[Vision2020] You’ve Been Warned

[Art Deco]

  [image: The New York Times] <http://www.nytimes.com/>

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July 10, 2013
You’ve Been Warned By THE EDITORIAL
BOARD<http://www.nytimes.com/interactive/opinion/editorialboard.html>

With two bad rules adopted on Wednesday, the Securities and Exchange
Commission has all but invited hucksters, rip-off artists and other bad
actors to prey on individual investors. The new rules are another
disturbing sign<http://www.nytimes.com/2013/05/06/opinion/a-disappointing-debut-at-the-sec.html?_r=0>that
under the leadership of the new chairwoman, Mary Jo White, the S.E.C.
will pursue deregulation at the expense of investor protection.

One rule concerns “general
solicitation,”<http://www.sec.gov/news/press/2013/2013-124.htm>or the
mass advertising of investments in companies that are not publicly
traded. Until last year, federal securities laws had long banned general
solicitation — and for good reason. Private securities offerings — say, by
hedge funds, venture capital firms and start-ups — are not subject to
disclosure rules and other investor protections that apply to publicly held
companies; as a result, they are difficult if not impossible to evaluate
without inside knowledge and are especially prone to fraud.

Last year, however, in the scramble for campaign donations, Congress and
the Obama administration joined forces to enact a law to lift the ban on
general solicitation. The new law’s only nod to investor protection was a
requirement that buyers of private offerings be “accredited,” an outmoded
label that assumes that anyone with at least $1 million in net worth (not
counting a home) or at least $200,000 in yearly income is an investing
expert.

The law left it up to the S.E.C. to establish reasonable steps that issuers
of private offerings must take to verify that potential investors are
accredited. But, in the rules adopted Wednesday, the S.E.C. did not impose
any specific steps, nor did it bar issuers from allowing investors to
self-certify that they are accredited. Instead, the agency produced a list
of ways that issuers can check an investor’s accredited status, without
requiring any hard-and-fast tests. Honest issuers will stick to the list,
while bad actors will have wiggle room not to.

Which brings us to the second dismal rule issued Wednesday. The Dodd-Frank
financial reform law required the S.E.C. to issue a “Bad Actor Rule” to
disqualify persons convicted of securities-related felonies or sanctioned
for other securities violations from participating in private offerings.
But the new rule
<http://www.sec.gov/news/speech/2013/spch071013laa-2.htm>would apply
only to people convicted or sanctioned after the rule goes into
effect, sometime in September. Anyone who was a bad actor before would
remain free to hawk private investments.

Adding insult to injury, the S.E.C. released draft proposals on Wednesday
of several sound protections for investors in private offerings, which
should have been included in the final rules it issued. Instead, the agency
will seek public comments on the proposals and decide later whether to
finalize them. We’re not holding our breath.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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