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COMPLY-New state regulatory head pushes uniform securities registration
October 8, 2013 / 8:45 PM / 4 years ago

COMPLY-New state regulatory head pushes uniform securities registration

SALT LAKE CITY, Utah, Oct. 8 (Reuters) - The newest head of a U.S. state securities regulators’ organization wants to make it easier for small companies to issue state-registered securities at a time when her group has raised concerns about some other aspects of the process.

Andrea Seidt, who was elected president of the North American Securities Administrators Association (NASAA) this week, called on Tuesday for the states to create a centralized, automated system for securities that typically have to be filed manually and separately in each state.

The move would spare companies from having to file redundant paperwork with multiple state regulators. Such a streamlined approach would encourage more issuers to subject their securities to state review, because it would be less burdensome than it is now, said Seidt. If that happens, it would bolster investor protections, she said in prepared remarks during a luncheon at NASAA’s annual meeting in Salt Lake City, Utah.

Seidt’s proposal, an olive branch, of sorts, to small businesses, comes in the wake of NASAA’s recent fight against a 2012 federal law that will make it easier for small businesses to raise capital through “crowdfunding,” a strategy that lets investors buy small stakes in ventures through various websites.

NASAA has said that crowdfunding could attract fraudsters who will bilk investors. Small businesses and advocates for start-up companies, however, have criticized NASAA for trying to make raising capital more difficult.

The group has also raised concerns about a companion measure approved by the U.S. Securities and Exchange Commission in June that lifts an 80-year-old ban on advertising of private securities offerings by hedge funds and start-up companies raising capital.

While private offerings are typically limited to investors who meet certain income and net-worth thresholds, advertising could increase the chances that unscrupulous issuers will market their offerings to investors who are not qualified to buy them, NASAA officials have said in public statements and comment letters.

NASAA members include regulators from U.S. territories, Canadian provinces and Mexico, where different rules on some of these issues may prevail.

PLAYING IT SAFE

Seidt envisions a system that would be similar to one that state securities regulators now use to license and share information about brokerages and investment advisers. She said that state registration could convey a greater sense of safety to investors and eventually encourage issuers to go this route.

Issuers can now use certain exemptions under federal law to avoid state registration altogether. But many unregistered offerings sold under the federal exemptions turn out to be fraudulent, Seidt said.

“Shrewd investors and securities professionals will soon see that state review generally yields safer opportunities for them on the whole than opportunities floated in a market with little or no review,” said Seidt, who is also the Ohio Securities Commissioner. “Over time, savvy businesses will seize upon this in deciding whether or not to register their securities,” she said.

REGULATORY TEST

Seidt’s leadership of NASAA will last a year. It puts her a long way from growing up in a in a rural Ohio community as the daughter of a coal miner and stay-at-home mother. Seidt, 40, holds a law degree from The Ohio State University and started her legal career as a litigator for Jones Day, a global law firm. She became Ohio Securities Commissioner in 2008.

NASAA, under Seidt’s leadership, will continue to lobby in favor of its longstanding concerns: securing more funding for the SEC so it can more thoroughly police investment advisers and ending mandatory arbitration for brokerage clients. State regulators have long taken issue with the requirement that brokerage customers sign contracts agreeing to resolve future legal disputes with their firms through securities arbitration instead of going to court, Seidt said.

Seidt’s call to get a uniform state securities registration system underway follows the completion of a major project by U.S. state regulators during which they took on oversight for an additional 2,100 “mid-sized” investment advisers who were previously overseen by the SEC.

The Dodd-Frank financial reform law required these advisers, who manage between $30 million and $100 million, to register with states instead of the SEC.

“We’ve been tested in a lot of senses,” Seidt said in an interview. For Seidt’s 38-person staff in Ohio, that meant visiting 110 newly added advisory firms this year, most of which had never been examined by the SEC, she said.

Seidt and other regulators had feared the possibility of significant problems such as dishonest business practices or other risks to investors at those firms. But the regulators were pleasantly surprised, she said. “They’re in better shape than we thought.”

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