States may yet wrest some control over Reg D offerings

With the Senate in the throes of hammering out financial-reform legislation, state securities regulators still have hope that they can regain control over key aspects of the private-placement market. Denise Crawford, Texas securities commissioner, said that two pivotal points of legislation are up for consideration — and are still being discussed in the Senate. First is the “bad boy” provision. Under that proposal, individuals convicted of certain crimes would be excluded from offering Regulation D deals (commonly known as private placements), Ms. Crawford said. In addition, the definition of who qualifies as an “accredited investor” could be changed, she said. The revision would exclude the value of an investor's primary residence as part of his or her net worth. In the most recent version of Sen. Christopher Dodd's financial-reform bill —unveiled in March — state securities regulators failed to gain the oversight of private placements and Reg D offerings that they sought. Last fall, the North American Securities Administrators Association, of which Ms. Crawford is president, proposed the full return of oversight of Reg D deals to the states. Such deals are now filed with the Securities and Exchange Commission. Regulators, including the states and the Financial Industry Regulatory Authority Inc., have been stepping up their scrutiny of broker-dealers and registered reps that sell private placements. Typically, brokers sell the securities to wealthy, accredited investors.