State securities regulators are calling on the U.S. Securities and Exchange Commission (SEC) to back away from a plan to allow mass marketing of exempt market offerings.
The North American Securities Administrators Association (NASAA), which represents state and provincial regulators, joined with three investor advocates (from the AARP, the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), and the Consumer Federation Of America) in criticizing the SEC’s first rulemaking effort under the US JOBS Act, and calling on the SEC to withdraw its proposal.
The JOBS Act calls for an easing of certain securities rules in an effort to jump start capital raising, and bolster the U.S. recovery. State securities regulators have consistently opposed some of the measures, warning that they will undermine investor protection and could expose retail investors to fraudsters.
NASAA’s president and Arkansas Securities Commissioner, Heath Abshure, said that the SEC should craft a new rule that promotes capital formation without sacrificing investor protection.
“People don’t seem to think so, but this is a drastic change to the face of securities regulation,” Abshure said, noting that private offerings are already, “the most frequent financial product at the heart of state enforcement investigations and actions. Lifting the advertising ban on these highly risky, illiquid offerings, without requiring appropriate safeguards, will create chaos in the market and expose investors to an even greater risk of fraud and abuse.”
“Without adequate investor protections to safeguard the integrity of the private placement marketplace, investors should and will flee from the market, leaving small businesses without an important source of capital,” he added.
Barbara Roper, director of investor protection for the Consumer Federation of America and the chair of the Investor Issues task force of Americans for Financial Reform, said, “The commission itself has acknowledged that lifting the ban on general solicitation in private offerings will increase the risk of fraud, potentially harming investors and issuers alike.”
She noted that, while the SEC is required to lift the solicitation ban, under the JOBS Act, “it also has an obligation to adopt rules that protect investors and promote market integrity and the authority to do so. A number of reasonable, concrete proposals have been suggested that, if adopted, would significantly improve safeguards for investors in private offerings. Its rule proposal completely ignores those suggestions. It cannot in good conscience continue to do so.”
Cristina Martin Firvida, director of Financial Security and Consumer Affairs, Government Affairs, at the AARP, warned that these offerings pose a particular threat to older investors.