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JOBS Act Update: SEC Extends Comment Period for Proposed Amendments to Rule 506

Shriram Bhashyam | September 30, 2013


While much of the headline grabbing news in the startup world last week revolved around the effectiveness of SEC rules allowing general solicitation, on Friday the SEC announced that it is extending the comment period of proposed rules relating to fundraising using Rule 506, the predominant way in which startups raise capital.

We have previously covered these proposals, which include advance Form D filing requirements and severe penalties for noncompliance, as well as the reaction in the startup community.
These proposals have been controversial, to say the least. The proposals were passed by a 3-2 vote among SEC commissioners and the startup community has responded with swift criticism.  The volume (over 350) and passion of comment letters played a part in the decision to extend the comment period.  As the SEC noted in its release announcing the extension:
The proposed amendments have generated a large amount of public interest. The Commission believes that providing the public additional time to consider thoroughly the matters addressed by the release and comments submitted to date and to submit comprehensive responses would benefit the Commission in its consideration of final rules.
Note that the SEC is now seeking comments on the comments, in addition to comments on the proposed amendments. Reading the tea leaves, it looks like the SEC is heeding the input it has received from the startup community and is using the extension to obtain the time necessary to revise the proposals to find a better solution to monitor private placement fundraising, ensure investor protection, and facilitate capital formation. The comment period will be extended by an additional 30 days, and will close around the first week of November (exact date to be determined).

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