Elisse Walter, who will take over as chairman of the SEC in a few days, wants to include more investor protections in a JOBS Act provision that will lift the ban that keeps small companies from openly soliciting investors for private offerings or advertising the deals.
In a speech last month during an SEC government-business forum, Walter wondered aloud if it makes sense to place some limits on the forms of solicitation that would be allowed, or if the SEC should reconsider how it defines the accredited investors that can be targeted with such offerings.
“I think everyone can agree that removing the ban on general solicitation, essentially allowing public ‘offers' in private securities transactions, is a fundamental change in the securities markets,” she said. “We must be vigilant about the potential consequences, particularly unintended consequences, of a significant change like this and consider ways to mitigate potential harms to the investor while preserving the rule's intended benefits.” In other words, she wants to go slow and consider some additional investor protections.
She's not alone with that view on the Commission. Commissioner Luis Aguilar came out against the Commission's plan for dropping the solicitation ban when the SEC first proposed the measure in August. At that time he issued a statement asserting that the proposal for dropping the solicitation ban on private offerings didn't do enough to address the increased exposure to scams it would create for investors.
“I cannot support today's proposal, because it presents a framework that is not balanced and that fails to address the acknowledged increased vulnerability of investors,” said Aguilar. “In fact, there is no consideration of any of the commenters' proposals that would have decreased investor vulnerability.” He wants to make changes to define accredited investors more narrowly by including a consideration of their financial sophistication, and he wants issuers to provide more information to the SEC on their plans to promote offerings to investors.
In fact, dropping the ban on solicitation for private offerings may have been so unpopular with certain members of the Commission that outgoing SEC Chairman Mary Schapiro has been accused of putting it on the back burner until she made her exit so that it didn't tarnish her legacy as a pro-investor chairman or aggravate investor advocate groups. At least that is the claim of U.S. Rep. Patrick McHenry (R-NC), who chided Schapiro for foot dragging on ending the solicitation prohibition in a letter last week.
The law required the Commission to implement Section 201 of the JOBS Act by July 4, 2012. On Aug, 4, well past that deadline, the Commission issued a proposed rule instead of an interim final rule. More than two months later, it has still not announced plans for considering a final rule.
Now it appears that Schapiro's successor is also in no hurry to finalize the rule either, at least not without some added investor protections.