In Section 201(a)(1) of the Jumpstart Our Business Startups (JOBS) Act, Congress ordered the Securities and Exchange Commission to amend Regulation D to permit general solicitation or general advertising in offerings made under Rule 506, provided that all purchasers of the securities are accredited investors. See Chowing Down On The JOBS Act And Ralston Purina. Congress imposed a specific deadline on the SEC to accomplish this task – 90 days from the date of enactment of the JOBS Act (April 5, 2012). In manifest violation of the law, the SEC did not even propose the mandated rule amendments until August 29, 2012.
When the SEC announced its proposed rule changes, Commissioner Troy Paredes took note of the delay and in this public statement advocated for the adoption of an interim rule. The Commission didn’t accept this idea. However, the SEC may still have the opportunity to fulfill Congress’ mandate – it could make the rules apply retroactively. Is it even possible to give rules retroactive effect? Before arguing that retroactive rules are impossible, consider what Justice Antonin Scalia had to say in his concurring opinion in Bowen v. Georgetown Univ. Hospital, 488 U.S. 204, 225 (1988):
If, for example, a statute prescribes a deadline by which particular rules must be in effect, and if the agency misses that deadline, the statute may be interpreted to authorize a reasonable retroactive rule despite the limitation of the APA [Administrative Procedure Act].
Since that time, the D.C. Circuit Court of Appeals has “treat[ed] Justice Scalia’s concurring opinion as substantially authoritative . . . .” Nat’l Petrochemical & Refiners Ass’n v. EPA, 630 F.3d 145, 163 (2010).
This is exactly the situation described by Justice Scalia. Congress could not have been more clear in expressing its desire that general solicitations in Rule 506 offerings be permitted no later than July of this year. The SEC can still give effect to this intention by adopting rule amendments with retroactive effect. Moreover, the failure to do so would clearly be unreasonable. Indeed, it will be interesting to see whether any issuers targeted by the SEC for engaging in general solicitations after the Congressional deadline mount defenses based on a lack of SEC authority.