State securities regulators and consumer advocates on Tuesday called on the Securities and Exchange Commission (SEC) to withdraw its first JOBS Act rulemaking under Rule 506, which lifts the ban on general solicitation and advertising of private securities offerings to accredited investors.
“People don’t seem to think so, but this is a drastic change to the face of securities regulation,” Heath Abshure, president of the North American Securities Administrators Association (NASAA) and Arkansas securities commissioner, said in a conference call. Rule 506 offerings, he said, “already are the most frequent financial product at the heart of state enforcement investigations and actions. Lifting the advertising ban on these highly risky, illiquid offerings, without requiring appropriate safeguards, will create chaos in the market and expose investors to an even greater risk of fraud and abuse.”
The comment period on the rule proposal ended last week.
Without adequate investor protections to safeguard the integrity of the private placement marketplace, Abshure said that “investors should and will flee from the market, leaving small businesses without an important source of capital.”
Barbara Roper, director of Investor Protection for the Consumer Federation of America (CFA), who was also on the call, said that the SEC “has acknowledged that lifting the ban on general solicitation in private offerings will increase the risk of fraud, potentially harming investors and issuers alike.”