Consumer advocate gives SEC's final Reg D proposal an 'F'

Roper says rule fails to protect retail investors from potential scams; 'no credibility left'

Jul 5, 2013 @ 3:46 pm

By Mark Schoeff Jr.

+ Zoom

The Securities and Exchange Commission is scheduled next week to promulgate a final regulation that would allow advertising to the public for private-placement investments. But the SEC's final version of the rule is already being skewered by one consumer advocate.

The commission announced on Wednesday that it will meet on July 10 to vote on the long-awaited change to so-called Regulation D that would give private equity and hedge funds as well as brokers selling unregistered securities greater latitude in communicating to potential investors. In addition to lifting the advertising ban, the SEC also will act on amendments that would allow it to better monitor developments in the hedge fund market and prevent felons and other “bad actors” from offering private placements.

Barbara Roper, director of investor protection at the Consumer Federation of America, said that the SEC is poised to finalize a Reg D advertising rule that fails to incorporate any recommendations made by investor advocates. Instead, the agency may address the issues in a separate rule.

“It is a sad day in the history of the SEC,” Ms. Roper said. “It treats investor protection as some sort of luxury it may get around to in the future.”

The agency declined to comment.

Next week's action will complete work on one provision of a bill – the Jumpstart Our Business Startups Act -- that was approved with overwhelming bipartisan congressional majorities and signed into law in April 2012. The measure eases securities registration for small companies.

The SEC proposed the advertising rule last August, generating more than 250 comment letters. Republicans were incensed that the SEC didn't promulgate an interim final rule at the time.

Members of Congress have been pressuring the agency for months to move forward. In Capitol Hill appearances, new SEC Chairman Mary Jo White has been assuring lawmakers that implementing the JOBS Act is an agency priority.

Supporters of lifting the advertising ban say it would help entrepreneurs raise capital. The nonregistered, or Reg D, securities could be sold only to accredited investors – those who make more than $200,000 annually or have more than $1 million in assets beyond their home.

Ms. Roper asserts that the SEC should update the accredited investor standard before lifting the Reg D advertising ban. She argues, for instance, that retirement nest eggs could be enough to confer accredited status on investors.

“We're now throwing open the door to the mass market for these funds without providing any additional protection to ensure that they're only sold to those for whom they are appropriate,” Ms. Roper said.

Ms. Roper also criticized the SEC for not taking into account the unanimous recommendations made last October by the Investor Advisory Committee, a panel of industry professionals and advocates on which she sits that was established by the Dodd-Frank financial reform law to represent retail investors. The agency has not formally responded to the group.

After having several rules overturned by courts, the SEC has been placing increased emphasis on cost-benefit analyses of proposals. But Ms. Roper said that the Reg D rule “makes a mockery of the Commission's guidelines for economic analysis.”

“There is no way they would adopt a rule based on this proposal, if the industry opposed it,” Ms. Roper said. “If they get away with this double standard, they're done as an investor-protection agency. They have no credibility left.”

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30

Conference

Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video

Events

How politics are moving markets

The financial services industry stands at the unique intersection of politics and market fluctuation. Clients are anxious and the right adviser can steady he waters. Scott Kubie of Carson Group explains how.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

In a turnaround, Wells Fargo Advisors sees slight bump in headcount

Racked by a scandal in its retail banking unit, Wells still managed to add 37 new advisers in the third quarter, a small number but an improvement nonetheless.

Social Security benefits to increase by 2% in 2018

Largest cost-of-living adjustment since 2012 may be offset for some by higher Medicare premiums.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print