Rule change will stir marketing for unregistered securities
By The Baltimore Sun
Published: 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 The old rules, he said, “have been completely out of date and impractical.”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
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Marcellus shale driller Noble Energy Inc. sinks roots into Pittsburgh
- ‘Fresher, different, lot more fun’ guide changes at Kings Family Restaurants
- Sbarro again files for bankruptcy reorganization
- Minorities crucial to filling Marcellus shale gas drilling jobs
- EBay shareholders urged to reject Icahn picks
- Weather worsens McDonald’s sales struggles
- 1,500 Bangladesh factories set to be inspected by August
- Stocks dip on gloomy data from Asia
- Municipal bonds do another about-face
- Regular IRA or Roth? Pick either
- CVS suit could be test case