Industry lobbies Reg D proposals

Tighter general solicitation rules could harm private issuers, says the PEGCC.

The private equity industry is warning the Securities and Exchange Commission that investor protection proposals run against the wishes of Congress. The new proposals came soon after the SEC lifted a general solicitation ban. 

As part of the Jumpstart our Business Startups Act (JOBS Act), lawmakers directed the SEC to allow private equity firms and others relying on Regulation D – the bit of US law that allows certain private issuers to avoid registration requirements – to use the public airwaves so long as they only accept money from accredited investors. 

The SEC went above and beyond its congressional mandate by proposing rules that would have GPs file forms 15 days before publicly discussing raising money and include certain legends and disclosures in their mass marketing material. The proposals also include a one year ban on any issuer from relying on Regulation D for non-compliance.  

“If the proposed amendments are adopted, it would be more difficult to raise capital under Regulation D than it was before the JOBS Act was enacted,” the PEGCC said in a letter sent to the SEC, which ended a consultation period on its proposals Monday. 

Adding a new pre-filing condition can be a time waster, the PEGCC said. Because what constitutes general solicitation is not well-defined, issuers may find it necessary to make “defensive” filings to avoid inadvertently violating the rules when speaking with the press or at a public event for instance.  

“This would impose an unnecessary burden on issuers and on the administrative resources of the SEC,” the PEGCC said in its letter. “It may also provide the SEC with a misleading picture of how many issuers are actually conducting general solicitations.”

The SEC says the advance filings will help the agency monitor how private issuers are taking advantage of general solicitation rights. The PEGCC counters that the regulator already has access to GPs’ marketing materials through its examination program, which private equity firms managing more than $150 million in assets were made subject to last year. 

On disclosures, the PEGCC said it could be difficult for private equity firms to know what types of communication should include boilerplate information without knowing what exactly the SEC considers general solicitation. Moreover, a proposal for issuers to include up to date performance information on their public marketing material can be a tricky compliance task for an industry that only tracks portfolio valuations on a quarterly basis. 

Many of the concerns aired by the PEGCC echo similar concerns made by startup entrepreneurs and others, which PE Manager reported on earlier this week.