NASAA succeeded in rendering unusable a well-crafted reform intended to foster small growth company capital formation and has now turned its sights on other important provisions of the JOBS Act, all in the name of rooting out fraud. NASAA’s lobbying position is a true red herring given that state regulators retained their jurisdiction to enforce state anti-fraud laws even after the enactment of the National Securities Markets Improvement Act of 1996, a deregulatory measure that laid the foundation for enterprises to access a nationwide private capital market without the need to clear their private offerings with bureaucrats in 50 states. The argument that state regulators should regulate capital formation as a means of rooting out fraud failed resonate with the Congress in 1996 and should so resonate now with the Senate as it takes up its version of the reform legislation. The Senate should re-insert the provision that preempts the application of state securities laws to Regulation A offerings intermediated by broker-dealers and it should stand firm against NASAA’s lobbying effort to revise the legislation to allow state securities regulators to have a hand in regulating crowdfunding or remove from it the repeal SEC’s ban on general solicitation in connection with Regulation D private offerings, each of which would dramatically expand the opportunities for companies to reach investors.
The Obama administration has stated that it “looks forward to continuing to work with the House and the Senate to craft legislation that facilitates capital formation and job growth for small businesses and provides appropriate investor protections,” laudable goals that will not be advanced in the slightest way by the power grab that NASAA is pursuing on behalf of state securities regulators.
Zuppone is chair of Paul Hastings Securities & Capital Markets.