US securities regulator Mary Jo White expressed strong support on Friday for rule proposals that the private funds and startup community feel would cripple their newfound ability to publicly advertise investment opportunities.
Speaking before the Managed Funds Association in New York, the US Securities and Exchange Commission chairman said the agency should “move expeditiously” towards adopting proposals that would require GPs and entrepreneurs to file forms 15 days before publicly discussing raising money and include certain legends and disclosures in their mass marketing material. The proposals also include a one year ban on any issuer from relying on Regulation D for non-compliance.
The proposals come as part of recent Reg D reforms the SEC was directed to make under the Jumpstart our Business Startups Act (JOBS Act). The bill lifted a decades old ban on general solicitation for private issuers that went into effect September 23.
“This proposal is designed, in part, to provide more transparency to enable us to better monitor the private placement market,” said White.
“It would enable us to learn more about the size of the market, those who conduct offerings, and the characteristics of those who are unsuccessful in completing an offering. It also would provide us access to the solicitation materials that are being used and better assure that investors are getting some baseline level of information about risks.”
Private issuers (including the private equity industry) say the proposals are too onerous to make general solicitation a viable option for them.
On proposals related to disclosures specifically, the Private Equity Growth Capital Council said in a comment letter that it could be difficult for private equity firms to know what types of communication should include boilerplate information without knowing what exactly the SEC considers general solicitation.
Moreover, a proposal for issuers to include up to date performance information on their public marketing material can be a tricky compliance task for an industry that only tracks portfolio valuations on a quarterly basis.
“This is an important proposal, and there are a lot of different views about it, so it is important to have an opportunity to consider these views,” said White, who added that issues raised during the comment process will be considered during rulemaking.
White also implicitly addressed arguments that the SEC should not dedicate limited time and resources to private equity supervision. In a letter sent to the SEC in September, Republican congressman Jeb Hensarling and Scott Garrett questioned the amount of benefit sophisticated investors receive from the SEC’s oversight of private equity and added such oversight is a compliance burden for the industry.
Without mentioning the letter directly, White said: “The question is legitimate and, as the head of a regulatory agency, I need to continuously assess whether our resources are being deployed in the most productive, cost-effective manner.
“That being said, the SEC has a mission of investor protection that runs across the investor landscape. It applies to all investors, and all investors in the US markets deserve to know that there is a regulator on the block, looking around corners and concerned about their interests.”