As we previously noted, the SEC finally released proposed rule 506(c) on August 29, which lifts the ban on general solicitation and advertising in private offerings in which all purchasers are accredited investors and in which the issuer has taken “reasonable steps” to verify the accredited investor status of each purchaser.
While we wait for the end of the proposed rule’s public comment period on October 5, 2012 and the release of the final rule, here are three perspectives on the proposed rule that demonstrate the breadth and variation of opinion over how the SEC has proposed to comply with the mandate of the JOBS Act.
The Proposed Rule is Too Burdensome for Issuers and Investors
Chris Leyerle, an entrepreneur and principal of Fingo Consulting, opines that the proposed Rule 506(c) is a failure because it doesn’t provide certainty to markets or improve access to capital: “The proposed rule doesn’t make it simpler and cheaper; it makes it more costly and harder.”
The Proposed Rule Fails to Adequately Protect Investors
At the Huffington Post, Barbara Roper of the Consumer Federation of America laments the status of the SEC as an “industry lapdog” and concludes that the agency has failed in its task because it has ceded investor protections without giving due consideration to the consequences (and without even following the SEC’s own guidelines for evaluating rule proposals): “While the Commission is given no discretion over whether to lift the ban, it remains responsible for ensuring that investors are adequately protected when it does so. The Commission chose to ignore that responsibility, issuing a rule proposal that doesn’t include any enhanced investor protections to offset the increased risks.”
The Proposed Rule is Just Right
And then there are those who think the SEC has actually hit the mark with proposed rule 506(c), like Joe Wallin at Startup Law Blog: “The SEC should be applauded. They maintained the integrity of existing Rule 506. They didn’t propose rules that would have made Rule 506 substantially more difficult to use. The proposed rules, if adopted after the comment process is completed, will go a long way toward opening up additional capital sources for startups.”
Check back at jobs-act-info.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.