What's at stake in tomorrow's proposed angel verification ruleBy http://profile.typepad.com/1237764140s22740 // August 28, 2012 in General Solicitation, JOBS Act
Barring another delay, the SEC meets tomorrow to consider proposing rules to implement the lifting of the ban on general solicitation and general advertising for offerings under Rule 506.
The Congressional quid pro quo for lifting the ban is the imposition of new standards: methods, to be drawn up by the SEC, by which startups must "verify" the accredited status of investors.
This embedded tweet from Zach Brandon, head of the Wisconsin Angel Network and a member of the Angel Capital Association's public policy committee, underscores what is at stake.
My own view, completely personal and to be ascribed only to myself: I think Congress abrogated its responsibility by delegating a question of national policy, with enormous implications for job growth, to an administrative agency. The country needs jobs; the JOBS Act was at least nominally about creating jobs; and verification, tuned wrong, could chill financing of job-creating entrepreneurial activity.
But pass the buck, Congress did.
For better or worse, the SEC now has to balance factors Congress refused to weigh.
The current, 506 status quo - relying on accredited investors to self-certify (though it's a bit more than that) - is not an option, because the JOBS Act and the legislative history say as much.
On the other hand, publishing verification rules that scare private individuals out of startup investing . . . that would defeat the ostensible purpose of the JOBS Act. We could end up wishing to have back the ban on general solicitation.
The best SEC comment letter I've read on this issue is the one written by Marianne Hudson, speaking for the Angel Capital Association. Hudson lays out five concepts she hopes the SEC will honor when approaching this rulemaking:
- "The overall intent of the JOBS Act was to encourage more startups, which requires even more angel investment."
- "Do no harm: Preserve current Rule 506 standards when issuers do not generally solicit or advertise their opportunities."
- "Rules for offerings that do use general solicitation should minimize costs, burdens, and privacy issues for accredited investors."
- "Privacy is a major concern."
- "Issuers should have flexibility – the ability to select one method from multiple options ‐ in verifying the accredited status of their investors (in advertised offerings) and no one course of action should be the right choice or 'safe harbor.'”
Tomorrow will be important. I will do my best to live blog the meeting , assuming I can follow it via webcast.
(Disclosure: I serve on an advisory council to the ACA's public policy committee.)