BY DARA ALBRIGHT
Don’t stop the press. Really, don’t. The SEC’s previously postponed meeting to implement the overdue rule eliminating the prohibition against general solicitation and general advertising finally occurred yesterday, resulting in yet another delay tactic – “the rule proposal”. By the time this rule is finalized it will be so far into the future that companies will be able to market their offerings to us telepathically, rendering advertising as we know it completely useless anyway.
Instead of following this story, your time would have been better spent glued to the 24 hour weather channel watching Hurricane Isaac crawl across on the gulf.
The “proposed” rule that would allow general solicitation and advertising in certain securities offerings, as mandated by the Jumpstart Our Business Startups (JOBS) Act, can be summarized as follows:
The prohibition against general solicitation and general advertising would not apply to offers and sales of securities made pursuant to Rule 506, provided that all purchasers of the securities are accredited investors. The onus will fall on the issuer to take reasonable steps to verify that the purchasers are accredited investors. Issuers will also be required on Form D to indicate whether they are using general solicitation or general advertising in a Rule 506 offering.
As far as Rule144A is concerned, the solicitation ban would be lifted provided that the securities are sold only to persons that the seller and any person acting on behalf of the seller reasonably believe are QIBs (qualified institutional buyers).
When I inquired about the realistic timing of rule execution, Vince Molinari, CEO of Gate Technologies and expert congressional witness on capital formation, stated, “The SEC will be receiving comments over the next 30 days. I am optimistic that we will see these new rules employed by year end.”
I guess we should just be thankful that the SEC accepts its obligation to apply the law whether or not it acknowledges its deadline to administer it. In the SEC’s defense, they were left with little choice after being attacked from groups like the North American Securities Administrators Association (NASAA) and Americans for Financial Reform (AFR) for attempting to implement the final rules prior to issuing rule proposals. Yes, the NASAA is the same organization that just this week listed Crowdfunding as its top new investor “threat”.
While, everyone can pretty much agree that investing in start-ups is risky, to label it a “threat” is a complete and utter denunciation of entrepreneurism. The only thing I see being threatened here is innovation, job creation and American prosperity. NASAA’s fear-mongering needs to stop and this war on small business owners needs to end. NOW!
NASAA fails to warn us of legitimate investor threats like Enron, Worldcom, AAA-rated auction rate & mortgage back securities, Madoff and the economic ramifications of precluding the 99% from accessing the same growth opportunities as the 1%. Yet they have absolutely no concerns about stripping a yield-starved investing public of its right to invest in emerging growth opportunities.
It is an unfortunate reality that the growth we were once able to capture in the public markets simply does not exist anymore. 99% of Microsoft’s appreciation was realized AFTER it went public. ALL of Facebook’s appreciation was realized BEFORE. The longer the regulators cut off the general public’s access to growth investments while handing them to the privileged on a silver platter, the greater the wealth divide and the more hopeless the economic outlook. There’s a word for a system that only allows capital to flow to and from a nation’s favored and it ain’t called capitalism. With social security predicted to be bankrupt and retirement portfolios gravely underperforming because of the lack of growth in conventional asset classes, I’d like to know if NASAA would be willing to take on the responsibility of financially supporting tomorrow’s retirees.
As the SEC prepares to procrastinate, I mean effectuate, the new rules for Crowdfund Offerings, they should be viewing the entrepreneur as an inventor not a swindler. They should be arming the investing public with knowledge not fear. They need to protect investors from fraud not become a barrier to prosperity. Our entire economic future is at stake.
The views expressed in this article are independent of any organization. They are simply the opinions of a Mom on Wall Street, striving to ensure that her children inherit a thriving America.