| WASHINGTON, Sept 17
WASHINGTON, Sept 17 U.S. regulators are stepping
up their scrutiny of the private securities market in
anticipation of the lifting on Monday of an 80-year-old ban on
advertising by hedge funds to investors.
Starting on Monday, hedge funds, private equity funds and
other firms will be allowed to reach new investors through
television, radio and the Internet.
The new advertising rule by the Securities and Exchange
Commission is required under the 2012 Jumpstart Our Business
Startups Act, which was passed by Congress with bipartisan
support and is designed to ease regulatory burdens to spur
capital-raising and job growth.
Hedge funds will still be restricted from actually striking
private deals with mom-and-pop investors who do not meet certain
income or net worth thresholds.
"The staff will be closely monitoring and collecting data on
this new market to see how it in fact operates ... and accessing
whether and to what extent changes in the private offerings
market may lead to additional fraud or not," SEC Chair Mary Jo
White told an advisory panel of experts convened at SEC
headquarters on Tuesday.
Critics of the rule have repeatedly raised red flags about
the lifting of the ban, saying they fear fly-by-night fraudsters
will take advantage of the advertising as a way to lure
Investor advocacy groups had urged the SEC to incorporate a
variety of investor protections into the rule before lifting the
White opted to lift the ban without immediately addressing
However, in a compromise move, the SEC simultaneously issued
a separate proposal for public comment that is designed to
collect more data on private stock offerings to help police for
possible wrongdoing and study how advertising is impacting the
A key centerpiece of the proposal would require firms to
file disclosures about an offering prior to advertising it.
Currently, such filings, known as Form D, are only required
by the SEC to be filed 15 days after the securities are sold.
Critics have argued the process is flawed because it fails
to give regulators a critical tool that can be used to catch
fraudsters before they start soliciting money, or at the very
least, let regulators do a little research on what kinds of
offerings are out there.
The plan would also require firms to disclose many more
details about the private deals, including how they are
advertising and how they plan to use the proceeds from a sale.
The public comment period for the proposed reforms in the
private securities market also closes on Monday.
But the future of the plan remains uncertain, especially
amid growing criticism about numerous provisions from all
corners of the marketplace, including the U.S. Chamber of
Commerce, attorneys, and even other government agencies.
In a Sept. 12 comment letter to the SEC from the Small
Business Administration's Office of Advocacy, for instance, the
SBA complained the SEC's plan had major technical flaws because
it fails to estimate exactly how many small firms will be
impacted by the new regulations.
"Advocacy is concerned that the SEC's proposed rule...
lack(s) essential information needed to properly inform the
agency's decision making," the SBA's Office of Advocacy wrote.
The debate over exactly when firms seeking to advertise
private deals should have to file their Form D disclosures with
the SEC also played out on Tuesday at a meeting of the SEC's
Advisory Committee on Small and Emerging Companies, a panel of
experts that is helping advise the SEC on the JOBS Act and other
small business measures.
"If it turns out that the offering is not successful, then
you've now told the world, 'Hey, we tried to raise money and we
couldn't,'" said Gregory Yadley, a partner at Shumaker, Loop &
Kendrick who serves on the panel.
"Please don't rush into adopting some of these proposals out
of pressure from third parties."
But Heath Abshure, the Arkansas Securities commissioner and
president of the North America Securities Administrators
Association, argued that state regulators need those forms in
advance so they can at the very least answer questions from
"Part of the reason the states read the advance filings is
just so we can answer the questions we are asked by investors,"
"If the Form D doesn't have to be filed until 15 days after
the first sale...we are not going to be able to answer any of