(Corrects third paragraph to show groups using arguments of
* Advocates, state regulators say plan is fatally flawed
* Some say they won't rule out suing SEC if changes not made
* Groups point to earlier shoddy cost-benefit analyses
* Lifting of the advertising ban was required by JOBS Act
* Groups urge SEC to completely re-draft the rule
By Sarah N. Lynch
WASHINGTON, Oct 9 Investor advocates on Tuesday
called on the Securities and Exchange Commission to scrap a
proposal that would lift a ban on general advertising in private
placements, saying it is fatally flawed and fails to address the
dangers it poses to investors.
In a telephone press conference, representatives from
several of groups including the Consumer Federation of America
and the North American Securities Administrators Association
(NASAA) said they won't rule out taking the SEC to court if the
agency refuses to go back to the drawing board with a new plan
that deals with their concerns.
Some of the groups lashed out at the SEC, using the kinds of
arguments often used by business and industry groups to defeat
SEC regulations, including whether the SEC had adequately
weighed the costs and benefits of the rule.
"It would be a very, very unique circumstance for NASAA to
file a lawsuit against the SEC to somehow stop, slow down, throw
a wrench into this rulemaking," said Heath Abshure, the
president of NASAA, who also serves as the Arkansas securities
commissioner. "However ... if I felt it was the necessary thing
to do, I'd propose it to my board. I mean, I wouldn't say no. At
some point, business is business."
Tuesday's press conference, which also included executives
from the AFL-CIO and the AARP, was convened in response to the
SEC's recent proposal to lift mass marketing restrictions on
The proposal pertains to several kinds of offerings,
including those made under what is known as "Rule 506" of
That rule allows companies to raise an unlimited dollar
amounts from accredited investors who meet certain income or
The rule is mandated by the Jumpstart Our Business Startups
(JOBS) Act, a bipartisan bill signed into law earlier this year
that eases securities regulations to help spur small-business
growth and capital formation.
The SEC has already missed a congressional deadline to
implement the rule, which was first proposed at the end of
August and put out for public comment.
Although the law compels the SEC to act, the groups argue
that the SEC still has the leeway to make some adjustments that
will give investors more protections from fraudsters.
They want to see changes such as amending the definition of
"accredited investor" to make sure unsophisticated people are
not captured and tweaking the filing rules so the commission can
collect data on solicitation practices to help it police the
The groups emphasized that it is premature to talk about
filing a lawsuit and they remain hopeful their concerns can be
addressed through the SEC's standard rulemaking process.
But Barbara Roper, the director of investor protection for
the Consumer Federation of America, said the cost-benefit
analysis for the SEC's rule was shoddy, adding that it fails to
weigh the costs posed to investors versus the benefits of
lifting the ban.
Poor cost-benefit analysis has helped lay the groundwork in
the past for successful legal challenges to SEC rules, although
in all of those cases the fights were waged by industry and
business groups like the U.S. Chamber of Commerce.
Just last year, a federal appeals court in Washington tossed
out the SEC's rule allowing shareholders to nominate directors
to corporate boards because of flawed analysis.
Earlier this year, the SEC issued new guidelines on
cost-benefit analysis to help avert future legal challenges.
But Roper said those guidelines were not applied in this
rulemaking, and that the SEC only seems to deploy them when it's
weighing the impact of costs on business as opposed to the
impact of new regulations on ordinary investors.
"I think it's hard to imagine a more slam-dunk case than
this one," she said.
(Editing by Steve Orlofsky)