In my last post, I discussed new proposed Regulation D rules which impose new obligations upon issuers of securities in private placements. In that post, I expressed some concern that these new rules could be quite burdensome, especially the rule disqualifying issuers from using Rule 506 on future securities offerings for failing to file Form D in a timely fashion. Others involved with startup capital formation have also expressed similar concerns. In this post, I’ll compile the comments I’ve seen thus far.
To start at the “top,” Congressmen Patrick McHenry (R-NC) and Scott Garrett (R-NJ) wrote a rather strident letter in opposition to some of the requirements within the proposed rules. In particular, they opposed the requirement that Form D be filed 15 days prior to any general solicitation, going so far as to say that the requirement violates the text of the JOBS Act and may thus exceed the SEC’s authority. They also opposed the new Rule 510T, which would require that issuers submit copies of all advertising materials to the SEC prior to their use, on the basis that such a requirement would be too costly for small businesses and would be unnecessary. Third, they opposed the requirement that certain “canned” disclosures be incorporated into all advertising materials, making the (in my view) very good point that more standard disclosures are just likely to be ignored by investors and are of limited value. Strangely, they did not address the disqualification of issuers who had failed to file Form D in the past, which in my view is the worst part of these new rules. Of course, this isn’t the first time Rep. McHenry has come into conflict with the SEC over the implementation of the JOBS Act. It probably won’t be the last either.
Fellow blogger Joe Wallin has used a number of posts to sound the alarm about the potential problems that these new rules would cause:
- Proposed Rules Hard On Startups
- SEC Issues Proposed Rules Amending Reg D
- Innovation Up In Flames (A rather dramatic title, but perhaps not unwarranted.)
- You Can’t Tweet That (Bringing up the interesting point that if all advertising material needs to include standard disclaimers, are Twitter posts, with their 140 character limit, completely out of the question?)
- What Do the SEC’s Proposed Reg D Rules Actually Require?
He also wrote a great article in the Wall Street Journal about it available here.
Another legal blogger, William Carleton wrote a good article about it in TechCruch, available here.
There is a website www.saveregd.org which has been posted advocating a letter writing to the SEC to get them to back down on some of the worst parts of these rules.
Of course various parties have begun to submit their comments to the SEC. All official comments to the proposed rules can be found here. The deadline to submit a comment is September 23, 2013.
© 2013 Alexander J. Davie — This article is for general information only. The information presented should not be construed to be formal legal advice nor the formation of a lawyer/client relationship.