Having trouble keeping track of which general solicitation rules are final and which are proposed?

You are not alone!

Joe Wallin and I are noticing that even some legal bloggers are getting two rule sets confused.

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Here's an exercise that might help. To try to keep everything straight.

Congress told the SEC to lift the ban on general solicitation. Congress also said, "implement rules so that people have to verify the accredited status of their investors."

On July 10, the SEC did just that. They did exactly what Congress had asked them to do. The rules to do this were announced as final rules. FULL STOP.

Let's say it again for emphasis: the rules that were released on July 10 were final rules. For technical reasons of administrative law, they were not effective right away, but, instead, were effective a certain number of days after being published in an official government register. It just so happens that the date of the effectiveness of these rules, which were announced on July 10, will be September 23.

Now, we come to the part where you will see that I have artificially divided the story. I did so in the interest of seeking clarity, but now, we get muddy.

The SEC was under no legal obligation to do other than what it did, as described above. If the agency had stopped by simply issuing the rules lifting the ban on general solicitation and implementing accredited investor verification, all would be good.

But the SEC did something else, on its own initiative. Not required by the JOBS Act or otherwise legislated by Congress.

In addition to issuing the *final* rules on July 10, as described above, to be effective September 23, in addition to that, the SEC on its own initiative, on July 10, proposed new rules.

(It may be helpful to think of the July 10 date commonality as a coincidence; the two rule sets could have just as easily been announced months apart.)

That new set of proposed, not final, but proposed, rules, is what is concerning. All the fuss is about the proposed rules.

Those proposed rules may never become final rules. Then again, they may. Or, they may be changed before becoming final. Or they may never become final. We don't know.

What we do know, however, is that proposed rules very often become final rules. So it behooves the startup community to make comments on the proposed rules. The SEC staff read all of the comments. They really do. They even extensively cite comments when writing releases about final rules!

So, what happens come September 23?

One thing we know for sure: the final rule, the one that was announced July 10, establishing rule 506(c) and a principles-based method of accredited investor verification, will go into effect.

As for the proposed rules? Anybody's guess when, whether or how those will go into effect.

Reading the tea leaves, we see that the SEC chair has written a letter to a congressperson, referencing "transitional rules" that may need to be part of the new, proposed rule set. That signals that she is at least contemplating that the proposed rules will take longer than September 23 to develop.

So we have two buckets, if you will: bucket one, the new Rule 506(c) and the new principles-based method of accredited investor verification; and bucket two, the proposed rule set with pre-filing requirements, information requirements, one year penalty box, etc.

Bucket one is fine. That's a good thing, too, because it's over and done with. Those rules are final.

Bucket two is problematic. For all the reasons listed at angel.co/sec.

Photo: Eric Magnuson / Flickr.


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