Thursday, June 10, 2021
My efforts to persuade the Nevada legislature to allow the state's ordinary regulatory process to handle exemptions were largely unsuccessful. For a quick refresher, the legislation placed a NASAA model regulatory exemption which was already set to go into the next round of regulatory code updates into the statute. I previously blogged about the issue and published an oped in the Nevada Independent, hoping to change some minds. My main points were simple: (1) there was no need to actually do anything because it would become law when the regulations went into effect; and (2) putting it into the statute would make it much harder to update when SEC regulations change.
Still, the effort did have some impact. The bill's sponsor reached out to talk about the issue and asked that I produce some draft language for an amendment. I agreed and spent much of my Easter Sunday doing that. My proposal was to have the head of the state securities division simply report on the state's offering rules and any needs the office saw every couple of years to improve coordination and prevent confusion. This is the draft language I suggested:
No later than August 15 of every even-numbered year, the Administrator shall publicly release, via posting to the Secretary of State’s website or other means, his or her views on:
(a) whether any model rules, regulations, exemptions, or other provisions adopted by the North American Securities Administrators Association within the preceding five years have been implemented by the State and, if they have not been implemented, an explanation for why the State has not implemented the model rules, regulations, exemptions, or other provisions adopted by the North American Securities Administrators Association within the preceding five years;
(b) whether the Securities Division has an optimal level of resources to achieve its objectives; and
(c) whether the Administrator recommends that any legislation be enacted in the public interest and for the protection of investors.
The bill's sponsor ultimately decided to simply expand the legislation to add an amendment based off my draft language and also persist with the effort to place the exemption into the statute. The amendment, now law, tracked my language with a few changes and reads:
1. On or before August 15 of each even-numbered year, the Administrator shall: (a) Submit a written report to the Director of the Legislative Counsel Bureau for submission to the Legislative Commission; and (b) Publish the report described in paragraph (a) on an Internet website of the Secretary of State or by similar means.
2. The report must include, without limitation:
(a) A summary of the states that adopted a model rule, regulation, exemption or like provision of the North American Securities Administrators Association within the 5 years immediately preceding the publication of the report described in subsection 1;
(b) A summary of the states that did not adopt a model rule, regulation, exemption or like provision of the North American Securities Administrators Association within the 5 years immediately preceding the publication of the report described in subsection 1, and the reasoning why each state did not adopt any such model rule, regulation, exemption or like provision;
(c) A determination of whether the Division has the resources necessary to achieve its objectives; and
(d) Any recommendations for legislation relating to the protection of investors in this State.
I told the bill's sponsor that I did not support the legislation on the whole because it continued to put the exemption into the statute instead of simply letting it become law through the ordinary regulatory process. Still, the sponsor did tell the legislature that I wrote the reporting requirement and had been "very helpful." You can find that at 8:31:45 here if you want to see it.
Now we wait to see if the problem I flagged emerges. I also predict that one of the items in the first report under this legislation will be a request that the private fund adviser exemption be removed from the statute so that it can be managed and updated in the ordinary course within the regulatory code.
To be clear, my only objection here was that this exemption belonged in the administrative code. I still think that's where it will ultimately end up because keeping it in the statute will cause problems as SEC regulations change. It's been a real learning experience to participate in the legislative process.