U.S. Senators John Thune (R-S.D.) and Pat Toomey (R-Pa.), today along with several of their colleagues, sent a letter to Chairman of the U.S. Securities and Exchange Commission (SEC), Mary Schapiro urging the SEC to move forward with the proposed rule to implement Section 201 of the bipartisan Jumpstart Our Business Startups (JOBS) Act. The JOBS Act, which passed both the House and Senate with overwhelming bipartisan support, included a bill sponsored by Thune and House Majority Whip Kevin McCarthy (R-Calif.), the Access to Capital for Job Creators Act (S. 1831/H.R. 2940), which served as the basis for Section 201 of the bill.
Section 201 of the JOBS Act removes an outdated SEC provision that currently prevents small businesses from attracting capital from accredited investors nationwide. The SEC's general solicitation prohibition has been a roadblock for small businesses looking to obtain needed capital because it currently requires them to raise capital only from investors with whom they have a pre-existing relationship. This prohibition severely hampers the ability for small companies to obtain needed capital from investors in order to grow and create jobs. The JOBS Act would remove the solicitation prohibition and allow businesses to attract capital from accredited investors nationwide.
The letter emphasizes that the SEC's Section 201 proposed rule properly implements the Congressional intent behind the legislation and urges the SEC to move forward with the proposed rule and issue a final rule before the end of the year. Doing so would be in line with the recommendations of the SEC's own Advisory Committee on Small and Emerging Companies, which recommended that the agency "relax or modify" the general solicitation prohibition as a good policy to increase the amount of capital available to small businesses.
The text of the Senators' letter is below:
November 30, 2012
The Honorable Mary Schapiro
U.S. Securities and Exchange Commission
100 F Street, Northeast
Washington, D.C. 20549
Dear Chairman Schapiro:
We write regarding the commission's proposed rule to implement Section 201 of the Jumpstart Our Business Startups (JOBS) Act. As members who supported the JOBS Act and as cosponsors of the Access to Capital for Job Creators Act (S. 1831), which served as the basis for Section 201 of the JOBS Act, we write to clarify the congressional intent behind this provision.
The overall purpose of the JOBS Act was to promote capital formation by modifying, on a targeted and careful basis, certain requirements of the 1933 and 1934 Acts that have proven to be impediments to that very purpose. Section 201 of the JOBS Act was intended to do just that, and we believe that the SEC has proposed a reasonable approach that will promote the broader underlying purpose of the legislation.
The proposed rule properly implements Congress' intent to remove the general solicitation ban in a consistent manner for all types of issuers conducting private offerings under Rule 506. Paragraph (b) of Section 201 clearly effectuates this by providing that all issuers subject to other federal securities laws will be able to conduct private offerings pursuant to amended Rule 506.
The proposed rule also correctly follows Congress' clear directive to the commission regarding how to amend Rule 506. Section 201 instructs the commission to amend Rule 506 to remove the ban on general solicitation provided that all purchasers of the securities are accredited investors, and to require that issuers take reasonable steps to verify that the purchasers are accredited investors. These instructions reflect Congress' considered decision of what additional investor protection measures should be included in an amended Rule 506, and the SEC has appropriately determined not to ignore Congress' judgment in response to those who disagree with Congress' policy decisions.
For example, we believe that the proposed objective test for an issuer to take reasonable steps to verify an investor is fully consistent with congressional intent. A more intrusive and prescriptive test would be unnecessarily burdensome in many cases and insufficiently protective in many others, and it also would effectively overturn Congress' intent in enacting Section 201 of the JOBS Act. The statutory purpose would be undermined by new, complex and prescriptive requirements that would unduly inhibit the use of 506 and 144A for capital raising by small- and medium-sized businesses that remain the engine of job growth in the United States.
We respectfully urge the commission to move forward with the proposed rule and issue a final rule before the end of the year. Thank you for your consideration of our comments.
Senator John Thune
Senator Pat Toomey
Senator John Barrasso
Senator Roy Blunt
Senator John Boozman
Senator Mike Enzi
Senator John Hoeven
Senator Jim Inhofe
Senator Lisa Murkowski
Senator Jeff Sessions
Senator Roger Wicker