My thanks to Gary Jay Brooks for alerting me to the development that is the subject of this post.
By letter dated November 30, Representative Patrick McHenry, writing in his capacity as chair of a Congressional subcommittee, chastises outgoing SEC Chair Mary Schapiro for foot-dragging on rules to implement the lifting of the ban on general solicitation in Rule 506 offerings, as required under Section 201 of the JOBS Act.
This is not the first time Rep. McHenry has had harsh words for Chair Schapiro vis a vis implementation of the JOBS Act, but I think it may be the first time he has used internal SEC emails against her.
Certain of the internal SEC emails, Rep. McHenry cites in footnotes but does not quote, to support the assertion that the head of the SEC's Division of Corporate Finance, Meredith Cross, and her staff, were poised to proceed with recommending that the Commission publish "final interim rules" to give effect to the lifting of the ban on general solicitation, before Chair Schapiro intervened out of, as Rep. McHenry has it, an unseemly preoccupation with her legacy and an undue regard for a particular lobbying group.
It's little secret that the Commision changed plans at the last hour, publishing proposed rules rather than interim final rules. At the time, Chair Schapiro had said she felt it important to hear from other parties who had more to say about how to implement the lifting of the ban on general solicitation. I live-blogged the SEC open meeting at which the Commission's decision to publish proposed rules was taken; here's a link to that post.
What's missing from McHenry's November 30 indictment of Schapiro is any appreciation for just how substantive the ensuing comments - on the proposed rules - have been. Regulators and investors alike did not like the proposed rules. (I loved them. The SEC got it exactly right, and it's a shame, in my view, that the proposed rules weren't in fact interim final rules.)
Of course, the largely negative reaction to the proposed rules may justify yet further delay. That's because, at least if the SEC's staff heed the outcry for definitive safe harbors, the next step will involve more than simply tweaking the proposed rules.
If it's now unlikely that the Commission can go back and implement, as final rules, the rules as first proposed, is it possible that Rep. McHenry could do something legislatively to get the outcome he desires? If he thinks the proposed rules reflect what the SEC staff were ready to recommend as interim final rules,what about a bill to mandate immediate amendment of Rule 506 according to the language of the implementing rules as the SEC staff proposed them?
The House might even pass such a bill. Though the Senate probably would not.
Rep. McHenry's shots at Chair Schapiro don't strike me as fair, but there is no question that politics are being played by Chair Shapiro as well. She has a view about the need to reform Reg D and the world in which angel investors are allowed to invest in whatever they damn well please, and it's way more paternalistic than Rep. McHenry's view.