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State Regulators Urge SEC to Pause Rulemaking for 90 Days

NASAA says the coronavirus has paved the way for fraudulent activity, especially in the private markets.

During a meeting of the Securities and Exchange Commission’s Investor Advisory Committee last week, the North American Securities Administrators Association (NASAA) said the federal agency should put a pause on significant rulemaking for 90 days in light of the coronavirus.

The group is particularly concerned with the SEC’s proposed rule that would expand investor access to private securities. NASAA recently submitted a comment letter to the SEC, criticizing the proposed rule, arguing that it failed to offer any additional protections for investors or oversight on private markets.

“Because private securities transactions ostensibly sold pursuant to certain Rule 506 exemptions are not subject to review by federal or state regulators, these offerings are a vector for fraudulent offerings to masquerade as all types of investment opportunities,” said Christopher W. Gerold, NASAA president and chief of the New Jersey Bureau of Securities.

“We are particularly concerned that people will be pitched on private placements because they appear more stable because there is no secondary market, and they are not being re-priced on a daily basis, the same way that public securities are. Further, while we have a clear understanding of what’s going on in the public markets, the Commission should be deeply concerned that we have no real picture of what is occurring in the private markets.”

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