The SEC’s Division of Corporation Finance will consider a bar on so-called “bad actors” from private offerings before announcing rules on crowdfunding under the JOBS Act. However, we anticipate there will be an additional delay given the turnover at the SEC and the recent departure of its Corp Fin Director.
As you have undoubtedly heard, the SEC has been criticized for delay in propounding these rules by various investor and industry groups. The SEC is required by the JOBS Act to provide for an exemption for crowdfunding as well as disqualify those persons barred by a state authority from engaging in the securities business, convicted of a felony or misdemeanor relating to the sale of securities, or making false SEC statements. To complicate matters, the SEC already has a pending Dodd-Frank Act rule to preclude certain “felons and bad actors” from participating in private offerings pursuant to Regulation D. This proposed rule included certain events that occurred prior to the enactment of the Dodd-Frank Act. Interestingly, when questioned about the delay, the SEC’s response was there were a lot of comments on this proposed rule.
We expect that whenever the SEC finally gets around to approving final rules, the criticism and rancor should be deafening.