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June 14 — A federal appeals court rejected a challenge to the SEC's Regulation A Plus rule brought by Montana and Massachusetts, which claimed the unregistered offerings rule impermissibly pre-empted state law ( Lindeen v. SEC, D.C. Cir., No. 15-1149, opinion 6/14/16 ).
Reg A Plus, adopted in March 2015, raised the limit on those offerings to $50 million and created two tiers that may be sold. State registration laws were preempted for offerings under the larger tier (58 SLD, 3/26/15).
The June 14 ruling removes some uncertainty over how the new rule will be put into practice by industry participants.
The Securities and Exchange Commission acted within its authority when it defined a “qualified purchaser” who may participate in some of the exempt offerings, the U.S. Court of Appeals for the District of Columbia Circuit ruled.
The agency's definition is consistent with congressional intent and not arbitrary, Judge Karen LeCraft Henderson held.
Much of the April oral argument in the case dealt with that definition, which the states said wasn't a qualification at all because it was so broad (73 SLD, 4/15/16).
Under the rule, qualified purchasers are “any person to whom securities are offered or sold pursuant to a Tier 2 offering” of Regulation A.
Judges Douglas H. Ginsburg and David B. Sentelle also sat on the panel.
The named challengers were Massachusetts Secretary of the Commonwealth William Galvin and Montana Commissioner of Securities and Insurance Monica Lindeen. Their offices didn't return messages seeking comment.
“Regulation A+ implemented an important JOBS Act provision and is facilitating small business capital formation while protecting investors. We are pleased that the Court has upheld the Commission’s rule,” an SEC representative told Bloomberg BNA in an e-mail.
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