SEC Not Quite Ready to Lift General Solicitation Ban

Many of us are anxiously awaiting the SEC's implementation of the rules that will allow funds and companies to engage in general solicitations as part of their fundraising efforts.  The SEC was directed to implement those rules within 90 days of the JOBS Act's passage.  Although not much of a surprise, the SEC is now confirming that it will not be able to meet the 90 day deadline.

In a hearing on June 28, 2012 before the House Oversight TARP and Financial Services Subcommittee, SEC Chairman Mary Schapiro provided an update on the Staff's progress in drafting proposed rules lifting the ban on general solicitation and implementing the crowdfunding exemption under the JOBS Act. 

Following are excerpts from an article in today's BNA Bloomberg Securities Law Daily reporting on Chairman Schapiro's testimony before Congress:

"The Securities and Exchange Commission will miss its first rulemaking deadline to lift the general solicitation ban as mandated by the Jumpstart Our Business Startups Act, but a draft rule will come to a commission vote this summer, SEC Chairman Mary Schapiro told lawmakers June 28.

The recently enacted JOBS Act gave the commission until July 4 to issue rules to lift the ban on general solicitation and advertising for certain private offerings, provided that the securities are sold only to accredited investors.

'It's a bit more challenging a rulemaking than it might seem on the surface,' Schapiro told the House Oversight TARP and Financial Services Subcommittee during a hearing on the JOBS Act.

Among other requirements, the statute directs the SEC to determine the method for verifying investor status, which, staff have said, poses a particular challenge in the rule writing.

'Taking steps to verify [investor status] means there are probably lots of alternatives for doing that,' she added. 'Under our cost-benefit analysis guidance, we have to actually look at different alternatives and weigh the costs and benefits of different alternatives for verification of accredited investor status.'

That requirement, coupled with providing the commission an opportunity to review a draft rule and a comment period, makes the deadline unrealistic, she said. However, she said staff are 'significantly along' in the economic analysis and rule writing.

The SEC will release a timeline of the 'commission's consideration' of the provision 'in the next two days,' Schapiro said.

Meanwhile, Schapiro said she does not 'foresee not meeting the deadline' to carve out an exemption for crowdfunding-another provision of the JOBS Act. The SEC has 270 days from the statute's enactment to issue rules on crowdfunding."

The full article from BNA Bloomberg Securities Law Daily may be found at the following link: http://news.bna.com/sdln/SDLNWB/split_display.adp?fedfid=27206828&vname=sldbulallissues&jd=a0d3j2m2f9&split=0.

Thanks to Christopher Paci, a Partner with DLA Piper's corporate group, for passing this update along.

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