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On the Friday before Memorial Day weekend, William Galvin, the Secretary of the Commonwealth of Massachusetts, filed a petition in Washington DC against the SEC requesting that the court stop the implementation and enforcement of the SEC’s changes to Regulation A. They are asking the court to hold that the rule was “arbitrary, capricious and otherwise not in accordance with the…law.”
The states have been very upset since the Jumpstart Our Business Startups (JOBS) Act was passed on 2012. In Title IV, Congress directed the SEC to implement changes to Regulation A that would, among other things, preempt state review of streamlined Reg A public offerings in sales to “qualified purchasers.” The bill left to the SEC to define who is qualified. In its rulemaking, the SEC declared that all investors are qualified because of the enhanced disclosure and reporting obligations in their new rule, and that qualified simply means able to take care of oneself. The SEC believed that any investor is so able if given the required offering statement and ongoing post-offering reporting.
Eight Democrat Senators wrote a letter to SEC Chair White during the rulemaking process strongly urging her to limit this preemption as much as possible. And now this lawsuit to try to stop it. As I have written here before, there is no unique local interest in allowing states to do a merit review of public offerings. The SEC staff does an excellent job, and the state reviews add too much unnecessary time, cost and hassle to the already burdensome process in going public. Let’s hope this lawsuit goes away quickly.
LATE DAY UPDATE: Montana has also filed a similar petition, don’t have it yet but if it is different we’ll let you know!
Read additional articles at the David Feldman Blog.
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