacted in April 2012, it raised a
significant amount of excitement in the EB-5 community. At the time, there was
a general consensus that the Act could change the landscape of EB-5 private
offerings. However, the Securities and Exchange Commission's (SECs) indefinite
delay with respect to implementing its rules currently leaves the Act in a
state of limbo. One of Mary Shapiro's last acts as the outgoing Chairman of the
SEC, scheduled to depart on December 14, 2012, has served to delay the
application of a highly relevant section of the JOBS Act to the EB-5 investor
Program.
The decision on implementing the SEC rules on this
particular section of the JOBS Act has been criticized as being overly
politicized. The highly relevant section of the JOBS Act to the EB-5
investment program is known as Regulation D. The new law will repeal the
prohibition on general solicitation and general advertising rules for private
placement offerings conducted pursuant to Rule 506 of Regulation D, provided
that all purchasers are accredited investors.
The rule potentially affects hundreds of billions of
dollars from companies' private placement offerings. The delay of implementing
the new rules is caused in part by the concerns
pertaining to Shapiro's personal legacy. Reports are that Shapiro stated
that: "[She doesn't] want to be tagged with an Anti-Investor legacy", in a
released SEC internal email.
Internal SEC emails, released to a congressional panel
and reviewed by The Wall Street Journal, appear to show how a last-minute
intervention by a consumer lobbyist may have helped to persuade Ms. Schapiro to
change her mind and delay this key provision of the JOBS Act. Within an hour of
receiving the consumer group's email, Ms. Schapiro sent Meredith Cross, the
head of the SEC division tasked with the responsibility for writing the rule, a
message with the subject matter entitled: "Please don't forward."
Republican Representative, Patrick T. McHenry, accused
Mary Schapiro of deliberately slowing down the progress of Regulation D, which
would benefit companies selling securities through private offerings. Mr.
McHenry blames Schapiro for "prioritizing special interest groups' requests
over the faithful implementation of the law," just to uphold her legacy amongst
the special interest groups.
The general solicitation and general advertisement
requirement was instituted from the 1930s to protect unsophisticated investors
from unscrupulous individuals. In the JOBS Act, Congress requested
repealing the prohibition on general solicitation in an effort to jump start
the economic and to decrease the regulatory and bureaucratic issues
frequently encountered by small businesses.
The generally accepted protocol is for the SEC to seek
public opinions and commentary before approving a regulation. However, in
this case, the agency was forced to dismiss the public's comments due to the
short time frame Congress established. Such a deviation from the norm did
not go unnoticed by Lobbyist Barbara Roper from the Consumer Federation of
America, who objected to the regulation and demanded that the SEC solicit the
public's opinion before approving the regulation. This has certainly been a
cause for worry on Ms. Schapiro's part.
It has been argued that significant pressures and bold
threats from lobbyists, high-level investor groups, and other opponents of the
regulation, contributed to Schapiro's change of mind related to the new
regulation. Schapiro has denied allegations of prioritizing special interest
groups over the faithful operation and implementation of the law.
A letter from the House oversight subcommittee urges Ms.
Schapiro to implement the rule ending the general-solicitation ban before her
scheduled departure from the Commission.
A statement released by the SEC states that: "The law
generally requires the Commission to seek public comment on a specific proposal
before adopting it, and that is the Commission's customary process. The staff's
initial work on the rule assumed public comments would be sought and the staff
ultimately recommended that the Commission proceed in that way."
It remains unclear when the implementing measures of the
JOBS Act will be established.
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