Two states have brought legal action against the U.S. Securities and Exchange Commission (SEC) for exceeding the authority granted to it under the Jumpstart Our Business Startups (JOBS) Act. Massachusetts and Montana, which initiated the lawsuit at the behest of the North American Securities Administrators Association, believe that the SEC exceeded its authority in issuing the rules known as Reg A+ in 2015.
Massachusetts Secretary William Galvin and Montana State Auditor Monica Lindeen oppose the aspects of Reg A+ that lift state securities registration requirements, known as blue sky laws. They argue that the SEC went beyond its authority and encroached upon an area of the law traditionally reserved to the states. Galvin, in particular, who submitted two sets of comments in 2013 and 2014 before the SEC voted on the new rules in March of 2015, argues that this form of state law preemption contradicts congressional intent and puts investors at risk.
Most observers believe that the lawsuit brought by Massachusetts and Montana lacks substantive merit if one focuses on the investor protections built into Reg A+. Nonetheless, given the relative youth and novelty of Reg A+, the litigation may serve to temper enthusiasm for the new rule, at least temporarily. It is unclear when the Court of Appeals will issue its ruling.