Section 401 of the JOBS Act directs the Securities and Exchange Commission to adopt rules exempting offerings of up to $50 million of securities annually from the registration requirements of the Securities Act of 1933, as amended.  Last December the SEC proposed rule amendments to Regulation A to implement this mandate.  This is sometimes referred to as the “Regulation A+” proposal.  As proposed, the rule amendments would provide for the preemption of state securities law registration and qualification requirements for securities offered or sold to “qualified purchasers”.

Over the last several decades, state securities regulators have witnessed the inexorable and increasing preemption of their authority to require qualification or registration of offers and sales of securities within their states.  As it stands today, state authority has more holes in it than Julius Caesar’s toga.  Thus, I can’t say that I was surprised to see that NASAA has written a letter voicing its objection to the SEC’s proposed preemption. The letter, which was co-signed by California Commissioner of Business Oversight Jan Lynn Owen, also requests a meeting with SEC Chair Mary Jo White and the leadership of the Division of Corporation Finance.  The letter also states NASAA’s intention to meet with each of the other four commissioners.

I was surprised, however, at the tone of Arkansas Securities Commissioner A. Heath Abshure’s letter which was submitted the following day.  Stating that he was “surprised and offended” by the SEC’s proposal, he accuses the SEC of disregarding Congressional intent and threatening to place investors needlessly at risk.  In fact, he states that the SEC has “absolutely no authority to reverse and capriciously disregard Congress’ determination . . .”.

Massachusetts’ Secretary of the Commonwealth William Francis Galvin also wrote to express his displeasure in nearly as strong terms.  His office was “dismayed and shocked” by the SEC’s proposal.  He goes on to declare:

Shame on the S.E.C. for this anti-investor proposal. This is a step that puts small retail investors unacceptably at risk. We urge the Commission to remove these provisions from the rule

Jack Herstein, Assistant Director for the Nebraska Department of Banking and Finance was also harsh in his comment letter, stating:

This rule proposal reflects an utter lack of understanding by the SEC’s current leadership of the states’ important role, and such ignorance will have dramatic negative implications for retail investors whose protection will be left in the hands of a federal government that has shown an historic lack of interest in their concerns.

I can’t remember seeing such vituperative and accusatory comments from state regulators.  Clearly, they feel blindsided and wounded by the SEC’s proposal.