Ban on Private Securities Offerings Solicitations Could Be Revised by SEC or Congress, Says Ex-Official

According to ex- SEC’s Office of International Corporate Finance chief Sarah Hanks, there is the strong possibility that Congress or the Securities and Exchange Commission will modify the agency’s ban on the general solicitation for private securities offerings and the number of shareholders that trigger reporting requirements. Hanks says that comments made by lawmakers and SEC Chairman Mary Schapiro indicate congressional intent to loosen the requirements, as well as “regulatory momentum.” Such changes could happen in the next couple of years.

Restricted securities are securities that did not go through the SEC’s registration and public processes. Requirements don’t allow issuers of nonpublic offerings relying on Section 4(2) of the 1933 Act or its safe harbor—Rule 506 of Regulation to use advertising or general solicitation to draw investors to their placements. The 1934 Securities Exchange Act’s Section 12(g) mandates that an issuer register securities “held of record” by at least 500 individuals and if the issuer’s total assets are over $10 million.

It was just recently that it became known that the SEC was investigating Goldman Sachs Group Inc.’s (GS)’s reselling of Facebook-issued securities to investors. Earlier this year, the investment bank made the decision to limit the offering to offshore investors over concerns that the degree of media attention might result in a violation of US securities laws. According to The Wall Street Journal, although Facebook executives had to restructure the deal, the private offering of up to $1.5 billion in Facebook shares stayed on track. As of January, more than $7 billion in orders came through from foreign investors.

Shepherd Smith Edwards and Kantas Founder and Stockbroker Fraud Attorney William Shepherd notes, “Private placements have always been the source of many problems for investors. Special treatment of these investments is nothing more or less than loopholes in the regulation of securities sales. Over the past decade there has been constant erosion of the roadblocks designed to prevent sales of such investments without at least some modicum of safeguards for investors. The only reason to lower the bar is to allow those manufacturing and selling these securities to make more money faster.”

More Blog Posts:
FINRA Wants Brokers Selling Regulation D Private Placements to Take Part in Tougher Due Diligence Process, Stockbroker Fraud Blog, June 7, 2011

National Securities Corp., Independent Financial Group LLC, & Centaurus Financial Inc. among broker-dealers sought by Massachusetts securities regulators over private placements, Stockbroker Fraud Blog, April 19, 2010