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Investor Advisory Committee’s mission may conflict with startup finance reforms of JOBS Act

Luis Aguilar

The creation of the Investor Advisory Committee established under the Dodd-Frank Act could conflict with startup finance reforms under the JOBS Act.

The purpose of the IAC is to “advise and consult with the [Securities and Exchange] Commission on regulatory priorities of the Commission; issues relating to the regulation of securities products, trading strategies and fee structures, and the effectiveness of disclosure; initiatives to protect investor interest; and initiatives to promote investor confidence and the integrity of the securities marketplace,” Counselor@Law reports.

The phrase “initiatives to protect investor interest” could encompass a number of investment activities, which could push the IAC to comment on the implementation of startup finance reforms under the JOBS Act. The law requires the SEC to lift the ban on general solicitation and advertising in securities offerings under Rule 506 of Regulation D of the Securities Act.

SEC Commissioner Luis A. Aguilar expressed concern regarding the elimination of the ban, saying that, in the absence of registration and disclosure, general solicitation and advertising could “all too readily become a tool for deception and misinformation,” adding that such a change “would greatly increase the vulnerability of investors.”

Additionally, there are no “angels,” which are wealthy individuals willing to invest in a startup company in return for an ownership stake, entrepreneurs or venture lawyers on the committee, according to Counselor@Law.

The IAC recently submitted a number of recommendations to the SEC regarding the lift of the ban on general solicitation, including requiring all advertising materials disseminated by the issuer to the public to be given to the SEC and requiring all issuers relying on the general solicitation exemption to file with the SEC in order to claim the exemption.

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