Investor advocates tell SEC to start over on Reg D ads
Proposed rule too vague, critics say; would 'create chaos in the market'
Investor advocates and state regulators Tuesday 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 late August as part of the regulations that would implement the JOBS Act, which was signed into law in the spring. 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 large holes in the rule, according to Barbara Roper, director of investor protection at the Consumer Federation of America.
“It will deal a blow to its credibility as an investor protection agency,” she said. “The commission has no choice but to withdraw this clearly deficient rule proposal.”
The SEC has failed to do even a “cursory” economic analysis of the rule’s potential impact on consumers, according to Ms. Roper.
Although her organization often accuses other groups of demanding cost-benefit assessments in order to slow down regulations, she said that regulatory-impact calculations must be a two-way street.
Ms. Roper doesn’t rule out the CFA’s filing a lawsuit claiming insufficient economic analysis of the rule on private-fund advertising.
“It’s an option we can’t take off the table at this time,” she said. “It’s hard to imagine a more slam-dunk case than this one.”
The state regulators, AARP, the AFL-CIO and the CFA participated in the media event. NASAA is calling on the SEC to redo the rule to ensure that an investor is accredited before purchasing shares in a private placement and require the filing of a Form D before ads are launched, among other things.
AARP and the CFA would like the SEC to update the accredited-investor standard.
A new rule is required, given the sea change that private-fund advertising introduces to the investing world, according to Mr. Abshure.
“This is a huge shift in the federal dichotomy between a public offering and a private offering,” he said.
The SEC declined to comment.
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