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December 28, 2012


JOBS ACT-In Letter to SEC, Eleven U.S. Senators Say Proposed Regulations Implementing JOBS Act Reflect Legislative Intent

By Jim Hamilton, J.D., LL.M

In a letter to the SEC, 11 U.S. Senators said that the Commission's proposed regulations implementing the JOBS Act termination of the ban on general solicitation correctly reflect legislative intent. More specifically, the Senators believe that the SEC's proposed objective test for an issuer to take reasonable steps to verify an investor's status as an accredited investor is fully consistent with congressional intent. A more intrusive and prescriptive test would be unnecessarily burdensome in many cases and insufficiently protective in many others, said the Senators, and would effectively overturn Congress' intent in enacting Section 201.

The overall purpose of the JOBS Act is to promote capital formation by modifying, on a targeted and careful basis, certain requirements of the 1933 and 1934 Acts that have proven to be impediments to that very purpose. Section 201 of the JOBS Act was intended to do just that, noted the Senators, who believe that the SEC has proposed a reasonable approach that will promote the broader underlying purpose of the legislation. The letter was signed by Senators John Thune (R-SD), Pat Toomey (R-PA), Roy Blunt (R-MO), John Barrasso (R-WY), John Boozman (R-ARK), Mike Enzi (R-WY), John Hoeven (R-ND), James Inhofe (R-OK), Lisa Murkowski (R-AK), Jeff Sessions (R-AL), and Roger Wicker (R-MS).

The proposed regulations properly implement Congress' intent to remove the general solicitation ban in a consistent manner for all types of issuers conducting private offerings under Rule 506, noted the Senators. Similarly, the SEC proposals correctly follow Congress' clear directive to the Commission regarding how to amend Rule 506. Section 201 instructs the commission to amend Rule 506 to remove the ban on general solicitation provided that all purchasers of the securities are accredited investors, and to require that issuers take reasonable steps to verify that the purchasers are accredited investors. These instructions reflect Congress' considered decision of what additional investor protection measures should be included in an amended Rule 506, and the SEC has appropriately determined not to ignore Congress' judgment in response to those who disagree with Congress' policy decisions.

The SEC has proposed regulations eliminating the prohibition on general solicitation in offerings conducted under Rule 506 of Regulation D so long as all of the purchasers are accredited investors. The SEC proposes to require issuers that use general solicitation to take reasonable steps to verify that all of the purchasers are accredited investors. Whether the steps taken to verify accredited investor status are reasonable would be an objective determination, based on the particular facts and circumstances of each offering and investor.


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