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The Deal: SEC Rule on Advertising May Be Too Tough for Startups

"If they're feeling queasy about their offering documents, maybe that should tell them something," he said. "Either be confident in your work or don't file."

Littman said the concern is probably confined to the smallest and least sophisticated issuers who are not as knowledgeable about securities laws. The good news for the unsophisticated issuers is that if they're overwhelmed by the filing requirements for general solicitation and advertising, they can opt to raise capital the old-fashioned way, without solicitation and advertising, he said.

"Just like one-size-fits-all doesn't work with capital raising, no one size fits all for exemptions," Littman said. "If you don't like the rules, you can still issue shares without general solicitation. The variations have actually expanded and not shrunk."

The SEC staff is unlikely to be receptive to the concerns that startup advocates are expressing, said David Pankey, a partner in the Washington office of law firm McGuireWoods LLP.

"They're basically saying people will try to figure out ways not to comply with the filing requirement," Pankey said. "I don't think the staff will be persuaded by that argument."

Pankey said that small companies already face filing requirements with the SEC for acquisitions and other kinds of transactions. Trade groups and deal advisers have developed standard forms to help small companies deal with those requirements.

"There is already in place a very similar requirement when you're doing a proxy solicitation or an M&A deal," Pankey said. "It's been in place for over a decade." Industry groups "very quickly figured out how to put out pro-forma filings with the SEC," he said. "If there is industry guidance out there, and there will be fast, I wouldn't see it as a potential problem. People who are intermediaries and members of trade associations would put them together and their members could use them."

Pankey noted, however, that it also remains to be seen whether state securities regulators will put out their own similar requirements. Asked whether securities issuers should be worried about such filing requirements being used against them in enforcement actions, Pankey was circumspect.
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