The Securities and Exchange Commission has announced that, at an open meeting on August 22, it will consider rules to eliminate the prohibition against general solicitation and general advertising in certain securities offerings conducted pursuant to Rule 506 of Regulation D under the Securities Act of 1933 and Rule 144A under the 1933 Act, as mandated by Section 201 of the Jumpstart Our Business Startups Act. The SEC will also consider adopting rules under the Dodd-Frank Act concerning conflict minerals and resource extraction. The SEC was subject to a statutory deadline to adopt those rules by April 17, 2011.
It is probably because of the Dodd-Frank rules that the meeting notice is so unusually early - meeting notices typically are only seven days prior to the meeting, and I've never seen an SEC meeting notice given more than seven weeks in advance. A bipartisan contingent of 58 members of Congress recently sent a letter to SEC Chairman Mary Schapiro to request action on the two provisions, and there is also a pending lawsuit by Oxfam America seeking to compel adoption of the resource extraction rule. The Regulation D amendments will also be late, since the JOBS Act required them to be adopted by July 4, 2012. The SEC obviously won't meet that deadline, but it was clear from the beginning that that deadline likely would not be met.
The meeting notice raises a number of questions:
--Why is the meeting so far in the future? It seems likely that the SEC wanted to respond to congressional pressure to specify when it could move forward on these overdue rulemakings, but felt it would not be ready until the second half of August. If this is the case, there still could be one or more meetings scheduled prior to August 22. For example, there have been rumors that the SEC may propose amendments to its money market fund rule (Rule 2a-7) in late July or early August, and the SEC staff reportedly delivered a draft release to the commissioners on June 25. Whether such a meeting will in fact be called, of course, is a different matter.
-- Why does the meeting notice say that the SEC will "consider rules," without saying whether it will consider proposing rules or consider adopting rules? This may mean that the SEC will adopt interim rules and propose final rules, but that is not entirely clear.
--Will the SEC propose rules governing the advertisement of hedge funds and other private funds? The Investment Company Institute has filed a comment letter urging the SEC to impose content restrictions on private fund advertising at least as extensive as those currently applicable to mutual funds. Is it significant that the meeting notice does not mention any such rules?
--What steps will the rules require to be taken to verify that purchasers under the Regulation D exemption are accredited investors, and will the exemption be met if the issuer reasonably believes that they are accredited investors? Several commenters filed letters addressing these issues.
The SEC meeting notice is available at
Early comment letters on Section 201 of the JOBS Act are at
The press release concerning the congressional letter urging action on the overdue rules under the Dodd-Frank Act, with a link to the letter itself, is at
A Bloomberg report discussing the possible money market fund rule proposals is at
John M. Baker <JMB@...
Stradley Ronon Stevens & Young, LLP http://www.stradley.com
1250 Connecticut Avenue, NW, Suite 500
Washington, DC 20036
FundLaw Listowner http://groups.yahoo.com/group/fundlaw