The Senate voted yesterday to approve an amendment to Senator Dodd’s financial reform bill that preserves the current mechanics of a securities offering under Rule 506 of Regulation D. The original language of the bill would have required a 120 day period for the SEC to review the filings of companies seeking to raise money from “accredited investors.” If the SEC failed to review the offering, the security would not have been considered a “covered security” exempt from additional requirements of state securities regulators. This provision, coupled with other language in the original bill would have allowed state regulators to review smaller financings “not of sufficient size of scope.” In short, the bill would have made it harder and more expensive for start-ups to raise money by subverting federal preemption of state law that has been in place for over a decade.
The original language of the bill had left a lot of commentators, including the Angel Capital Association, wondering why Congress had any interest in restricting how start-up companies raise money from angel investors. Several circumstances may have contributed to the financial crisis, but few analysts are willing to blame angel investors.
SaveRegD.com, a website started to lobby against the offending language of the original bill, is understandably supportive of the recent amendment.