SEC Rules

By: Marianne Hudson, ACA Executive Director

The SEC unanimously approved a new rule, dubbed “Reg A+,” on March 25th.  The rule allows companies to raise up to $50 million from the general public in unregistered public offerings, building on a part of the JOBS Act passed by Congress in 2012.  Issuers may begin using this rule in about 60 days.

Many ACA members have asked what Reg A+ means for angels and the early stage investing community, especially given some blogs and media stories with a wide variety of interpretations.  This post provides basics about the new rule, and ACA is following up with two activities:  a special breakfast briefing at the ACA Summit on the new rules, led by law firm Reed Smith and ACA’s policy advisory council of attorneys is preparing a deeper information piece for ACA members.

**This post originally appeared on "The Hill" on March 3, 2015.**

By: Chris McCannell, director of APCO Worldwide’s Washington DC financial service practice and government relations. He has over 15 years of Capitol Hill experience working for Members of Congress on the Financial Service Committee and the tax writing Ways and Means Committee. He and his colleagues have been ACA’s registered lobbyist for the past two and a half years. Chris is an active participant in ACA’s programming including national events like this week’s Leadership Workshop.

The conversation around implementation and rulemaking of the Dodd-Frank Financial Reform legislation, which became law in 2010, has been focused on issues such as margin requirements for derivatives, bans on proprietary trading (the Volcker Rule) and other bank centric capital standards. Lost in the debate is a little known part of the legislation which requires the United States Securities and Exchange Commission (SEC) to revisit the definition of an accredited investor. A change in this industry wide definition could have drastic impact on capital formation, start-up growth, and ultimately American jobs.

Sometimes new regulations create the need for market leaders to adjust, so that efficiencies for all can continue.  One such example is a set of rules set by the Securities and Exchange Commission for “generally solicited” offerings.  The rules – or really the market interpretation of the rules – have created so much confusion that the Angel Capital Association decided to develop a certification program for part of the angel market, angels who invest through angel groups, so that angels and entrepreneurs can actually do generally solicited deals.

When Congress passed the JOBS Act in 2012 they allowed for the very first time the ability for entrepreneurs to raise equity capital by advertising rather than through existing relationships in private.  Fearing fraud, Congress also required that companies take “reasonable steps to verify” that investors in these deals are accredited investors and asked the SEC to set the detailed rules.  The SEC’s rules said that copies of income or wealth documents or certifications by accountants and lawyers would work, as would a complicated set of methods that look at the facts and circumstances of the deal.

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