SEC is urged to scrap Reg D rule

By Mark Schoeff Jr.

Oct 14, 2012 @ 12:01 am (Updated 5:01 pm) EST

Investor advocates and state regulators have called for the Securities and Exchange Commission to scrap a proposed rule that would authorize advertising for private placements.

The SEC issued the proposal in August as part of the regulations that would implement the JOBS Act. Supporters of the bill said that it would ease financial regulations on startup companies and help spur economic growth.

Critics assert that the SEC proposed rule on private-fund advertising was too vague and would hurt investors by allowing them to be lured in by slick sales pitches for opaque and volatile investments.

“Lifting the advertising ban on these highly risky, illiquid offerings without requiring appropriate safeguards will create chaos in the market and expose investors to an even greater risk of fraud and abuse,” Heath Abshure, Arkansas' securities commissioner and president of the North American Securities Administrators Association Inc., said during a conference call with the media.

The SEC is rushing to meet a congressional deadline and has left holes in the rule, said Barbara Roper, director of investor protection at the Consumer Federation of America.

In addition, the SEC has failed to do even a “cursory” economic analysis of the rule's potential impact on consumers, according to Ms. Roper, who said she doesn't rule out the CFA's filing a lawsuit.

The SEC declined to comment.

mschoeff@investmentnews.com Twitter: @markschoeff