What Is The Single Worst Change In the Proposed SEC Rules?


Worst Change in SEC RulesWhat is the worst thing about the SEC’s proposed rules?

    Is it the requirement that lengthy legends be prominently displayed on all written general solicitation material? Nah. We can live with this requirement.
    Is it the requirement to file a terminating amendment to the Form D on the closing of a financing? Nah. We can suffer through this one as well.
    Is it the requirement to file all written general solicitation materials with the SEC before their use? Nah. We can figure this out and comply.
    Is it all the additional information we will have to put on Form D? Again, nah. We can struggle through that.
    Is it the imposition of additional filing deadlines? Again, these are painful, and will increase our legal expenses as we do offerings. But again, this isn’t the worst of it.
    Is it the penalty box? The 1 year we have to sit out if we miss a deadline and don’t cure? This one is really draconian.

Although it’s a close call, I think the new requirement that is even worse than the 1 year penalty box is the requirement that companies file the Advance Form D 15 days before generally soliciting.

The 15 day advance filing deadline is going to trip many companies up. For my money, after considering it, I think this is the worst feature of the new rules. And if there were only one thing I could ask the SEC to change, I would ask that they change this. I think a 15 day deadline AFTER the date of first sale is fair. Does anyone (including the SEC) actually think the SEC is going to review filings and do anything to protect the public during the 15 day advance filing period? I doubt it.

About Joe Wallin

Joe Wallin focuses on emerging, high growth, and startup companies. Joe frequently represents companies in angel and venture financings, mergers and acquisitions, and other significant business transactions. Joe also represents investors in U.S. businesses, and provides general counsel services for companies from startup to post-public.
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  • http://www.venturedocs.com Bo Sartain

    I agree. 15 days is a long time in the very fluid startup world. Things often times come together at the last minute. I myself pitched at an “elevator pitch” competition event on about 3 hours notice. Why? There was an opening and an opportunity, so I took it.

    The “best practice” might be for everyone to go ahead and file an Advance Form D if they’re even thinking they might want to raise money at some point in the future, just so they have it on file.

    • Joe Wallin

      Bo, you might be right. It might be the Advance Form D will become the norm.

      • http://www.venturedocs.com Bo Sartain

        Unless, of course, the Advance Form D is a general solicitation itself (which I don’t think so, because the release says issuers must file the Advance Form D before making a general solicitation), but it is a public filing …..

        • Joe Wallin

          Yeah, that is a good thought Bo. I know the existing rules expressly say that the filing of the Form D does not constitute general solicitation.

          “Provided, however, that publication by an issuer of a notice in accordance with § 230.135c or filing with the Commission by an issuer of a notice of sales on Form D (17 CFR 239.500) in which the issuer has made a good faith and reasonable attempt to comply with the requirements of such form, shall not be deemed to constitute general solicitation or general advertising for purposes of this section”


          • Anne Mallin

            One thing good about this Advance form D, is it will keep the start-up on their toes.
            Many times just filing that form makes you aware, and the intent to announce and report any seed money makes it faster and easier.
            I am a proactive business person. I’d rather let an accountant handle money matters.
            However, many times a start up company or non-profit’s ‘elevator speech’ strikes to the heart of a donor. After they come up to you excited after they hear of your idea, it can be enough to let paperwork fall to the side.
            Life gets busy calling, writing, planning, blogging and marketing ……
            If you never meet a donor in person, someone tells someone who tells someone and your life may get too busy to care and file appropriately.
            This seems like it would help the little guy in the short run until things get a rhythm.

  • Gary Jay Brooks

    How would they monitor the relationship between X company who does a pitch 10 days before and never files? How would they find out? I’m not suggesting anyone be sneaky, however -> it is a catch 22. Are they really going to invest our American dollars into monitoring the relationship between a SEC web form and action on the ground?

    • Joe Wallin

      The disqualification is automatic. And lawyers will be involved doing diligence, frequently.

  • Jean Peters

    Graduate high school. Check.
    Take SATs. Check.
    File Advance Form D for startup: World Domination.”

    • Joe Wallin

      Thanks for the levity Jean!