Arkansas Securities Commissioner Heath Abshure, the newly elected president of the North American Securities Administrators Association Inc., last week called on state regulators to get more aggressive on the legislative front in protecting their interests, as well as those of investors.
NASAA has been a major player in lobbying against a self-regulatory organization for financial advisers. And thanks to the Dodd-Frank Act, state regulators now are responsible for about 2,700 midsize advisers formerly registered with the Securities and Exchange Commission.
Mr. Abshure was appointed commissioner in 2007. He has had stints in private law practice, served for two years with the SEC as an adviser in the agency's Office of the Administrative Law Judges and also serves as an adjunct professor at the University of Arkansas at Little Rock's William H. Bowen School of Law.
InvestmentNews caught up with Mr. Abshure last week at NASAA's annual conference in San Diego.
IN: What are your priorities for NASAA?
Mr. Abshure: We'll continue to fight against the pre-emption and marginalization of state securities regulation. Historically, what we see coming out of Washington with each regulatory bill involves to varying degrees a lessened role for state regulators. History has shown that approach to be ill-conceived.
IN: Would an adviser SRO affect state regulators?
Mr. Abshure: I think a self-regulatory organization over advisers is a first step to pre-emption. Even if that particular bill [introduced by House Financial Services Committee Chairman Spencer Bachus, R-Ala., last April, requiring all retail advisers to join an SRO] was carved out to cover just federally registered advisers and left state-registered advisers to the states, once that SRO gets a foothold, it's not going to be satisfied with what it has. I think that's something we need to ward off.
IN: Many people have concluded that the SEC will never get the resources to oversee retail advisers.
Mr. Abshure: I don't know that anyone has made a determination that existing levels of funding are sufficient or not. The other alternative is to just farm it out. But it seems crazy to me that Congress — the body charged with making sure the SEC does what it is supposed to do — has determined that the SEC is not doing it, and the response is, “Let's let the industry do it.” We should at least figure out what is the least costly and most effective remedy to the problem of adviser oversight. I just don't believe it's a self-regulatory organization.
IN: NASAA tried to ward off some provisions in the Jumpstart Our Business Startups Act, which allows advertising for private offerings under the widely used Rule 506 exemption, as well as smaller crowd-funding deals. What are NASAA's concerns about the JOBS Act?
Mr. Abshure: With crowd funding, you're opening the door for the smallest, most speculative investments. You're not going to have an existing mechanism, with truthful information, that sets the stock price. You don't have an obligation on these companies to provide information on a periodic basis. Analysts aren't going to follow these types of companies. So that type of information will not be filtered — in a way that individual investors can understand it — into a stock price.
The other thing is, with crowd funding especially, when you have such small investment amounts, if I'm defrauded, I'm not going to be able to find a lawyer to take that case.
IN: You have said ending ad prohibitions on Rule 506 offerings is a bigger risk than crowd funding. Why?
Mr. Abshure: I do think it's a bigger problem. With the crowd-funding offerings, there has to be some intermediary research into an issuer, but with a 506 offering, all I have to do as an issuer is put up my website. Anyone who sells a 506 offering can solicit and advertise without any guidance at all on what that advertising and soliciting should look like. Purportedly, you won't need a lawyer or accountant to raise money. What that means is, you won't have that expert explaining that fraud liability is going to attach to these communications. And issuers are going to advertise like they're selling a car.
IN: In your conference address, you issued a call to arms and expressed a desire to go on the offense politically. How will NASAA do that?
Mr. Abshure: We can get more aggressive ourselves. Historically, we have been forced into a defensive position, responding to bills someone else introduces. We can develop better relationships both at home and with our congressional delegations. I think we also need to be active in drafting legislation and finding sponsors to push it through the legislative process.
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