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Outgoing Securites and Exchange Commission chair Mary Schapiro opted to slow down the process of implementing Title II of the JOBS Act at the last minute over concerns about her legacy at the SEC and after receiving pressure from a lobbyist.
That's the accusation laid out in a strongly worded letter from Representative Patrick McHenry (R-NC) sent to Schapiro on Friday and posted to the SEC's website with other public comments on the JOBS Act.
The JOBS Act signed in to law in the spring called for swift implementation, including a July 4th deadline for putting place the provisions in Section 201, which removes the ban on general solicitation and advertising for issuers of certain offerings. The lifting of the ban is critical for other parts of the JOBS Act, including crowdfunding, to move forward.
According to McHenry's letter, internal SEC documents reveal that staff and legal counsel were in agreement as early as May that "an interim final rule was the most practical, responsible, and legally appropriate means of implementing Section 201."
An interim final rule is a bureacratic means of expediting the rule-making process that skips public notice and comment procedures.
McHenry charges that the SEC moved forward -- under Schapiro's direction -- on preparing an interim final rule throughout June and July and as late as August 6, was still planning to annouce the rule on August 22 at its open meeting.
Then, on August 7, Schapiro's office received an e-mail from Barbara Roper, lobbyist for the Consumer Federation of America. According to McHenry, Roper demanded that a notice and comment period be added to the process or CFA and aligned groups would be "quite aggressive in voicing our concerns."
Schapiro informed fellow commissioner and friend Elisse Walter about the email, and almost immediately fired off an e-mail to an SEC staffer under the subject line "Please don't forward" that McHenry cites:
"... I have 2 worries- one is that if these guys (CF A, et al) feel this strongly, it seems like we should give them a comment period. Its not really asking for much ... The other is that I don't want to be tagged with an Anti-Investor legacy. In light of all that's been accomplished, that wouldn't be fair but it is what will be said given how high emotions run on anything related to the JOBS Act. Doesn't seem worth it for an extra 45 days of process."
Over the next few weeks, the SEC switched gears, dropped the interim final rule, and instead moved forward with opening a public comment period on lifting the solicitation ban that began in late August.
The change also elicited a strong response from SEC commissioner Daniel Gallagher, who wrote in an email to Schapiro with subject line "I am furious" on August 8:
I just got word about the latest change to general solicitation. It is not acceptable. I have been operating in good faith, reviewing the multiple proposals sent to me for consideration this month, and I continue to find shifting sands. A "proposal" on general solicitation could have been done months ago, and indeed should have been done years ago. Meredith and Lona made it crystal clear to me on Monday that there is no need for a proposal because we know what the comments will be. And so, I spent hours working on how to accommodate your desire for a study within an interim final rule, and we did so --just to find out now that you have changed your mind again.
Rep. McHenry ends his letter to Schapiro by noting that the public comment period ended on October 5th, and requests that Schapiro finalize the rules for Section 201 before stepping down on December 14th.
This weekend, Schapiro released a statement through the SEC's press office responding to McHenry's charge that her decisions regarding Section 201 had been motivated by special interests and concerns over her personal legacy:
“Chairman Schapiro strongly believes that protecting investors should be the desired legacy of all SEC Chairmen,” John Nester, the agency’s spokesman, said in a statement. “It is part of our mission and should inform our decisions at all times. She also believes that the agency should not consider investors — or the groups that represent them — to be special interests.”
All this puts incoming SEC Chair Elisse Walter's comments at the recent SEC small business forum in strong support of lifting the general solicitation ban into context.
With Schapiro out of the picture (she had been a vocal opponent of the crowdfunding portion of the JOBS Act even before it was signed into law), perhaps the timeline for equity crowdfunding could begin to accelerate in 2013, even with implementation now far behind the deadlines mandated by Congress.
Unfortunately for platforms and others getting ready to crowdfund, the delays already imposed -- apparently at the hands of Schapiro and a few lobbyists alone -- amount to time and money wasted.