Earlier this month Luis Aguilar, a Commissioner at the Securities and Exchange Commission (“SEC”), gave a speech at the Regulatory Compliance Association’s 2013 program on regulations, operations and compliance. While the views expressed were Mr. Aguilar’s alone, and do not necessarily reflect the views of the SEC, Mr. Aguilar discussed, among other things, the importance of compliance practices being developed and maintained in the interest of investors. To this end, Mr. Aguilar criticized the SEC’s recent proposal to amend Rule 506 of the Securities Act of 1933 (the “Act”), stating he was “disappointed” in the Commission and had “never seen a more aggressive effort to exclude pro-investor initiatives.”
Rule 506 is one of three exemptive rules for limited offerings under Regulation D of the Act permitting the sale of unregistered securities to an unlimited number of accredited investors and up to 35 non-accredited investors, so long as there is no general solicitation, and as long as appropriate resale limitations are imposed. Section 201(a)(1) of the Jumpstart Our Business Startups Act (the “JOBS Act”) directs the SEC to amend Rule 506 to allow for general solicitation, provided that all purchasers of the securities are accredited investors. Originally, these amendments were to be implemented in July of 2012. The SEC delayed rule-making at that time, however, and on two separate occasions since, the Commission has not set a new deadline on when these amendments will take effect. Additionally, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) mandates that Rule 506 must be amended to prevent so-called “bad actors” (i.e., felons and other law-breakers) from utilizing this rule, in an attempt to provide additional investor protection. Congress had directed the SEC to institute this disqualification nearly two years before the JOBS Act had called for the lift on general solicitation, but again the SEC has failed to make such changes.
According to Mr. Aguilar, he recently voted “no” on the most recent proposal by the SEC that would amend the general solicitation aspect of Rule 506, finding it to be “fatally flawed” and “ignor[ing] the recommendations by investors and other regulators.” Additionally, Mr. Aguilar expressed his disappointment in the SEC’s “apparent lack of urgency” in implementing the “bad actor” amendments to Rule 506. In his opinion, such provisions are “much needed investor protections” and their delay “only hurts investors.” These comments imply that final amendments to Rule 506 are not to be expected in the immediate future. In fact, in Mr. Aguilar’s opinion, the entire amendment structure should be “re-proposed” in order to “adequately address investor protection issues.”
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