SEC Members Discuss Agency’s Core Mission, New Penalty Policy, and Private Offerings in the Wake of General Solicitation

SEC Member Presses Regulator to Stick to Its Core Mission When Figuring Out Priorities
Securities and Exchange Commission member Daniel Gallagher wants the regulator to focus more on its mission when determining its regulatory agenda. He said that the SEC’s three mandates must always be considered: maintaining markets that are efficient and fair, making capital reform happen, and protecting investors.

Speaking at a AICPA/SIFMA Financial Management Society Conference, Gallagher said the agency should remove credit rating references from its rules, start reassessing the US market structure, put into place proxy advice reform, set up a new Regulation A Plus exemption, take a closer look at fixed-income regulatory issues, and reassess its disclosure regime. He believes that excessive credit rating dependence was a central cause for the failure of securitized products that led to the 2008 economic crisis. Gallagher says that the SEC should have taken out the credit ratings references years before the Dodd-Frank Wall Street Reform and Consumer Protection Act.

SEC Commissioner Aguilar Praises Agency’s’ Enforcement Approach, Wants New Penalty Policy
Securities and Exchange Commissioner Luis Aguilar wants the regulator to rework its penalty guidelines so it more properly focuses on the seriousness of conduct and deterrence. At the Securities Litigation and Regulatory Enforcement Seminar, Aguilar said that while the 2006 Statement Concerning Financial Penalties pays attention to whether a company benefitted or investors sustained harm from an alleged violation, he now thinks that the agency should adopt a new statement that factors in the types of misconduct and violation that occurred, the history and background of the defendant, any attempts at remediation and self-reporting, and the impact on parties that are not the corporation. The SEC official said these statements are his own.

Aguilar also said that as the regulator gets more comfortable with mandating that there be admissions of guilt, he expected that the SEC would in future ask for stronger admissions. Aguilar acknowledged that the agency’s modification of its policy so that now not all defendants can just settle without denying or admitting wrongdoing is a “positive.” However, he said, the Commission should also make sure that certain defendants admit to what laws they specifically violated, as well as acknowledge their fault in any wrongful conduct.

With Ban on General Solicitation Lifted, Private Offerings Are in Demand
The SEC says that with the bar on general solicitation no longer in place it has been notified about issuers wanting to sell nearly $1 billion of private offerings via the new exemption. Pursuant to the Jumpstart Our Business Startups Act’s Title II, the SEC adopted a rule that would let private placement issuers under the 1933 Securities Act Regulation D Rule 506 and Rule 144A advertise their offerings widely as long as only sophisticated investors are the ones solicited. According to SEC Division of Corporation Finance Director Keith Higgins, there already have been at around 170 offerings in which issuers have indicated that they will engage in general solicitation.

With the ban gone, the opening of an investment round can be publicly advertised via mass communication methods, including online media and social media. However, only accredited investors are allowed to take part in the funding round (although under Regulation D Rule 506 (b) offering, which involves private fundraising, there can be up to 35 non-accredited investors as long as a pre-existing relationship exists).

Contact the SSEK Partners Group today. We can help you determine what legal course of action you should pursue if you were the victim of investment fraud.

SEC commissioner urges tougher penalty guidelines, exchange accountability, Complinet, October 28, 2013

General Solicitation Ban Lifted Today – Three Things You Must Know About It, Forbes, September 23, 2013

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Advice to Advisors: Financial Advisors Taught Ways to Avoid SEC Scrutiny, Stockbroker Fraud Blog, November 11, 2013