SEC eyes opening up private placements to more of the public

The Securities and Exchange Commission may consider changes to its offering rules that would make it easier to purchase non-public company shares, Chairman Mary Schapiro told a congressional committee today. The commission's staff is looking into whether the agency should revisit the current ban on public marketing of non-registered offerings as part of an overall review of securities-offering regulation, she told the House Oversight and Government Reform panel. Regulation D offerings, which are private placements, are exempt from SEC registration. Some of them have made headlines of late, most notably those of Medical Capital Holdings Inc. and Provident Royalties LLC. The commission has charged that offerings from those companies were fraudulent, and investors since have sued a number of broker-dealers that sold private placements from the two outfits. Changes in how public and private markets operate today, technology advances and the “acceleration in the pace of communications” justify a new look at the rules and whether the commission can do more to encourage capital formation, especially among small companies, she said. “Companies seeking access to capital should not be overburdened by unnecessary or superfluous regulations,” Ms. Schapiro said at the hearing focused on capital formation. The SEC is forming an advisory committee on small and emerging companies that will sift through recommendations from small firms, investor groups and the public on reducing the regulatory burden of securities offerings without endangering investor protections, she said. Any proposed changes would be issued for public comment before the commission votes. Ms. Schapiro would not offer a time frame for proposing rules, saying only: “It is front and center on our agenda.” In addition to considering changes in the ban on soliciting investors for non-registered offerings, the SEC staff has been asked to look into the restrictions on communications in initial public offerings, the thresholds that trigger public reporting and other regulatory questions that new capital raising strategies create, she said. The commission's review comes as the Financial Industry Regulatory Authority Inc. has proposed a 15% cap on commissions and fees for private placements and more disclosures about offering proceeds. The Finra cap, which now applies only to private placements issued by Finra's own broker-dealer members, has been met with some criticism from the securities industry. Ms. Schapiro said about 22% of the commission's enforcement cases during its fiscal 2010 year involved investor fraud from securities offerings.