SEC Deregulation Continues

First, in August the SEC widened the definition of “accredited investor” to permit a broader range of investors to fall under the Regulation D exemption which permits companies to issue shares without registering them with the SEC. While the changes are technical, generally they exempt sales to holders of various securities licenses, employees of private investment funds, most advisers on investments, family members and clients of family offices with $5M or more under management, Indian Tribes and labor unions. Upon ultimate publication in the Federal Register, these changes take effect in sixty days.

On Wednesday, the SEC made it harder for investors in public companies to demand inclusion of shareholder proposals in proxies of public companies. The changes, again technical in nature, fundamentally require that a shareholder is entitled to add a proxy question only if that person held more shares for a longer period than under present law. These new rules are subject to various phase-in periods for meetings held after January 1, 2022. The new standards for proxy inclusion were praised by business groups and condemned by labor and investor advocates.

These, and other changes noted in prior posts here, reflect views of the 3-2 majority of SEC commissioners named by the President. The SEC has been loosening controls that exclude investors from participating in stock offerings and strengthening the ability of public companies to avoid interference from existing investors. I note that, in most cases of “deregulation,” there exists rational arguments on the side of the majority, and the fundamental structure of SEC oversight has not been materially weakened. Nonetheless, “liberal” observers have objected continually to these developments, both during the period that proposals are open for public comment and after those proposals have been codified.

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