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Montana and Massachusetts Officials to Challenge Regulation A+

In federal appeals court later this month, state securities regulators and the Securities and Exchange Commission (“SEC”) will square off over the agency’s Regulation A+ amendments under the JOBS Act. Montana and Massachusetts officials seek to overturn the capital formation rule, contending it overlaps state management of certain securities offerings.

Issued in June 2015, Release No. 33-9741, Amendments to Regulation A, the rules increase the amount companies can raise (up to $50 million) in transactions that are compared frequently to small-scale initial public offerings, but have lesser disclosure and accounting requirements than more traditional registered offerings. The final rules allowed companies to avoid state review at the cost of taking on a more substantial federal filing responsibility. State regulators objected, saying the move would impact investor protection.

Last May, Massachusetts Secretary of the Commonwealth William Galvin and Montana Commissioner of Securities and Insurance Monica Lindeen filed a lawsuit against the SEC to prevent Regulation A+ from being implemented. Both officials argued that a state preemption contradicted congressional intent under the JOBS Act. The SEC countered by saying the amendments reflected flexibility that lawmakers granted in the 2012 law.

Oral argument is scheduled for April 14th.

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