Trying to make sense of an SEC staff FAQ

Turning back for a moment to the recent SEC staff FAQ, published on the SEC site earlier this month, which purports to interpret the federal broker-dealer registration exemption for angel groups and angel platforms that is a feature of last year's JOBS Act:

Confusion cornerHow is it that the staff conclude that Congress meant the exemption to be essentially worthless, unlikely to be available to anyone "outside the venture capital area?"

We don't have answers yet, but it occurs to me that we need to get grounded again in what was said on the House floor at the time that the exemption was introduced. The exemption took the form of an amendment to Title II, the provision of the JOBS Act that also contains the mandate that the SEC lift the ban on general solicitation in offerings limited to purchasers who are verified as accredited.

The introduction of the amendment, by Patrick McHenry of North Carolina, was a love fest. Barney Frank rose to support it and labeled it non-controversial. Here's a link to a pdf of two telling pages from the March 8, 2012 Congressional Record. And here's a key excerpt, the speaker being Representative McHenry:

"It takes away some red tape that is within securities regulations, and it allows incubators, forums, and online platforms which only connect accredited investors to start-ups to be exempt from SEC registration as a broker-dealer if they, number one, do not charge a commission or fee for their service; number two, do not handle the moneys of investors; and, number three, only permit accredited investors to use their platforms.

"This is a very narrow amendment, very specifically crafted. In fact, the President’s Council on Jobs and Competitiveness in October of last year said in their report that the emergence of angel investors and networks have also played a crucial role in initial funding of companies, and that the council recommends that clarifying that experience and active seed in angel investors and their meeting venues should not be subject to the regulations that were designed to protect inexperienced investors."

Further context:

Photo: Neil Harvey / Flickr.

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