TribLIVE

| Business


 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Rule change will stir marketing for unregistered securities

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

Daily Photo Galleries

Business Photo Galleries

By The Baltimore Sun
Tuesday, July 23, 2013, 12:01 a.m.
 

Coming this fall: advertisements pitching the opportunity to buy into hedge funds, private equity funds or early-stage companies.

The Securities and Exchange Commission this month lifted a Depression-era ban against private companies advertising the sale of securities that don't have to be registered with regulators. The rule had been put in place to protect investors because such securities are considered risky investments.

Many entrepreneurs and young companies hailed the regulatory move, which will allow them to raise capital by pitching private offerings through tweets, email, print ads or other outlets.

“It's fantastic,” said Adam Lehman, president of Lotame, a data management company in Columbia, Md., that has raised several rounds of venture capital. The old rules, he said, “have been completely out of date and impractical.”

But consumer advocates are concerned that some investors won't fully understand the risks of investing in these private offerings and will get burned. Or worse, advocates warn, investors might fall for schemes by con artists.

Under the SEC rules, companies raising capital through ads can only sell securities to investors with a certain amount of assets or income, a sign that individuals are sophisticated enough to know what they are getting into — or at least can weather a loss.

The regulations are likely to take effect in September.

Eventually, the SEC is expected to issue regulations allowing even small investors to buy a stake in a private company through so-called crowdfunding. But for now, these latest SEC rules deal with only high-net-worth individuals.

The new rules will level the playing field for investors, said Lotame's Lehman. Today, institutional investors are in the loop about which private companies are raising money, he said. But accredited individual investors don't necessarily have access to that information.

The new SEC rules offer some investor protections, but they don't go far enough, said Barbara Roper, director of investor protection with the Consumer Federation of America.

For instance, the SEC said that “bad actors” — including felons convicted of a crime involving the sale of securities — won't be able to participate in these securities offerings. But that's only if those disqualifying acts occur after the new rules take effect. If crimes or other prohibited acts happened earlier, the information only has to be disclosed to investors.

“Who writes a rule that weak?” Roper said.

 

 
 


Show commenting policy

Most-Read Business Headlines

  1. Woman on dating site looks too good to be true: How to vet that pic
  2. Small retailers at intersection of social networks, foot traffic
  3. In ‘StockCity,’ real investing like game
  4. 153-year-old Venango well pumps out oil, history
  5. Business Council for Peace program works to export profits, peace
  6. Test-tube tuna may be sea change
  7. Generic drug price spikes draw Senate inquiry
  8. Westmoreland County’s Excela Health rethinks patient debts
  9. CEOs in 10 big mergers to get $430M: Equilar study
  10. Health care, gas drilling industries await Gov.-elect Wolf’s footprint
  11. Stocks drift lower as Fed toes the line on interest rate plans
Subscribe today! Click here for our subscription offers.