State Securities Registration Laws Will No Longer Apply to Nasdaq Capital Market Listed Securities

When state securities regulators led by Elliot Spitzer of New York exposed a shocking level of crime and fraud on Wall Street, corporations and securities firms stepped up their campaign to gut state securities laws and the powers of state regulators. These special interests had already convinced Congress to forbid class action claims for securities fraud under state laws.

Meanwhile, many are accusing the SEC, with its commissioners all appointed by the President, of pandering to those same special interests. Despite its purpose to protect investors, the Securities Exchange Commission (SEC) has taken numerous actions to reduce its own restrictions and has taken positions on numerous court cases which are contrary to the interests of investors.

In its latest action, the SEC announced May 3 that, beginning May 24, securities listed on the Nasdaq Capital Market will be exempt from state “blue sky” registration requirements.

Nasdaq called the exemption, which was granted by the SEC in response to Nasdaq’s own petition, “an important milestone in the evolution of the Capital Market” that will reduce the cost of raising capital for the affected listed firms and thus cut costs to investors.

Specifically, the SEC rule amendment designates securities listed on the Capital Market as “covered securities” under Section 18 of the Federal Securities Act of 1933, meaning these securities are exempt from state law registration requirements. This action by the SEC expands the exemption to include a broad base of lesser known and lesser capitalized issuers of securities. Many see this as an open invitation to those seeking to defraud investors.

“This watershed development is a reflection of the quality of NASDAQ’s regulatory program and the degree of investor protection afforded by NASDAQ’s listing requirements,” Michael Emen, Nasdaq’s senior vice president for listing qualifications, said about the exemption. He said the exemption will play an important role in facilitating the capital-raising process for smaller public companies.

However, such comments ring hollow considering that, despite their considerable resources, neither the NASDAQ nor the SEC has demonstrated its capability and/or desire to regulate the securities markets earnestly or tirelessly as state regulators.

The SEC release approving increased listing standards for the Nasdaq Capital Market is posted at

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