Senators to SEC: It’s time to open private placements to public

Republican senators urged the Securities and Exchange Commission to complete by the end of the year a regulation that would lift the ban on advertising private-placement investments to the public.

In a letter to SEC Chairman Mary Schapiro, the lawmakers said that the agency should move forward with a proposed rule that implements a section of the JOBS Act that allows firms to make private stock offering to any accredited investor nationwide.

Congress passed the bill earlier this year by wide bipartisan margins. Proponents assert it will spur the economy by easing registration requirements and other rules for start-up companies. They want the SEC to speed up its rulemaking.

Critics of the measure, such as the North American Securities Administrators Association, argue that the reforms will leave investors vulnerable to fraud and want the SEC to proceed at a measured pace.

One area of concern is whether the rule goes far enough – or too far – in verifying that investors who purchase private placements are accredited, or have a net worth of more than $1 million not counting their homes.

The senators said that the test contained in the proposed rule is sufficient.

“A more intrusive and prescriptive test would be unnecessarily burdensome in many cases and insufficiently protective in many others, and it also would effectively overturn Congress’ intent in enacting Section 201 of the JOBS Act,” Sens. John Thure, R-S.D., and Pat Toomey, R-Pa., and nine other GOP senators wrote in a letter to SEC Chairman Mary Schapiro. “The statutory purpose would be undermined by new, complex and prescriptive requirements that would unduly inhibit the use of [Rule] 506 and [Rule] 144A for capital raising by small- and medium-sized businesses that remain the engine of job growth in the United States.”

A spokesperson for the SEC declined to comment on the letter.

The newly formed SEC Investor Advisory Committee, in its first official recommendation last month, urged the agency to include more investor safeguards in the general solicitation reform rule. It is unclear whether the guidance will influence the SEC commissioners as they finalize the rule.