NASAA: JOBS Act calls for state-federal oversight of Regulation A offerings

The recent Congress blog article, “NASAA pressures SEC to preserve regulatory turf of state government bureaucrats” (Michael Zuppone, May 14, 2014), surprisingly ignores the chief concern noted in the very NASAA letter that the article describes: Congress considered and explicitly rejected the preemption of state regulation regarding the review of Regulation A offerings when approving the JOBS Act in 2012.

NASAA’s letter to the SEC along with the letters of at least 10 other state securities commissioners, secretaries of state, academics, financial writers, business professionals and attorneys, respectfully points to this salient fact as the primary basis for opposition:  “Of greatest concern to NASAA is the Commission’s attempt to circumvent a Congressional directive to maintain state registration for offerings that are sold to unsophisticated investors and those with modest means.” The article failed to mention, much less address, this looming issue. 

{mosads}The legality of this and any SEC rule proposal is no small matter. Just imagine the consequences of giving the SEC or any federal agency carte blanche to substitute its judgment for that of Congress, particularly on an issue of constitutional importance like preemption of state authority. Those who hail the approach as “sensible” here will undoubtedly oppose it later. Fortunately, the SEC is examining this legal issue prior to issuing the final rule. NASAA is optimistic the SEC will do the right and lawful thing by drafting the final Reg A rules in accordance with Congressional intent. 

I would also like to address some of the article’s statements regarding state review and the importance of that review in the area of micro finance. While no system of regulation is perfect, NASAA and the states have worked very hard this past year to improve and modernize state filing processes and policies in the Regulation A context. 

As part of NASAA’s new Coordinated Review Program, officially launched just last week, Regulation A filings can now be sent to one state for electronic distribution to all states with a 21-day review turnaround from start to finish for filings without deficiencies. The lead examiner’s decision to clear the offering will be binding on all other participating states, a critical difference from earlier NASAA programs, so there will not be 50 different state results as the article implies. Readers should turn to the Reg A Issue Brief on NASAA’s website for more details.

Moving Regulation A from a one-year proposition closer to a one-month model is an exciting concept and, in NASAA’s view, is the best way to revitalize this exemption.  While filers will not be able to take advantage of the increased $50 million offering amount called for by the JOBS Act until the SEC rule is finalized, the streamlined state review system is available to work under existing Regulation A to help small businesses access up to $5 million to help provide jobs and grow our economy. 

By sharing oversight, the states and the SEC can leverage their resources to make sure the process works for filers and investors alike. Eliminating state review and limiting regulatory resources through preemption will benefit no one. Either the Commission’s review will be cut short at the expense of investors – clearly, the experience with Reg D filings – or too protracted to timely serve the needs of filers – reverting to or even extending the year-long proposition that currently exists. 

NASAA will continue to advocate for the states’ role in the shared oversight of these smaller offerings in accordance with the statute. This oversight will not be duplicative, unduly costly, or burdensome if the SEC and all other interested parties work with the states on the process. Those with constructive suggestions on improving that process in accordance with the JOBS Act need only reach out to me or NASAA Executive Director Russ Iuculano. We look forward to the dialogue.

Seidt is president of the North American Securities Administrators Association (NASAA) and an Ohio Securities Commissioner.