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NASAA Slams The JOBS Act, But Have The States Really Been Handcuffed?

NASAA isn't in the business of firing off rockets but it did launch a missile yesterday targeted directly at the JOBS Act.  In this press release, NASAA's president, Jack E. Herstein, is quoted as saying:

The JOBS bill the President signed today is based on faulty premises and will seriously hurt all investors by either eliminating or reducing transparency and investor protections.  It will make securities law enforcement much more difficult.

Not surprisingly, NASAA is most exercised about further preemption of state qualification (registration) requirements with respect to the offer and sale of securities.   In the words of Queen Gertrude, NASAA "doth protest too much, methinks".  

For example, NASAA claims "Because the JOBS Act preempts the states from regulating crowdfunding, the SEC will be solely responsible for policing the new market and deterring fraud" (emphasis added).  In fact, the JOBS Act makes it clear that in connection with the crowdfunding exemption states retain jurisdiction to investigate and take enforcement action with respect to (i) fraud or deceit; or (ii) unlawful conduct by a broker, dealer, funding portal, or issuer.  While Congress did limit state authority to take enforcement action against registered funding portals, it created an exception for the state in which the principal place of business of a registered funding portal is located.  The "host" state can enforce its laws and rules to the extent that they not in addition to or different from the SEC's requirements for registered funding portals.  Thus, Congress clearly hasn't left it "solely" to the SEC to police the new crowdfunding market and deter fraud. 

It does seem that Congress duplicated some of its efforts.  In Section 305(d)(2) of the JOBS Act, Congress amended Section 18(c)(1) of the Securities Act of 1933 by striking "or dealer" and inserting ", dealer, or funding portal".   This amendment is puzzling because Congress in Section 305(b)2) had struck the entire clause in which "or dealer" appeared in Section 18(c)(1). 



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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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