Mike Rothman, current President of the North American Securities Administrators Association, Inc. (NASAA) and Minnesota’s Commissioner of Commerce, in a written statement to Jeb Hensarling, the chairman of the House Financial Services Committee, expressed his strong opposition to the Financial CHOICE Act (Act). Rothman specifically opposes the proposed legislation’s enforcement and regulatory authority provisions. Additionally, he believes the Act’s capital formation provisions will inadequately protect investors. Rothman urged Congress to continue demonstrating its unwavering commitment to protecting main street investors by not undermining the important and overdue reforms implemented in the wake of the financial crisis.
Opposition to regulatory and enforcement provisions. Rothman acknowledged the bill’s provisions to enhance the SEC’s ability to impose meaningful civil penalties for certain securities law violations but said that the bill would significantly compromise regulators’ ability to effectively enforce financial laws and regulations. He particularly opposed Section 391 for mandating coordination between state and federal agencies on state and federal enforcement actions in order to avoid duplicative efforts.
He cited NASAA’s great concern about Section 391’s hampering the current voluntary state-federal collaborative framework, which could result in the SEC’s Washington bureaucracy being imposed on the states. Rothman, declaring that references to "state authorities" were both unnecessary in light of the existing voluntary collaboration, as well as wholly unworkable because of Supreme Court case law delineating state and federal law enforcement authority, requested their removal from Section 391.
Rothman also urged Hensarling to strike from the Act Section 827 which would prohibit the SEC from automatically disqualifying bad actors from Regulation D’s Rule 506 exemption. He remarked that Section 827 would go against Section 926 of the Dodd-Frank Act, which mandates that the SEC adopt rules excluding bad actors from Rule 506, which the SEC did in 2013. Rothman said, moreover, that Section 827 would run contrary to sound public policy and plain common sense by doing away with the preventative measure that blocked unscrupulous promoters from making fraudulent private offerings under Rule 506.
Capital formation provisions negatively impact investors. Rothman urged Hensarling to remove the following capital formation provisions, among others, from the Act because they would inadequately protect investors from financial fraud:
- Section 461’s language pertaining to venture exchanges that would preempt state regulation of "venture securities" listed on those exchanges;
- Section 466’s private placement improvement provision that would prohibit the SEC from adopting proposed rules implementing common sense reforms for Regulation D, Rule 506 offerings;
- Section 496’s language concerning national securities exchange regulatory parity, which would allow the SEC to designate any market or exchange as a federally "covered" exchange without considering the exchange’s standards or quality;
- Section 841’s language revoking the Department of Labor’s fiduciary rule that protects retirement investors’ assets from harm; and
- Section 860’s language codifying existing income and net worth standards of the accredited investor definition and directing the SEC to create new untested ways for persons to qualify as accredited investors.
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