Late last week, the House Appropriations Committee approved a bill that addresses the budgets for among other agencies, the Securities and Exchange Commission. While the bill would authorize an increase in the SEC budget for fiscal year 2021, it comes with strings. The bill contains a section, Section 540 (repeated below), which would condition spending unless the SEC were to take further actions in connection with advancing the measures that were included in the March 2020 proposing release on Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets to review market practices in connection with Rule 506 offerings involving general solicitation. The SEC’s proposing release included data for 2019 on the Regulation D market. The data showed that the vast majority of Regulation D offerings were made in reliance on Rule 506(b) (which does not allow for general solicitation). In 2019, there were 24,636 offerings made in reliance on Rule 506(b) (raising $1.5 trillion) versus only 2,269 offerings made in reliance on Rule 506(c) (raising $66.3 billion). Of course, the proposing release would do little to modify existing Rule 506, so the Section 540 rider is unusual. The appropriations bill has a long way to go before adoption, but it is interesting that the House would suggest reviving proposed changes to Regulation D, which, in 2013 were met with generally negative feedback from commenters.
SEC. 540. None of the funds made available by this Act may be used to finalize, issue, or implement any rule, regulation, or order regarding the exempt offering framework changes proposed at 85 Fed. Reg. 17956 without previously finalizing, issuing, or implementing a final rule strengthening the filing requirements around exempt offerings in the same or stronger manner as proposed at 78 Fed. Reg. 44806 to enhance the Securities and Exchange Commission’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation.