William Galvin, the securities regulator of Massachusetts, is suing the U.S. Securities and Exchange Commission. Galvin is seeking to stop new rules that he believes restricts state oversight of stock offerings made by emerging and small companies.
With the newly adopted rules, offerings starting at $20 million would only need to be filed with the SEC and not the states. With smaller deals, companies can opt for state-level assessment-or not, and contend with stricter disclosure requirements.
State regulators have long felt that the new rules pre-empt their oversight of a market at which they are the ones who can do the best job at overseeing. These SEC rules are not specific about who or what would qualify as the kind of investor that could buy these offerings. Because no salary restrictions or net worth is imposed, local businesses could easily target retail investors.
Also at issue are the new rules for raising capital that are mandatory under the 2012 Jumpstart Our Business Startups Act. The rules let companies raise up to $50 million from members of the public. As Galvin argued,with no specific qualification guidelines, everyone can be a “qualified” buyer, in which case the states should definitely play a role in oversight.
Massachusetts is not the only state suing over these issues. Another plaintiff, with its own securities lawsuit is the state of Montana. Galvin, speaking to Reuters, said that the two states want a U.S. appeals court to review the rules. The states claim that that the SEC violated congressional intent when opting to significantly lessen the states’ power to look at deals before they are sold to the public.
At Shepherd Smith Edwards and Kantas, LTD LLP, our job is to help investors of securities fraud recoup their investment losses. Over the years, we have helped thousands of investors get their money back.
Massachusetts securities regulator William Galvin sues SEC over small-company offerings, Investment News, May 26, 2015
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