Is it okay for the SEC to miss the JOBS Act deadline for lifting the ban on general solicitation?

Thanks to Jeff Joseph for the heads up on Rep. Patrick McHenry's August 16 letter to SEC Chair Mary Schapiro about the delay in getting a rule implemented to lift the general solicitation ban for offerings under Rule 506 of Reg D.

McHenry thinks the SEC should move to publish an interim rule right away, rather than merely propose a rule, pushing implementation off several more months. "We are now over four months since the JOBS Act was enacted and over one month past your statutory deadline to implement this section removing the ban on general solicitation."

McHenry's letter is hard hitting and his critique is probably within the bounds of Congressional prerogative.

But I think Congress might better blame itself for this delay.

Instead of kicking the subject over to the SEC, Congress could have written Section 201(a) of the JOBS Act to be self-executing. The JOBS Act could have amended Rule 506, and the amendment could have been effective when the President signed the bill.

Amending a regulation by means of legislation has precedent. In fact, the accredited investor standard, a key element of Reg D, was amended directly by Congress with the Dodd-Frank Act. You'll recall how Dodd-Frank modified the net worth test of the accredited investor definition to say that, in calculating net worth, the value of the principal residence of the investor must be excluded.

True, the SEC went on to propose (complicated!) rules on how to calculate the principal residence exclusion, but the new accredited investor standard was actually in effect once President Obama signed Dodd-Frank.

Congress could have, should have, done the same thing with the lifting of the ban on general solicitation. Then the SEC could have taken appropriate time to generate rules to interpret and clarify the legislation, but the change itself would not have been held hostage to more process.

Photo: Alec Couros / Flickr.