On June 16, the Securities and Exchange Commission denied a motion, filed by Monica J. Lindeen, Montana State Auditor, ex officio Commissioner of Securities and Insurance, which sought to stay the effectiveness of new “Regulation A+” (which became effective today, June 19). As noted previously Ms. Lindeen, in her capacity as the Montana State Auditor and Commissioner of Securities and Insurance, previously filed a lawsuit with the Federal Court of Appeals for the District of Columbia (DC Circuit), which seeks to enjoin the effectiveness of Regulation A+ on the basis that Regulation A+ exceeded the SEC’s congressional mandate by pre-empting state “blue sky” review of Tier 2 offerings under Regulation A+. The lawsuit is currently pending.

In her motion for a stay, Ms. Lindeen argued that the DC Circuit is likely to find that (1) the definition of “Qualified Purchaser” in Regulation A+ is contrary to the plain meaning of the Jumpstart Our Business Startups Act (JOBS Act) and the National Securities Market Improvement Act of 1996 (NSMIA) and (2) the SEC did not adequately analyze the effects that preemption under Regulation A+ would have on investors. Ms. Lindeen also argued that denying a stay would expose issuers and “unsophisticated and unwary consumers to irreparable harm.”

In denying the motion, the SEC determined that Ms. Lindeen failed to demonstrate a strong likelihood of success on the merits of either of her claims, and that Ms. Lindeen also failed to show irreparable harm if Regulation A+ is not stayed. The SEC disagreed with Ms. Lindeen’s contention that a stay of Regulation A+ “would not result in substantial harm to issuers, investors or any other party.” The SEC noted that, in particular, a stay would be against public interest and contravene Congress’s will, as a stay would (1) deprive issuers that satisfy Regulation A+ requirements from raising capital through opportunities that are created by Regulation A+, and (2) deprive investors that satisfy the requirements under Regulation A+ of investment opportunities in Regulation A+ offerings.

To view the complete text of the SEC’s order denying the stay, click here