SEC's Stein backs states' push to police smaller stock deals

WASHINGTON, April 8 Tue Apr 8, 2014 2:46pm EDT

WASHINGTON, April 8 (Reuters) - U.S. securities regulators should not be so quick to scale back the power of the states to police certain smaller public stock deals, a top U.S. Securities and Exchange Commission official warned on Tuesday.

The remarks by SEC Commissioner Kara Stein, a Democrat, represented a small victory for state regulators, who have been locked in a deep jurisdictional and legal battle with the SEC over a plan that proposes to preclude states from regulating some smaller stock offerings.

The North American Securities Administrators Association, which represents state securities regulators, has been trying to convince a majority of the SEC's five commissioners not to vote for the plan, known as "Regulation A-Plus," in its current form.

The state regulators' group was holding its annual meeting in Washington on Tuesday. Its leaders have been meeting with SEC commissioners this week to make its case.

"I think the more eyes on the market, the better," Stein told reporters on the sidelines of NASAA's conference.

The SEC's Regulation A-Plus proposal would make major changes to the current rules on the books that govern small public stock deals.

Companies rarely use Regulation A to raise money today because it limits them to a $5 million cap, and because the offerings must be registered separately in every state where they are sold. Such registration is costly, and often not worth the effort.

The SEC wants to raise that threshold to $50 million and exempt some of the larger deals from state registration laws so that more companies can use "Reg A" to raise new capital.

NASAA contends that the SEC's effort to cut states out of regulating the deals violates the law and the will of Congress.

The group recently hired former SEC enforcement lawyer Tom Sporkin of BuckleySandler LLP to help devise a strategy to fight the plan.

Stein addressed NASAA at its annual meeting, where she gave a speech suggesting she is sympathetic to the group's concerns.

"I remain concerned that the proposed Reg A-Plus does not provide workable options for smaller issuers, and that it unwisely precludes the states from their critical oversight function," Stein told the group.

She stopped short of saying how she might ultimately vote on the measure.

In addition to trying to persuade the SEC that the plan in its current form is unlawful, NASAA is also working to win support for a new system to make the registration process easier for companies.

NASAA has approved a new streamlined system that would let companies register offerings once, instead of in every state separately.

So far, at least 48 of the 53 regulatory agencies that comprise NASAA have signed an agreement to execute the plan.

Whether the SEC will abandon its proposal to pre-empt state oversight of Reg A deals remains to be seen.

SEC Commissioner Luis Aguilar, a Democrat, told NASAA earlier in the day that he had sought legal advice from the SEC's general counsel office about whether pre-empting state oversight violates the law.

He said the states' proposal "should be a factor that the Commission seriously considers" before adopting the rule, but did not give any hints on how he may vote.

Last week, SEC Commissioner Daniel Gallagher, a Republican, gave a much dimmer view on the subject, telling reporters on the sidelines of an event that the people at NASAA "don't have a process" for registering the deals. (Reporting by Sarah N. Lynch; Editing by Karey Van Hall and Jan Paschal)

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