* SEC's Aguilar wants advertising rule re-proposed
* Walter says SEC should consider adding safeguards
* Rule would lift ban on advertising for private offers
* Investor advocates say proposal leaves door open for fraud
By Sarah N. Lynch
WASHINGTON, Nov 15 Two U.S. securities
regulators on Thursday said more safeguards for investors should
be considered before a rule lifting the ban on general
advertising for private offerings is adopted, with one going so
far as to call for a complete re-write of the proposal.
Luis Aguilar and Elisse Walter, both Democratic members of
the Securities and Exchange Commission, said the agency needs to
seriously consider whether allowing broader advertising could
unduly harm investors unless additional steps are taken.
In an interview with Reuters, Aguilar said he wants to scrap
the proposal altogether and start from scratch.
Walter did not go so far as to call for a new version of the
rule. But in remarks at the SEC's Forum on Small Business
Capital Formation, she said the SEC must tread carefully before
simply lifting the ban.
"I think everyone can agree that removing the ban on general
solicitation, essentially allowing public offers in private
security transactions, is a fundamental change in the securities
market," Walter said.
"We must be vigilant about the potential consequences,
particularly unintended consequences of a significant change
like this, and consider ways to mitigate potential harms to the
investors while preserving the rule's intended benefits."
The SEC's proposal would greatly loosen strict advertising
rules to make it easier for hedge funds, private equity funds
and other firms to raise capital in the private market.
The proposal pertains to several kinds of offerings,
including those made under what is known as "Rule 506" of
Regulation D, which allows companies to raise an unlimited
dollar amount from accredited investors who meet certain income
or asset thresholds.
The rule is mandated by the Jumpstart Our Business Startups
(JOBS) Act, a bipartisan bill signed into law earlier this year
that eases securities regulations to help spur small-business
growth and capital formation.
The SEC has already missed a congressional deadline to
implement the rule. In August, it released a proposal for public
comment, with Aguilar dissenting on concerns it failed to
include even basic investor protections.
Since then, consumer and investor advocacy organizations, as
well as state securities regulators, have widely criticized the
draft, saying it would open the floodgates for fraud.
They said the draft failed to even contemplate some of the
basic protections they had proposed to the SEC prior to its
release, such as amending the definition of "accredited
investor" to make sure unsophisticated people are not captured
and tweaking the filing rules so the commission can collect data
on solicitation practices to help it police the marketplace.
In a call with reporters in October, they urged that the
rule include these additions.
In her remarks at Thursday's small-business event, Walter
cited the groups' ideas as things that the SEC should
contemplate as the rulemaking process continues.
If the SEC does decide to incorporate them, however, then
arguably the agency might have to re-propose the rule.
That is because the law governing federal rulemaking
requires agencies to re-propose a rule if the final rule will
contain significant changes from the proposed version.