Aug 29 (Reuters) – U.S. securities regulators voted 4-1 on Wednesday to propose lifting a long-standing ban on general advertising for private securities offerings, a measure that some say will spur economic growth but one which critics fear could pave the way for fraud.
The rule, required by the JOBS Act passed by Congress earlier this year, would allow companies to advertise to investors so long as they take “reasonable steps” to verify that the purchasers are “accredited investors.” Accredited investors include those with net worth of at least $1 million or an annual income of at least $200,000. The public will have 30 days to comment on the proposal.
SEC Chairwoman Mary Schapiro voted in favor of the rule but expressed concern that the rule’s rollback may have the potential to harm investors.
“I recognize that there are very real concerns about the potential impact of lifting the ban on general solicitation,” SEC Chairman Mary Schapiro said in prepared remarks. “While I’m prepared to bring forward today’s narrow proposal, I look forward to the continued examination of this critically important market.”
Democratic Commissioner Luis Aguilar voted against the rule, citing concerns about investor vulnerability. “I cannot support today’s proposed rule making because the commission is not considering ways to mitigate how today’s proposal will harm investors,” Aguilar said.
It is the first rule the SEC has proposed as part of the JOBS Act, which was signed by President Barack Obama in April. The law scales back a variety of securities regulations with the aim of helping smaller companies raise capital and spur job growth. The law passed Congress with bipartisan support, but faced opposition from consumer and investor advocates as well as some Democrats who said the law goes too far in cutting back important investor protections.
Republican commissioners said on Wednesday that they were disappointed the SEC failed to put the advertising rule in place immediately, through a so-called “interim-final” rule. Republican Commissioner Troy Paredes said it was “regrettable” that the commission had missed a 90-day deadline imposed by the JOBS Act for the rule and criticized Schapiro for “abruptly” changing course from a planned interim final rule to a proposal.
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