Private investments (Reg D offerings) are exposing investors to significant risks and regulators are fighting to get the situation under control. In a recent article in Investment News, Saras Hansard reported that state securities regulators are making progress toward their goal of regaining authority to regulate these private offerings. Congress preempted that authority by enacting the National Securities Market Improvement Act of 1996. However, state securities regulators have complained that the NSMIA increases the potential for fraudulent private placement offerings. Observers have criticized that decision, believing that state securities regulators are in the best position to deal with private placement offerings.
The Financial Crisis Inquiry Commission supports the efforts to provide greater oversight of private investments. The Commission was created by the Fraud Enforcement and Recovery Act of 2009. It is a ten-member commission appointed with goal of investigating the causes of the financial crisis of 2007-2009. Its assistant director and deputy general counsel, Thomas Krebs, is reportedly in favor of restoring state oversight authority over private placements. “There’s clearly a problem with offerings of securities, particularly those that are unregulated,” the article quoted Mr. Krebs, a former director of the Alabama Securities Commission
On Nov. 10, Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee, released a draft regulatory reform bill that would restore state oversight authority over private placements. “The Dodd draft is indicative that Congress realizes that NSMIA exposed investors to far more risk in private-placement offerings than Congress ever could have imagined,” said Denise Voigt Crawford, Texas securities commissioner and president of the North American Securities Administrators Association Inc.
The Senate is not likely to vote on its version until next year.
If the Financial Crisis Inquiry Commission gets behind restoring the states’ authority, however, it could sway Congress to do the same, experts said.
To deal with a concern of lack of uniformity of state regulation, state securities regulators are considering interstate agreements for a uniform method of handling the offerings, said Joseph Borg, director of the Alabama Securities Commission.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 30 occasions. Page Perry has regularly represents investors with losses in private investments. For further information, please contact us.