WASHINGTON Dec 1 Outgoing U.S. Securities and
Exchange Commission Chairman Mary Schapiro delayed immediately
implementing a rule to lift a ban on broader-based advertising
for private placements in part because she feared it would
tarnish her legacy as a pro-investor leader of the agency,
internal SEC emails obtained by a U.S. House of Representatives
oversight panel show.
The emails were highlighted in a letter critical of Schapiro
sent to her on Friday by congressman Patrick McHenry, the
Republican chairman of a prominent House subcommittee that
oversees financial services, who called on Schapiro to hurry up
and finalize the rule.
Schapiro, who is stepping down as chairman in two weeks,
decided to take more time seeking public comments about the rule
after Barbara Roper, a well-known investor advocate with the
Consumer Federation of America, wrote a letter to Schapiro's
chief of staff voicing "strong objections" to lifting the ban
without vetting the rule first.
Schapiro's decision went against the recommendations of the
SEC's staff, including Corporation Finance Director Meredith
Cross, the emails suggest.
It also angered Republican SEC Commissioner Daniel
Gallagher, who told Schapiro he was "furious" and accused her of
failing to negotiate with other commissioners in good faith,
according to an email included in McHenry's letter.
After changing her mind on the direction of the rule-making,
she only informed Commissioner Elisse Walter - her close friend
who is taking over the chairmanship this month - and no other
member of the SEC until the following week, the letter says.
"I don't want to be tagged with an anti-investor legacy,"
Schapiro wrote in an e-mail to Cross with the subject line
"Please don't forward."
"In light of all that's been accomplished, that wouldn't be
fair, but it is what will be said ..."
McHenry said Schapiro's concerns about her legacy shouldn't
delay implementation of the rule.
"The continued second-guessing, and the accompanying delays
in the process, is simply unacceptable," McHenry wrote.
The SEC issued a statement in response to reporters seeking
a comment about the McHenry letter.
"Chairman Schapiro strongly believes that protecting
investors should be the desired legacy of all SEC Chairmen," the
SEC said. "It is part of our mission and should inform our
decisions at all times. She (Schapiro) also believes that the
agency should not consider investors - or the groups that
represent them - to be special interests."
The SEC's proposal would greatly loosen strict advertising
rules to make it easier for hedge funds, private equity funds
and other firms to reach potential investors in the private
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.
Proponents say it will help spur more capital-raising and
makes a lot of sense - especially in a social media world.
The SEC was required by Congress to lift the advertising ban
under the 2012 Jumpstart our Business Startups, or JOBS, Act.
The JOBS Act aims to reduce the regulatory burden for small
business start-ups by relaxing various securities regulations.
The law passed with bipartisan support, though shortly
before it was enacted Schapiro wrote a lengthy letter raising
concerns it could erode many important investor protections.
Consumer advocates and state regulators are afraid it will
leave the door open to fraud by people who will be able to
peddle products to unsuspecting investors.
The SEC was supposed to finalize the rule by July 4, but
missed its deadline. Originally, staff had wanted to bypass the
lengthier public comment process by adopting it as an "interim
final rule" instead of a "proposed" rule. That would have let
the SEC lift the ban right away, and then potentially tweak the
rule down the road.
Roper and other investor advocates, however, strongly
opposed that approach, saying important protections need to be
added to the rule. Schapiro later dropped the plan for an
interim final rule and took the longer route of seeking public
The SEC said late Saturday that it sought public comments
first because there was a "high level of investor interest and
numerous requests to be able to comment on a specific proposal."
The SEC added that there could have been a "very real threat of
a legal challenge" if the agency did not go through a more
rigorous rule-making process.
Investor advocates are still upset with the draft of the
proposed rule because they say none of their suggestions for
improving the rule were even contemplated, such as amending the
definition of "accredited investor" to make sure unsophisticated
people are not sold or marketed unsuitable products, and
tweaking the filing rules so the commission can collect data on
solicitation practices to help it police the marketplace.
Democratic SEC Commissioner Luis Aguilar has called for
re-proposing it, and incoming SEC Chairman Walter has also
raised concerns about a lack of investor protections.
Republicans in the U.S. House and at the SEC, however, want
to see the rule go into effect right away.