Concerns Over Fraud Delays General Solicitation Rules, SEC Commissioner Tells House Committee
Washington – April 17, 2013. Securities and Exchange Commissioner Elisse Walter told the House Committee on Financial Services today that concern about fraud is delaying release of proposed rules to allow general advertising for certain securities under Title II of the JOBS Act. The committee called the hearing to investigate what it perceives as an unreasonable delay by the SEC in formulating rules under Title II of the Act, which were due last July 4, 2012.
“Title II of the JOBS Act is a top priority of the Commission,” Commissioner Walter assured the committee. “I am committed to finalizing the rules with my colleagues as expeditiously as possible.” During the hearing, Ms. Walter did not commit to a specific date when the SEC may disclose rules.
On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (JOBS Act) on April 5, 2012, which would open the door for general solicitation for certain securities offerings and crowdfund investing. The Act required the Securities and Exchange Commission to issue rules by the end of 2012, which SEC has yet to do. In a statement, Committee majority members scheduled a hearing today The Finance Committee held a hearing today to examine “the failure of the U.S. Securities and Exchange Commission (SEC) to meet the statutorily [sec] required deadline for implementing Title II of the Jumpstart Our Business Startups Act (JOBS Act).”
Under the proposed rules, companies issuing securities in an offering conducted under Rule 506 of Regulation D would be permitted to use general solicitation or general advertising to offer securities, provided that the issuer takes reasonable steps to verify that the purchasers of the securities are accredited investors. Commissioner Walter said public commentary raised concerns about fraudulent securities offerings that could be made through general advertising, which prompted the commission to take a closer look at rules for Title II. “If we don’t take care of investors, they won’t invest,” Ms. Walter testified.
“Commenters on the proposal were sharply divided in their views,” testified Ms. Walter, noting that the SEC is reviewing more than 220 comments. “Some of these commenters stated that the proposed rules, if adopted, would result in an increase in fraudulent securities offerings, with a number recommending that the Commission consider additional safeguards, such as those recommended in certain pre-proposing release comment letter.”
“In addition, several supporters recommended that the proposed framework for verifying accredited investor status be supplemented in the final rule by including a non-exclusive list of specific verification methods that could be relied upon by issuers seeking greater certainty that they are satisfying the verification requirement,” Commissioner Walter said.
“Currently, staff in the Divisions of Corporation Finance and Risk, Strategy, and Financial Innovation are developing recommendations for the Commission’s consideration as to how best to move forward with implementation of Title II,” Ms. Walter assured the committee. In response to questioning by the Committee members, Ms. Walter said the SEC would need additional resources to enforce the new rules under Title II.
“I hope the SEC finalizes the rule about Title II,” said Rep. Patrick McHenry (R-NC). ”The jobs act can have a major impact in getting the eonomy moving again.”
During the hearing, Rep. Al Green (D-Texas) prodded Commissioner Walter on whether the budget sequestration would impact the SEC. Ms. Walter replied that it would. “It would curtail our hiring,” she said.
Article by A. Brian Dengler