House rep: Image-conscious Schapiro to blame for Reg D delay

Capitol Hill Republicans are ensuring that the end of Securities and Exchange Commission Chairman Mary Schapiro’s tenure and the beginning of her successor’s, SEC commissioner Elisse Walter, will be controversial.

The tension stems from implementation of a bill approved earlier this year that would ease securities registration for start-up companies. One provision of the so-called JOBS Act would eliminate the ban on advertising private-placement stock offerings to the general public.

The bill was approved with overwhelming bipartisan support in Congress and signed into law by President Barack Obama in April. It was to have been implemented by July 4.

The SEC proposed the rule lifting the advertising ban on Aug. 29, with a comment deadline of Oct. 5. The agency has not yet issued a final rule. Ms. Schapiro’s last day as chairman is Dec. 14.

In a letter to the SEC on Nov. 30, Rep. Patrick McHenry, R-N.C., the bill’s author, accused Ms. Schapiro of delaying the rule because of an email from Barbara Roper, director of investor protection at the Consumer Federation of America, warning that the draft rule would make investors vulnerable to fraud. She urged the agency to issue a proposed rule and take public comments rather than move straight to an interim final rule.

That’s the route that the SEC took, incensing Capitol Hill Republicans, who assert that looser regulations on private-placements will help small businesses raise capital and create jobs.

In his Nov. 30 letter, Mr. McHenry said that documents provided to the subcommittee of the House Committee on Oversight and Government Reform that he chairs show that Ms. Schapiro slowed the rule-making process against a staff recommendation in part to burnish her investor-protection reputation.

“The decision to proceed with a proposed rule appears to have prioritized a well-connected special-interest group’s preference and concern over how your legacy would be perceived over faithful compliance with the law,” Mr. McHenry wrote. “Concern for one’s legacy has no place in what should have been a routine implementation of a law passed with bipartisan support in Congress and signed by President Obama.”

SEC spokesman John Nester said in a statement that the agency is required to seek public comment on most proposals before adopting them. He also pointed out that “there was a very real threat of legal challenge,” if the agency didn’t solicit comment.

“Chairman Schapiro strongly believes that protecting investors should be the desired legacy of all SEC chairmen,” Mr. Nester said. “It is part of our mission and she believes it should inform our decisions at all times. She also believes that the agency should not consider investors – or the groups that represent them – to be special interests. The chairman believes the high quality comments we received make clear that seeking public comment was the right decision.”

Mr. Nester added that an SEC has not yet scheduled an open meeting to issue a final rule.

The letter from Mr. McHenry came on the same day that Senate Republicans also urged the SEC to move ahead with the private-placement-advertising rule.

In her final couple weeks, Ms. Roper encouraged Ms. Schapiro to continue to proceed carefully.

“It would be unfortunate if Chairman Schapiro allowed herself to be bullied into adopting a rule based on a proposal that is legally deficient and totally inadequate,” Ms. Roper said in an interview. “We hope she will remain firm during her brief remaining time in office.”

If she does so, the situation becomes Ms. Walter’s problem.

At a Nov. 15 SEC small business forum, Ms. Walter indicated that she, too, has qualms about potential investor harm coming from private-placement advertising to the public.

Ms. Roper said that she is “cautiously optimistic” that Ms. Walter will proceed at the same measured pace as Ms. Schapiro.

“She’s going to be under strong pressure,” Ms. Roper said. “So it will take an act of courage on her part to stand up for investors.”