SEC Will Hear Public Comment Before It OKs Advertising of Private Offerings

Rarely does a protest bear such quick fruit. Last Wednesday (Aug. 15), a group of former securities regulators, securities law experts, and advocates for investors, workers, and older Americans, including Americans for Financial Reform, appealed to SEC Chairman Mary Schapiro to reconsider a reported plan to skip the traditional comment-and-review process for a new rule under the controversial JOBS Act. The rule in question would lift a long-standing ban on the general solicitation and advertising of private stock offerings.

The following day, the SEC announced that it would, after all, seek prior public input. Chairman Schapiro, according to a spokesperson for the agency, “believes it is important for the general solicitation rule to be proposed for public comment, as is our typical practice in rulemaking.”

The clarification drew approving responses from those who had earlier expressed alarm. “We applaud Chairman Schapiro and the SEC Commissioners for their willingness to listen and respond to investors’ concerns,” CFA Director of Investor Protection Barbara Roper said in a Friday statement. “Ultimately, the final rules adopted will be the test of the Commission’s commitment to protecting investors and market integrity. But slowing down the process and allowing an opportunity for careful analysis and public comment is the first essential step toward producing a strong, pro-investor rule.”

The pushback from those who had wanted a rule issued right away (without public input, without weighing the impact on investors and the capital markets – in short, with the legal requirements for notice and comment be dammed – was not long in coming.  Rep. Patrick McHenry (R-NC) promptly accused Schapiro of being motivated by “ideological opposition to a bipartisan effort by Congress and the President to improve the conditions for capital formation in the United States.”

Rep. McHenry was a leading House champion of the JOBS Act, which set a 90-day deadline for lifting the advertising ban. But, as critics noted, the statute also directed the SEC to observe established investor-protection standards in the course of implementing that change. The deadline “did not provide a realistic timeframe for the drafting of a new rule, the preparation of an accompanying economic analysis, the proper review by the Commission, and an opportunity for public input,” the SEC spokesperson said on Monday.

The congressman’s outcry is particularly ironic given that, when it comes to Dodd Frank rules to hold Wall Street accountable and protect the public interest, Rep. McHenry has pushed in exactly the opposite direction. (See