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Unshocking Non-Development! SEC Will Miss Deadline on Rules 506 & 144A Changes

Posted in JOBS Act

In a move that surprised absolutely no one, SEC chairwoman Mary Schapiro stated in testimony before a House Subcommittee that the SEC would not make the July 4th deadline set by Congress to amend Rules 506 and 144A. 

Mary was not quite contrary here – I don’t think anyone expected the SEC to make this deadline (And Ms. Schapiro told Congress that they couldn’t do it before the bill passed, but did they listen?).  As I’ve stated before, the SEC is swamped and this was a very short deadline.  Many of the JOBS Act changes were immediate, so the SEC has been in triage regulation-preparation mode for a few months now. 

More interesting, though, is the reason Chairwoman Schapiro gave for the SEC’s delay in adopting new rules.  She specifically mentioned the specific requirement in the eventual rule that it must make sure that issuers take “reasonable steps to verify that purchasers of the securities are accredited investors.”  This confirms what we already suspected: this won’t be a simple “check the box” test.  I expect that issuers will need to get financial records from potential investors to prove their status as accredited investors; hell, if it weren’t illegal to do so, I’d bet take bets on that right now (I’ve been doing some work with our gaming law group recently).

In the end, this won’t be a big deal, though.  Accredited investors will probably just need to hand over their tax returns from the prior year.  So, sit tight if you want to generally solicit your next 506 offering, or comply with the rule in its current form.