WASHINGTON Dec 13 State securities regulators
made a last-ditch plea late Thursday to the U.S. Securities and
Exchange Commission, urging the agency not to erode their power
to police certain smaller public stock offerings.
A Dec. 12 letter to SEC Chair Mary Jo White from the North
America Securities Administrators Association comes as the SEC
prepares to propose new rules as early as next week that are
designed to help start-up companies raise larger sums of capital
without big regulatory costs.
State regulators fear the proposal will also ease
requirements that companies register these offerings with the
states, which they say could hurt their ability to detect fraud
and protect mom-and-pop investors.
"We urge you, in the strongest terms, to resist calls to
pre-empt the states," NASAA President Andrea Seidt said in the
"State-level review will help the commission root out fraud
and abuse in this new marketplace and will give investors
confidence that securities sold in these offerings are subject
to an adequate level of scrutiny," she added.
The SEC's pending proposal stems from a requirement in the
2012 Jumpstart Our Business Startups (JOBS) Act that relaxes
federal securities laws to help small businesses raise money.
The JOBS Act requires the SEC to amend outdated rules known
as "Regulation A."
Regulation A allows companies to raise up to $5 million
through public deals without registering the securities with the
SEC. However, they generally still have to register the
securities in every state where they are sold.
Critics say this can create roadblocks and extra cost
burdens for companies because every state enforces its own "blue
sky" securities laws.
In addition, some states have tougher requirements and
conduct "merit" reviews of stock offerings, a tool that gives
those states the ability to block deals from being sold.
These regulatory burdens, as well as the low fundraising cap
of $5 million, have likely contributed to the decreasing use of
Reg A by companies and led many legal experts to agree it is
time for the SEC to bring its rules up-to-date.
In 2011, there were only 19 Reg A deals compared with 116 in
1997, according to a July 2012 report from the Government
The JOBS Act requires the SEC to raise the threshold on how
much can be raised to $50 million to encourage more deals.
And to remedy concerns about regulatory burdens, the JOBS
Act allows the SEC to pre-empt state oversight of such deals if
they are offered on a stock exchange or if the deals are only
sold to sophisticated, "qualified" purchasers.
The law gives the SEC the flexibility to define who counts
as a qualified buyer.
Some members of Congress want the SEC to craft the rules in
a way that would protect more deals from the multitude of state
laws. State regulators, on the other hand, do not want to lose
their authority over the offerings.
In late October, NASAA came up with a compromise plan that
would streamline securities registration requirements so firms
would need to file paperwork only once for multiple states.
The idea is to let states keep oversight but encourage more
Reg A deals by cutting the costs involved with registering an
offering multiple times.
NASAA's Seidt pressed the SEC in the Dec. 12 letter to
incorporate this plan into the upcoming proposed rules.
"We urge you to consider the work we are doing to create a
state-level review process that is efficient and practical," she