The Role of the States in the Regulation of Private Placements

The Jumpstart Our Business Startups Act (JOBS Act), signed into law by President Obama on April 5, 2012, after passage by Congress with bipartisan support, was ostensibly designed to promote job creation by eliminating perceived securities regulatory impediments to capital formation by small businesses. Congress, in Title II of the JOBS Act, concluded that what the country needed was a fundamental change in the regulatory structure of its primary capital market and decided, as a matter of public policy aimed at promoting capital formation and creating jobs, to eliminate the ban on general solicitation in the conduct of private placements. This article generally addresses the impact of Title II of the JOBS Act on state regulatory authorities as the SEC's partners in our country's dual regulatory system and provides a foundation for this analysis by describing the regulatory context in which the role of the states in protecting retail investors has been generally restricted through preemptive strikes at the authority of the states to regulate private offerings in their respective communities. Furthermore, this article explores the enhancement of the newly expanded Rule 506 exemptions through monitoring and enforcing the rule's accompanying regulatory restrictions, the implementation of electronic one stop filing systems of Form D notices under Regulation D and recommends that NASAA develop a bad actor database (BAD) that is tailored to the data points set forth in the SEC's recently promulgated bad actor rule disqualifying issuers from using the Rule 506 exemption where the issuer and associated persons have adverse regulatory histories. This article concludes that, in the new world of generally solicited private placements, the proposed enhancements of state enforcement strategies will contribute significantly to the states' mission of protecting local investors before their losses are incurred