Ed's Blog

UPDATE: WE WIN! SEC TO CONSIDER RULE UNDER REGULAR COMMENT PERIOD! Less than an hour after this blog was posted, we learned that the SEC is now telling reporters and investors that: "The Chairman believes it is important for the general solicitation rule to be proposed for public comment, as is our typical practice in rulemaking. This transparent process will provide the opportunity for feedback from companies, investors and market participants who may be impacted by the final rule."

In a statement, Consumer Federation of America's Barb Roper, who has coordinated the public interest campaign to consider the rule under regular comment procedures, stated:

“We applaud Chairman Schapiro and the SEC Commissioners for their willingness to listen and respond to investors’ concerns. Ultimately, the final rules adopted will be the test of the Commission’s commitment to protecting investors and market integrity. But slowing down the process and allowing an opportunity for careful analysis and public comment is the first essential step toward producing a strong, pro-investor rule."

ORIGINAL POST: If you say your bill is for either jobs or "small bidness," or even better, for both jobs and small business, then members of Congress will run like their pants and hair are on fire to vote for your bill. That's what happened this spring when the ill-conceived Jumpstart Our Business Startups (JOBS) Act overwhelmingly passed the Congress like an out-of-control wildfire.

The bill is designed to reduce supposed burdens on smaller, "emerging" companies to file Initial Public Offerings (IPOs), including by recruiting investors on the Internet (crowdfunding). The SEC has indicated that it may move on August 22 to issue what is called an "interim final rule" to implement one of the law's worst overreaches: lifting the longstanding ban on general solicitation and advertising (GS&A) in private offerings.

But as a letter to the SEC from U.S. PIRG, the Consumer Federation of America, the AFL-CIO, Americans for Financial Reform, leading law professors, a former SEC commissioner and several former senior SEC officials, along with numerous other investor advocates, says:

[I]t would simply not be possible for the Commission to adequately consider by August 22 the potential adverse effects of eliminating the ban on GS&A. Among these, for example, is the very real risk of an upsurge in abusive private equity and hedge fund advertising and marketing practices based on misleading performance claims. [...] The JOBS Act was drafted and adopted with little or no consideration of the significant harm it could inflict on investors, on their confidence in the integrity of our capital markets, and, by extension, on capital formation. For much of the Act, there is unfortunately relatively little the Commission can do through rulemaking to minimize that harm. This particular rulemaking is an exception, where the rulemaking approach adopted by the Commission can either afford investors substantial and much needed protections or leave them vulnerable to devastating harm. For the Commission to conduct rulemaking in this area through an interim final or temporary rule, without adequate consideration of the potential impact on investor protection and market integrity and without a meaningful opportunity for public comment on its proposed regulatory approach, would be a further slap in the face for investors whose concerns were ignored during the legislative process.

This AFR news release on the coalition letter also includes links to additional opposition letters from AARP and state securities regulators.

In a previous blog, I explained that one of the earliest adopters of already-implemented JOBS Act simplified IPO filing provisions intended for newer companies to help provide US jobs was actually Manchester United, one of the oldest football (soccer) clubs on the planet, based not in the U.S., but Manchester, England. Man U launched its IPO last week to underwhelming results. Yet, as this article in a South American business journal explains, other older foreign companies that probably won't provide any US jobs either will try and get into the JOBS Act tent, too.

After all, the JOBS Act makes IPOs easy, there are fewer rules -- especially for foreign firms of any age - and investors have fewer rights if you rip them off. What's not to like?

As I also note in that previous blog, it would be irresponsible for the SEC to go forward with this risky Interim Final Rule using its discretionary authority to implement the 2012 JOBS Act, while continuing to delay action to complete more critical reforms required by the 2010 Wall Street Reform and Consumer Protection Act. And as we point out in the letter, the SEC opposed the JOBS Act in Congress for many of the same reasons we did, so why is it considering this action under emergency rules without a full opportunity for public debate?

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