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SEC Won't Issue Interim Rule for Private Placement Pitches, Delays Meeting

Joe Mont | August 20, 2012

The Securities and Exchange Commission will not issue an interim rule this week on a controversial JOBS Act requirement to allow public solicitations by issuers of private securities. Instead of immediate implementation, it will proceed with a traditional public comment period.

The Commission is scheduled to address the proposal at an open meeting on Aug. 29, one week later than was initially announced.

The interim rule would have implemented the JOBS Act's elimination of a ban against general solicitation and advertising for securities offerings pursuant to Rule 506 of Regulation D under the Securities Act, while simultaneously soliciting comments on a final rule. Currently, such securities offerings can only be made to accredited investors having a pre-existing relationship with the issuer. A new rule would give issuers, including hedge funds, the ability broadly market private securities via websites, e-mail and other media.

In a statement, SEC spokesman John Nester said that Chairman Mary Schapiro sees it as important for the rule to follow the Commission's “typical practice in rulemaking” and provide a transparent process.

“While we recognize the importance of the statutory mandate and are committed to acting expeditiously, as Chairman Schapiro previously stated, the 90-day deadline did not provide a realistic timeframe for the drafting of a new rule, the preparation of an accompanying economic analysis, the proper review by the Commission, and an opportunity for public input,” Nester said. “In addition, failure to provide this opportunity for comment could subject the rule to challenge that could delay the implementation of the statutory mandate.”

Critics of the change proposal have urged the Commission not to give into pressure for an interim rule after it missed a July 4 deadline mandated by the JOBS Act. Among them was Jack Herstein, president of the North American Securities Administrators Association (NASAA), who wrote last week to the SEC urging it to “prioritize investor-protection rules ahead of the exemptions in the JOBS Act” because “ill-considered changes could have such devastating impacts on investors.”