Last Thursday, June 28, Securities and Exchange Commission Chair Mary Schapiro finally made official an open secret – the SEC will miss the July 4th deadline for adopting rules that would lift the ban on general solicitation and advertising for Rule 506 private offerings because the deadline is “not achievable.”
Speaking to a Congressional oversight panel, Chairwoman Schapiro stated: “The 90-day deadline does not provide a realistic timeframe for the drafting of the new rule, the preparation of an accompanying economic analysis, the proper review by the commission, and an opportunity for public input.” She indicated that the Commission would be in a position to issue the rules “in the very near future”, most likely sometime this summer.
That the rules will not be implemented within the deadline is not the least bit surprising. We and others have long predicted that. The only surprise is that it took the SEC until the eve of the first deadline under the JOBS Act to admit it.
Also mildly surprising is the positive attitude exhibited by the Commission and Staff towards the herculean rulemaking task imposed by the ambitious JOBS Act, especially since the Chairwoman and other Commissioners had made clear during Congressional debates on the JOBS Act that they considered the deadlines unachievable. The immense challenge of meeting the JOBS Act’s deadlines, which were blatantly unreasonable on their own, was exacerbated by a host of other factors, such as the Commission’s budget difficulties; the increasing proclivities of Congress, the press, other regulators and the public to blame the SEC for most of the maladies inherent in the capital markets; and heightened judicial scrutiny giving rise to the increased likelihood nowadays of litigation challenging new rules. One would understand if the SEC were less than enthusiastic in taking on the rulemaking mandates in the JOBS Act. Instead, the attitude of Commissioners and Staff in many public forums has been exemplary, exhibiting a sincere desire to work diligently to implement Congress’ wishes within the timeframes provided.
Even so, one is left to wonder what missing this first deadline implies for the other upcoming JOBS Act deadlines. The Act orders the Commission to have rules in place for the crowd-funding provisions within 270 days of the Acts’ enactment. This is a massive job that contemplates structuring a new offering exemption out of whole cloth, including defining the hitherto unknown “funding portal” and specifying registration procedures for the offering and the funding portal, all with extraordinarily thin guidance from the statute as to how all this is supposed to work.
Development of the overdue private placement rules, despite their great potential to revolutionize private capital formation, pales in complexity to rulemaking for the crowd-funding rules, leaving many to predict that the promulgation and finalization of these rules may go the way of several of the rules required by the Dodd Frank Act (e.g., pay ratio disclosure requirements), which have not been proposed nearly two years after passage of that legislation.